Richard and Gary:

I thought you both might be interested to learn that CDWR was unable to establish the cost of power that it sold because it doesn't separately track the purchase price and sales price for each megawatt.  It seems unreasonable for the State to be insisting that marketers produce costs for power sold to California when the State does not or cannot track that data for its own power purchases and sales.   I underlined the relevant passages in the LA Times and San Jose Mercury Stories below.

Regards,

Steve


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Surplus Power Sold at a Loss
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Electricity: Cool summer and effective conservation efforts result in excess supplies. Industry officials say it's a routine move.

By NANCY VOGEL
TIMES STAFF WRITER

July 24 2001

SACRAMENTO -- Caught with an excess of electricity as a result of cool weather and heavy conservation, the state government sold power at a loss approaching $14 million in the first 16 days of July.

The loss amounts to roughly 3.5% of the total amount the state spent on power during that period.

To keep power flowing to 27 million Californians, the state purchased 3.5 million megawatt-hours at an average price of $118 per megawatt-hour, according to the state Department of Water Resources. It sold off 177,000 surplus megawatt-hours at an average price of $36.95 per megawatt-hour. Department of Water Resources Director Thomas Hannigan disclosed the details in response to an inquiry by Assemblyman John Campbell (R-Irvine).

The sales of surplus power "get to the issue of, do these people really know what they're doing? Are they really competent to be managing this to the lowest cost for the ratepayers?" Campbell said. "It reinforces to me that we should get the state out of doing this as soon as practically possible."

Industry officials, however, say it is routine for utilities and electricity companies to at times find themselves with more electricity than their customers need. They either sell the power at a loss, work out an exchange of power or give it away.

"It's not all that uncommon for utilities to be buying one day and selling the next," said one Pacific Northwest trader who asked not to be identified because his company does not permit him to talk to reporters. He said a rule of thumb in the industry is to match supply to demand within 1% to 2%, although "5% on a load like California isn't that much."

Assemblyman Roderick Wright (D-Los Angeles), chairman of the Assembly utilities committee, said he did not see a problem with DWR's power sales.

"Right now the summer is cool," he said. "If this had been a normal July, we would have used all that power."

"The worm could have turned the other way."

Department of Water Resources spokesman Oscar Hidalgo said the state's crew of 15 power purchasers found themselves selling a "very minimal" amount of electricity in May. In June, more power was sold, but less than was sold in July, he said. The department has not released those figures.

Department officials expect the sales to stop if temperatures heat up later this week.

The water department was thrust into the role of buying 30% to 50% of the state's overall electricity in January after the state's major utilities became so financially crippled by high wholesale electricity prices that energy companies refused to sell to them.

The department has so far spent roughly $8 billion of taxpayer money purchasing power that is sent to the customers of Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric.

Hidalgo said the sales show that the water department has stabilized the state's electricity market. The average price the department has paid for a megawatt-hour is falling, from $271 in May to $119 in June to $89 so far in July.

"If we were out scrambling for power right now," Hidalgo said, "the market would reflect that and adjust to it, and we would most likely be paying much more in overall purchases."

Campbell said he assumes the department sold its most expensive, marginal megawatts of power. But Hidalgo said that is not necessarily so. The department does not track what it paid for the power it sells, he said.

The department's statement to Campbell shows sales to 25 different companies, including the federal Bonneville Power Administration, the Los Angeles Department of Water and Power, and several private energy companies that bought power plants from California's utilities under the state's 1996 deregulation scheme. Those firms include Dynegy Corp., Reliant Energy, Mirant Corp. and Duke Energy.

Copyright 2001, Los Angeles Times


	    Figures show state lost big on extra power  Posted at 9:53 p.m. PDT Monday, July 23, 2001  BY JOHN WOOLFOLK   Mercury News    State figures show California may have lost about $14 million this month selling surplus electricity for less than it cost.  The Mercury News disclosed last week that some power was being sold at a loss. But the new figures provide the first indication of just how much excess power the state bought in its desperate effort to avoid blackouts -- and how cheaply some of that power was sold when it turned out not to be needed.  A Republican lawmaker said Monday the loss also shows Democratic Gov. Gray Davis' energy policies are needlessly costing consumers.  ``This whole thing is a mess,'' said Assemblyman John Campbell, R-Irvine, who requested details of the state's surplus power sales. ``The government needs to get out of the power business before it costs Californians even more money.''  A state spokesman didn't dispute the $14 million figure outright but said it is an approximation based on average prices and that the actual loss probably is less.  ``It's a number I'm sure he likes very much, but it's definitely an estimated number, and it could be far lower,'' said Oscar Hidalgo, spokesman for the state Department of Water Resources.  Campbell responded that the loss also could be higher.  The state has spent $415 million on power so far this month.  State officials last week confirmed that cool weather and consumer conservation have left California holding more power than it needs. The revelation was a stunning turnaround for a state that months ago was paying top dollar for power, expecting shortages this summer.  Price that was paid  The state bought 3.5 million megawatt-hours of electricity for July at an average price of $118 per megawatt-hour, according to a response Friday by the Department of Water Resources to Campbell's inquiry. The state has sold 178,000 surplus megawatt-hours in July at an average price of $37, the department said.  Based on those average prices, the state paid $21 million for the surplus power, which it sold for $6.5 million -- $14.5 million less than it cost.  A more precise calculation of the state's loss is difficult because purchased power is acquired at different times and prices and pooled as a ``portfolio.''  Purchases included long-term contracts that averaged $138 per megawatt-hour as well as cheaper spot-market buys.  State officials last week said they were selling surplus at $15 to $30 a megawatt-hour, while some traders cited unconfirmed sales as low as $1.  Hidalgo noted that the surplus sales represent just 5 percent of California's July purchases, which totaled $415 million. The $6.5 million from sales will help lower the state's power bill, he said, adding that utilities routinely sell some extra electricity.  ``Despite the fact that we're in somewhat of a surplus, any power-buying operation in the world is going to have to plan for these types of situations,'' Hidalgo said. ``It's not unique, and in fact it's normal operating procedure for any utility.''  Other Western utilities, including Portland General Electric in Oregon, have said they, too, are selling some surplus power at a loss and describe it as a cost of doing business.  The suppliers buying the state's surplus electricity on the cheap include the big out-of-state energy companies that the governor has called price-gouging ``snakes.'' Among them are Duke Energy, Dynegy Power and Marketing, El Paso Power Services, Mirant, Reliant Energy and Williams Energy.  `Best bid' taken  Hidalgo said the state took the best offers it could find.  ``It's only reasonable to get the best bid you can,'' he said.  Campbell said the $14 million loss is troubling because ratepayers or taxpayers will have to cover the cost, whereas a private utility could be forced to eat the expense if regulators determined it was unreasonable.  State officials say what's more important is that the overall cost of power is dropping, from an average daily tab of $64 million in May to $25 million this month, in part because the state has so much power.    Contact John Woolfolk at jwoolfolk@sjmercury.com <mailto:jwoolfolk@sjmercury.com> or (408) 278-3410.  # # #		
 


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