Secret energy contracts could lead to higher bills

The Associated Press
Wednesday May 09, 2001

SAN FRANCISCO — Secret power deals Gov. Gray Davis is making with power generators to buy electricity eventually could wind up costing customers more money, a newspaper reported Tuesday. 

The San Francisco Chronicle said some of the more than 40 agreements contain a clause that lets power companies increase prices as their natural gas costs rise. 

That cost would get passed on to consumers, the newspaper reported, especially as analysts predict natural gas prices will climb when power generators compete for limited supplies in coming years. 

Davis has kept the details of the contracts secret to protect future negotiations, he has said. Not much is known about them except that they are for an average of $69 per megawatt hour for about 9,000 megawatts, enough to power about 6.75 million homes. 

The state is spending more than $50 million a day to buy electricity for its struggling power utilities, and the $13 billion in bonds earmarked for more power may not be enough to cover the costs of the contracts. Some of the contracts are for 10 years. 

The negotiator for most of the contracts, S. David Freeman, told the newspaper that the clauses were a “rare exception,” but also acknowledged that a number of contracts were finished after he left the position in early March. 

Analysts say the clause isn’t unusual, as power companies often demand a provision to meet the cost of fuel in order to minimize their risk.