California plans to ask federal energy regulators to reverse power contracts

SAN FRANCISCO (AP) _ Back during the peak of the state's power crisis, California officials scrambled to negotiate long-term electricity contracts for customers. Then the crisis passed. <br><br>Now

Monday, February 25th 2002, 12:00 am

By: News On 6

SAN FRANCISCO (AP) _ Back during the peak of the state's power crisis, California officials scrambled to negotiate long-term electricity contracts for customers. Then the crisis passed.

Now two state agencies _ the Electricity Oversight Board and Public Utilities Commission _ want to ensure that Californians weren't overcharged by roughly $21 billion.

The agencies planned to appeal Monday to the Federal Energy Regulatory Commission, which oversees wholesale electricity sales. That could give the state leverage in its efforts to renegotiate the contracts with power companies.

It could also lower electric bills, which would boost Gov. Gray Davis' approval ratings as he seeks a second term in November.

At issue are deals with 22 power sellers, including subsidiaries of Mirant, Dynegy, Williams and Calpine.

The state has pledged more than $40 billion for the contracts, which consumer groups and state utilities commissioners alike have called overpriced and unfair to ratepayers.

Davis has defended the contracts, saying California struck the best deals it could at a time when skyrocketing prices left power sellers holding all the negotiating power.

``We got the best contracts we could at the time. That's not to say, however, that they were the best contracts or the fairest contracts that we could have gotten had FERC been doing its job,'' said Barry Goode, chief counsel to Davis.

Energy sellers said Sunday that the state's complaints are without merit, and that Wall Street and companies that do business in California are paying close attention.

``Are they going to honor their contracts? Are they going to be a state that companies want to do business with or not?'' said Doug Kline, a spokesman for Sempra Energy.

The state Public Utilities Commission accused Sempra of charging almost 250 percent more than competitors for power at times of peak demand. Kline says that amount has been taken out of context and that the company would welcome a review by federal regulators.

The state began negotiating power deals in January 2001, after skyrocketing power prices left private utilities unable to buy electricity for their customers.

Market prices, however, fell in June, making the long-term contracts expensive in comparison. The contracts were designed to escape spot market prices of $300 per megawatt hour or more. The contracts had average prices of about $88 per megawatt hour, which is roughly three times more expensive than current spot market prices.

The contracts _ which will help keep electricity flowing over the next two decades _ ultimately will be paid for by customers of Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric.

State officials hope their plea to FERC may be better received considering the December bankruptcy of Houston-based Enron. The company aggressively lobbied FERC, Congress and other agencies to promote energy deregulation.

FERC Chairman Patrick H. Wood III promised a congressional committee earlier this month that his agency would probe whether Enron and other firms manipulated the state's power market.

Former Los Angeles Mayor Richard Riordan, a Republican candidate for governor, dismissed the plan Sunday as ``another typical Gray Davis ploy to put the blame on somebody else.''

``Why doesn't he just have the courage to sit down with the people on the other side of these contracts and work out major changes on the contracts?'' Riordan said.

``These people have got to realize that if they're not good citizens, if they're taking advantage of selling energy five, ten times what the current price is, it's not good for them in business,'' Riordan said.

Davis spokesman Steve Maviglio said the state is continuing its efforts to renegotiate the contracts.