California Uber Alles!
quote.bloomberg.com
05/11 17:13
California Must Control Power Prices, Treasurer Says (Update1)
By Daniel Taub
Sacramento, California, May 11 (Bloomberg) -- California may be forced to seize power plants or place caps on the prices the state will pay for electricity to keep soaring costs under control, state Treasurer Philip Angelides said.
Since January, California has authorized $6.8 billion for electricity purchases on behalf of its three-investor owned utilities, Angelides said. That's more than double the $3.2 billion generators paid the state's utilities to buy 23 power plants in recent years. California required utilities to sell the plants under its 1996 deregulation law.
To control energy costs, California may use emergency powers to take over the operation of power plants, form a buyer's cartel with Western utilities, or cap prices it will pay, triggering blackouts if it can't get power at prices below the cap.
``This is not a radical notion,'' Angelides said during a news conference in Sacramento, California. ``This is a self- preservation notion.''
The state has spent about 70 percent of an expected budget surplus this year on power purchases. Governor Gray Davis yesterday signed a measure authorizing $13.4 billion in bonds to pay for energy. Under state law, those bonds cannot be issued for 90 days, and power purchases will continue to be paid from the state's general fund.
``We have spent almost all of this year trying to figure out how to pay the generators' bill. There is no plan that will get us through the summer unless prices are controlled,'' Angelides said.
Federal Caps
The U.S. Federal Energy Regulatory Commission has refused requests by Davis and other lawmakers to cap prices generators charge for power in the West. The agency last month approved a plan to let the state buy power at prices based on the generators' cost of doing business during shortages.
``It's not sufficient, it's not real,'' Angelides said, adding that the plan has too many loopholes for generators to avoid the price controls.
Angelides said that a review of 18 of the 23 plants the utilities sold to Duke Energy Corp., NRG Energy Inc., Dynegy Inc. and other generating companies concluded that the average weighted price of power generated by the plants would be about $110 to $150 a megawatt-hour with a 30 percent annual return on equity. California paid an average price of $285 a megawatt-hour in the first three months of the year, the treasurer said. One megawatt- hour can light 750 typical California homes for an hour.
Rate Increases
Under the legislation authorizing the bond offering, the California Public Utilities Commission must carve out a portion of customer rates to repay the bonds. If wholesale power prices are high this summer, customer rates may need to rise above the increases the commission already has approved.
``If we don't knock the generators back, what is going to result is rate increases on the order of triple digits,'' Angelides said.
California wouldn't be paying such high prices for power if the state had allowed utilities to enter into long-term contracts, said Jan Smutny-Jones, executive director of the Independent Energy Producers, a lobbying group for generators in California. The utilities had been barred from making such contracts under the state's deregulation laws.
``The simplest, quickest and most direct manner to protect against high prices is long-term contracts,'' Smutny-Jones said. ``The fact of the matter is generators have been out there for over a year now offering long-term contracts.'
If I owned any of the independant power generating cos, I'd be appalled that they would even contemplate doing business in an environment like this. There's plenty of not-so-clownish bucks to be made selling electricity to the rest of the country, IMO....
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