California meets its crisis on several fronts California Governor Gray Davis has announced the signing of 40 long term energy contracts with electricity suppliers amounting to an average rate of nearly 8900 MW over the next ten years. The new contracts are part of the state’s plan to keep power flows under control despite the near bankrupt state of its two biggest electricity utilities. Under new legislation California is planning to spend 410 billion over a decade to buy power for customers of Southern California Edison and Pacific Gas and Electric., necessary because the utilities’ credit rating is practically zero. For the first five years power will be provided at an average price of $79 per MWh, about 75 per cent below recent spot energy prices; the price later drops to $61 per MWh.
The contracts involve more than 20 suppliers, including Duke Energy, Calpine, Enron and, possibly, Reliant, who have been named by the governor’s office but are denying any contract. Duke has reached a $4 billion agreement to sell electricity to the state during the next nine years, while Dynergy Inc and NRG Energy affiliates El Segundo Power, Long Beach Generation and Cabrillio I have entered into a three year agreement with the California Dept of Water Resources to provide the state with 1000 MW of energy for the rest of the year and 2300 MW thereafter until 2004.
Meanwhile Congressional Democrats from the Northwest, which is suffering knock on effects from the California crisis, and California itself, have been expressing dissatisfaction at the Bush administration’s refusal to temporarily cap wholesale electricity prices in the West. They are accusing wholesalers of market manipulation, and the Federal government of making a “pathetic disaster” of coming to the aid of western states. In any event whatever aid is forthcoming it is unlikely to involve price capping – President Bush and vice President Cheney are known to be strongly opposed to price controls in energy markets in California or anywhere else.
Other element’s of Gray Davis’ plan to stave off further crises include buying up parts of the transmission grid owned by the troubled utilities, and a tentative agreement has been reached with Southern California Edison which would see the state pay $2.76 billion for the SCE’s transmission lines and an undertaking to sell it electricity at well below market prices for ten years. The US Federal Energy Regulatory Commission may, as the federal regulator, have something to say about the deal, but are waiting to see the details.
