The state of California has succeeded in cutting the price of long-term state power contracts signed with five companies during last year’s energy crisis, bringing savings of $3.5 billion on the original deals. Eight new contracts contain a 23 per cent price cut negotiated with Calpine Corp, High Desert Power Plant, and renewable energy providers Whitewater Hill, Cabazon and Capitol Power Inc. The new contracts also contain stronger language to ensure new generation gets built. Calpine’s contract, for example, allows the state to withhold grants or terminate deals unless certain construction milestones are met. Californian governor Gray Davis stressed that the revamped deals would not impact the reliability of power supplies or construction plans.

Calpine’s four contracts made up 25 per cent of the state’s total power contracts. Their longest deal, at 20 years, has been halved and two 10-year contracts have also been shortened to eight year terms. Calpine has also agreed to lower charges on some contracts and to deliver 12.2 million MWh of additional energy in 2002 and 2003. Attorney General Bill Lockyer has also ordered Calpine and Constellation to pay $8.5 million in penalties for electricity pricing violations during the crisis. This ends the state’s investigation into the two companies which agreed to renegotiate their contracts.

California’s Department of Water Resources (DWR) signed the original $15 billion, 20-year contracts as an emergency measure after three utilities amassed huge debts from high wholesale costs and ran into bankruptcy. Fifty-six long-term deals were signed. However, since then power prices have dropped from $300/MWh to less than half the $69/MWh average price featured in the contracts.

FERC is still to investigate allegations that power companies profiteered during the crisis. Mirant, Williams, Coral Power and Powerex are alleged to have broken the state’s Unfair Competition Act by failing to submit their wholesale rates to FERC for approval, and could face penalties of more than $1 billion. Other companies may also be investigated.