Almost seven years after the Department of Water Resources took over buying electricity on an emergency basis during the 2000-01 energy crisis, the Assembly Utilities & Commerce Committee grilled department leaders about their plans for the remaining contracts. The January 22 informational hearing arose because of concerns by consumer advocates, Pacific Gas & Electric, and the committee chair about the financial wisdom in particular of the Calpine contract reworked in mid-December 2007. DWR estimated the Calpine/DWR deal renegotiated last month would save the state about $1 billion. However, it will cause PG&E to lose a continual flow of low-cost power, which is must replace with more expensive energy. The other downside for the utility is that it loses the ability to resell power it got under the deal it didn’t use. Mike Florio, The Utility Reform Network senior attorney, estimated that the reworked Calpine deal would cost PG&E ratepayers up to $238 million. Calpine is emerging from bankruptcy. As a part of its reorganization, it was forced to keep the state power contract, which, most agree, is below market cost. Lawmakers are unable to undo this or other contracts. However, the committee wants to make sure stakeholders and the public have a say in the agency’s valuation of any deal renegotiated. Chair of the committee, Assemblymember Lloyd Levine (D-Van Nuys), said he is concerned that the DWR may rework its contracts “without a whole lot of input” from public agencies. “I’m concerned we are heading down that road again.” During the 2000-01 energy emergency utilities were inching towards bankruptcy and lacked the cash to buy energy so the state quickly signed 56 contracts with power producers and marketers. Today, 26 contracts remain, representing about 25 percent of investor-owned utilities load, according to Levine. Legislators were told that DWR’s contracts were made in such haste that they didn’t always provide power to the right place at the right time and that grid reliability wasn’t always a concern. It was a time when the experiment of deregulation went haywire. The state stepped in, trading short-term electric supply without long-term policy context. Regulations have changed in the last seven years, however. The California Public Utilities Commission now has a resource adequacy plan that is supposed to cover for previously inadequate contracts. Committee members questioned department director Lester Snow on why his agency had not coordinated with the CPUC on electricity supply adequacy, as well as the California Independent System Operator on the new wholesale market redesign. In addition, according to the committee, the department has notified some that it wants out of the energy procurement business at the end of this year. Snow denied that his agency wants out. “It is sometimes an important part of government to take agencies to task for actions that may not have been the best decisions, even if the decisions cannot be undone, so that everyone continues to remember that ultimately they are working for the people of California and they are aware that people are paying attention,” according to committee consultant Edward Randolf. In an attempt to further underscore the reason for the hearing, Florio said the administration is trying to pave the way for direct access by pressuring the department to back out of the deals. “The not-so-hidden-agenda is to get DWR out of the business,” he told legislators.
