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Governor may be ready to renegotiate power contracts

By Alisa Weinstein and Gina Comparini Special to the Planet
Saturday October 20, 2001

Under mounting public pressure, the Davis administration moved Friday toward renegotiating California’s costly, long-term power contracts, but refused to say what negotiations would mean to ratepayers. 

“We are analyzing the contracts we believe are ripe for renegotiation,” said Davis spokesman Steve Maviglio. “We are developing a strategy to renegotiate them.” 

Davis entered into the contracts at the height of the power crisis last spring and paid top dollar to secure long-term power supplies for the state. But with power prices considerably lower now, the Public Utilities Commission and the Legislature say Davis is locked into costs that are too high.  

The Davis administration’s acknowledgment of renegotiation possibilities is the first sign in months of a compromise that could end the feud over how to repay the state budget for the cost of keeping the lights on in California. 

The tension between state officials and the Public Utilities Commission spilled over in Oakland on Thursday at an Association of Bay Area Governments’ conference on energy and public policy.  

Speaking to local officials, business representatives and utility managers, State Treasurer Phil Angelides implored the PUC to approve a $12.5 billion bond sale that would help repay the state’s general fund. 

“Every day they don’t (approve the bond measure) they are sending this state into… fiscal crisis,” Angelides said, predicting more than a $10 billion deficit for California if the PUC hesitates.  

A defensive PUC President Loretta Lynch characterized the bond offering as “clunky” and said it would face litigation over the long-term power contracts the state signed with energy companies during the power crunch. She also bridled at the prospect of approving a bond sale that would force the commission to cede much of it’s authority to set utility rates. 

Citing the PUC’s historic role of protecting ratepayers, Lynch argued that consumers would be forced to pay a higher price than necessary for energy, which is why the long-term contracts must be renegotiated. 

The Angelides-Lynch exchange came as regional government associations warned the state that indecision over the role of market forces and regulation could lead to higher power costs, tax spikes and a less attractive business climate. 

“A clearer and more consistent set of rules is necessary to achieve regulatory stability and to send consistent signals to the market,” a report by ABAG, the Bay Area Council and the Bay Area Economic Forum stated. 

The report cited other industries’ successes with deregulation and urged policy makers not to abandon the idea for the power industry. Transition to deregulation can be challenging, the report said, but benefits of competition are “lower and more efficient prices, more efficient operating and investment decisions and improved product choice and service quality.” 

Thursday’s conference also covered the prospects for municipal power. 

Managers from municipal utilities in Alameda and Palo Alto, and representatives from the California Municipal Utilities Association told attendees that historically, the success rate of municipal power is varied.  

They urged city officials not to rush into municipalization, saying they should carefully weigh start-up costs against the long-term benefits of independent power sources. 

Neal DeSnoo from the Berkeley Energy Office said the City Council is waiting for a feasibility report from East Bay Municipal Utilities District before making any decisions about bringing municipally owned power to Berkeley.  

The council has been looking at EBMUD as a possible electricity provider, because the public utility’s structure is already in place and because it is an experienced provider of electrical power. 

“I think the overwhelming sentiment is people don’t want to be subject to the whims and the powers of these larger power generators,” DeSnoo said. “They want to take control over their own destiny.”