State lowers estimate of energy costs 
Consumers might see rates decrease 
Lynda Gledhill, Chronicle Sacramento Bureau <mailto:lgledhill@sfchronicle.com>
Saturday, October 20, 2001 
?2001 San Francisco Chronicle 

URL: <http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2001/10/20/MN39027.DTL>

Sacramento -- The state lowered its estimate yesterday of how much it will cost to buy power -- suggesting that lower rates could eventually be the result. 

Officials of the Department of Water Resources said the state will need $17. 2 billion to buy power through the end of 2002 -- about 20 percent less than previously estimated. 

The agency began buying power on Jan. 17 when the state's three investor- owned utilities were no longer considered credit-worthy. At the time, prices on the spot market reached upwards of $450 a megawatt hour. Now, however, prices average $30 a megawatt hour. 

"Circumstances have changed," said Ron Nichols of Navigant Consulting, which is a consultant to the Department of Water Resources. "Conservation has helped, we think the DWR contracts have established reliability in the market. We have broken the back of the spot market." 

Earlier this year, the state signed 56 long-term contracts with various generators to purchase power. Those contracts, which were inked when prices were at their peak, have come under increasing fire from lawmakers and the PUC, 

and Gov. Gray Davis' administration acknowledged this week it hopes to renegotiate some of the pacts. 

But the contracts represent only about a third of the power the state needs every day. The rest comes from the spot market -- purchases made just a few minutes or hours ahead of when they are needed. Prices on the spot market have dropped, in part because the price of natural gas has taken a nose dive. 

It is unclear whether consumers will see any benefit from the lower power costs. If the projections hold, the state could either lower rates or scale back plans to issue $12.5 billion in bonds needed to pay for the energy purchases. 

At the same time state energy buyers trumpeted lower costs, they blasted the state Public Utilities Commission for a decision that they say could cost residential and small business consumers $8 billion. 

Administration officials and state Treasurer Phil Angelides said a PUC decision to delay the suspension of direct access -- the ability of large businesses to bypass utilities and contract directly with generators for power -- will shift higher costs to smaller customers. 

The PUC proposed the ban on direct access in June but didn't adopt the policy until Sept. 20. During that period, the amount of energy large consumers contracted for through direct access increased from 2 percent to 13 percent. 

"What's happened here is one of the most damaging things that has happened to consumers during the energy crisis," Angelides said yesterday. 

He urged the PUC to reverse its decision, setting the date back to July 1. 

But Lorretta Lynch, president of the PUC, said the delay was at the request of the administration and the Legislature. 

She also objected to Angelides' numbers, saying that the PUC estimates the direct access load at 8 percent. The commission is awaiting a legal opinion about whether it can make its decision retroactive to July 1, and action will be taken at the next PUC meeting, she said.