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Gov. Davis advisers say state on target with conservation

The Associated Press
Wednesday May 23, 2001

SACRAMENTO — Gov. Gray Davis’ energy advisers said Monday that the state is meeting its energy goals, despite doubts raised by Controller Kathleen Connell and other critics. 

Connell questioned whether the state can buy enough electricity cheaply enough to avoid borrowing more than the $13.4 billion already approved by state lawmakers. 

Davis’ experts said their estimates are conservative, though they rely heavily on Californians cutting back on their energy use this summer to help drive down prices. 

The estimates assume the state’s consumers and businesses cut total electricity use 7 percent, and the state already is hitting that projection, said chief energy adviser S. David Freeman. 

“That just knocks the stuffing out of the demand,” Freeman said, driving down prices as well. 

A 7 percent reduction in energy use saves the state far more than 7 percent on its power purchases, Freeman explained. That’s because it comes straight out of the state’s purchases on the spot power market, where electricity is far more expensive than power bought under long-term contracts. 

Spot prices have dropped “dramatically” the last two weeks, said Davis financial adviser Joseph Fichera. 

The state has paid well under $100 per megawatt hour during off-peak periods the last two weeks, administration officials said at a news conference. 

Fichera said that should help cut the average price to near the $195 per megawatt hour average Davis’ plan assumes. The officials refused to give specific price information or give the current average price. Davis earlier said the state has paid as much as $1,900 per megawatt hours during times of peak demand. 

In addition, the state on Tuesday will send Connell seven new power generation contracts that will help boost supply this summer, Fichera said. 

The state has in place contracts covering 43 percent of the power the state needs to buy this month, 66 percent of next month’s power needs, 48 percent in July, and 42 percent in August, Fichera said. 

He said Davis’ energy experts also have been accurate in predicting the amount of the state’s power purchases, despite Connell’s doubts. In April they predicted the state would spend $1.78 billion but actually spent $1.8 billion, a 1.4 percent variance, he said. He said this month’s predictions so far are proving accurate as well. 

Connell said that to date, less than 1 percent of the state energy purchases have been through long-term contracts, far short of the 11 percent assumed under Davis’ plan. She also said it seems unlikely that spot market prices will fall as demand increases during the hot summer months. And she questioned whether rate increases approved by the Public Utilities Commission will be enough to cover the state’s power purchases. 

Davis’ experts said she is relying on incomplete or dated information. However, the administration has declined to provide many details of its power purchases, arguing that it would give power generators a competitive advantage and drive up energy prices. 

Connell predicted the state will still need to borrow billions of dollars to keep its treasury afloat while it struggles to repay money it is spending to buy power for three cash-strapped utilities. 

Department of Finance spokesman Sandy Harrison said such short-term borrowing is common when the state experiences financial problems. The state issued $3 billion in revenue anticipation notes during the fiscal years of 1996-97 and 1997-98, though the need dwindled and finally disappeared last year as the state’s economy prospered. 

Connell said the state will need to issue $3 billion to $5 billion in short-term debt this summer or risk running out of money this fall until the long-term bond can be issued to repay the state treasury. 

She also said she will use her post on the state’s Board of Equalization to host a hearing next month on whether generators should be paying more property taxes because the value of their power plants has increased with soaring electricity prices.