A renegotiated contract between Calpine and the California Department of Water Resources is expected to save the state $1 billion. However, the main beneficiary of the former deal, Pacific Gas & Electric, is livid. Reworking the must-take 1,000 MW agreement--which came with an annual fixed cost of $525 million--may raise the utility\u2019s ratepayer costs because PG&E must now buy replacement power. \u201cWe are deeply trouble and puzzled as to why your agency would literally give away up to hundreds of millions of dollars of value in a power purchase agreement,\u201d wrote Christopher Warner, PG&E attorney, in a December 12 letter to Tim Haines, DWR\u2019s California Energy Resources Scheduling (CERS) director. Under the revamped agreement announced December 12, on behalf of PG&E the state will buy only power it needs at times of high demand from the 180 MW Los Esteros plant in San Jose for the next two years. The annual cost of the peaking power is $4.4 million. PG&E loses a continual stream of low-cost power provided under the old contract. It was also a \u201csweet\u201d deal for the utility because it resold power it didn\u2019t need, according to Richard Grix, CERS assistant director. The renegotiated contract can be extended for up to five years. \u201cGetting rid of off-peak, must-take power can be a good thing, especially from a public policy perspective,\u201d said Erik Saltmarsh, former director of the Electricity Oversight Board. The original deal was signed during the frenzy of the state\u2019s 2000-01 energy crisis. Subsequently, the California Public Utilities Commission divvied up the costs of all the crises contracts, estimated at $42 billion, among the three investor-owned utilities. Regulators allocated 100 percent of the energy of the Calpine agreement to PG&E and divided its costs among the northern California utility, Southern California Edison, and San Diego Gas & Electric. PG&E paid only 42.2 percent of the contract\u2019s cost. Calpine, which has been mired in bankruptcy proceedings, attempted to have the deal voided. However, the state rushed in to keep the valuable deal intact. The latest agreement came as Calpine announced that a majority of its creditors agreed to back its bankruptcy reorganization plans. However, the DWR agreement was carved outside of the bankruptcy court proceeding. During contract negotiations, the water department urged PG&E to take over the contract \u201cbut it refused largely because of the built-in subsidies,\u201d--paying less than half the cost of the power under contract, said Grix. He added that his agency also tried to work out a deal in 2004 with PG&E that would provide a \u201cbetter product fit for them.\u201d Much of the continually generated 24-7 power was not used. Grix added that PG&E has a legitimate beef because the renegotiated deal is delinked from the bundle of crisis contracts. Thus, while it loses the benefit of the Calpine deal, it has higher power costs and still must pay its pro rata share of the other agreements. \u201cIt s real problem when you\u2019ve splintered things this much,\u201d noted Saltmarsh.