California DWR reveals details about long term power contracts

California Department of Water and Resources (DWR) Monday broke its silence about how much power the agency has locked into long-term contracts. Questions had swirled for months if the DWR had sufficient contracts to supply power to the states utility customers while the utilities are restored to financial health. DWR officials said 66% of the net short for the month of June was under long-term final contract; 48% for July; and 42% in August.


by Ann de Rouffignac
OGJ Online

HOUSTON, May 21 -- California Department of Water and Resources (DWR) broke its silence about how much power the agency has locked into long-term contracts. Questions had swirled for months if the DWR had sufficient contracts to supply power to the states utility customers while the utilities are restored to financial health.

In figures revealed Monday at a press conference, DWR officials and Joseph Fichera, energy advisor to Gov. Gray Davis, said 66% of the net short for the month of June was under long-term final contract; 48% for July; and 42% in August. The agency has a number of agreements-in-principal in place that if converted to final contracts would up those figures to 73% for June; 67% July; and 60% for August

The DWR was given the responsibility of buying power for the bankrupt and near bankrupt utilities by the California State Legislature. The DWR was instructed by the legislature to buy all the so-called "net short," or the difference in the amount of power self-generated by the utilities and the amount required to serve customers. The utilities, with junk bond credit ratings, could not finance the borrowings required to continue purchasing power to meet the demand.

The power purchases will be funded with a $12.5 billion bond issue to be serviced by revenue from ratepayers. The legislature intended that the DWR buy as much power through long term contracts to minimize purchases on the volatile spot market and to relieve the California Independent System Operator from scrambling to buy so much power at the last minute, running up the state's energy bill.

DWR has submitted 25 contracts from 17 different entities so far to the controller's office for payment. Seven more contracts will be forwarded to the controller Tuesday, said Fichera.

The agency gave exact figures for state expenditures on power for April only. The DWR spent $1.08 billion on power but projected $1.78 billion, officials said.

Critics have said the state's record bond issue will fall short by February 2002, if spending continues at that same rate.

DWR said the effects of conservation should kick in soon and that would have dramatic impact on the net short and DWR's purchases.

"If we achieve 7% conservation, the net short is reduced by 21%. If we get only 5%, we get a reduction by 15%," said David Freeman, one of the governor's advisors.

Freeman said the DWR is assuming demand can be cut by 7% from conservation. That is conservative because in February the state cut demand by 8%. In March and April demand was down 9%. This savings was before recently announced conservation programs kicked in.

"With conservation we can knock the stuffings out of the net short," said Freeman.

Other details about the contracts were considered proprietary and not released. The DWR has been criticized by California Republicans for not revealing how much is being spent on power, said Jamie Fisfis, aide to Assemblyman Dave Cox (R-Fair Oaks).

Contact Ann de Rouffignac at Annd@Ogjonline.com

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