Secretive power deals spur outcry

Published Thursday, Feb. 8, 2001, in the San Jose Mercury News BY JOHN WOOLFOLK

Mercury News

Secrecy surrounding California's costly foray into the electricity business is sparking alarm as the state spends nearly $1 billion for power but refuses to tell taxpayers how that money is being spent.

With outcry building for greater public disclosure, government watchdogs and many Republicans are demanding details about what the state is doing with the roughly $45 million it is spending on power every day.

``It's outrageous,'' said Kent Pollock, executive director of the California First Amendment Coalition. ``The Davis administration is negotiating to spend taxpayer dollars in titanic proportions and not revealing any details.''

State Controller Kathleen Connell had planned today to begin posting the state's daily electricity purchases on the Internet, but that set off alarms in Gov. Gray Davis' administration. Officials feared such disclosure would frustrate their efforts to get good electricity prices from energy companies.

``The more information we give away, the easier it is to game the market and the higher prices ratepayers will have to pay,''said Davis spokesman Steve Maviglio.

Connell dropped those plans late Wednesday under pressure from the Davis administration.

``We've talked to her office, and they seem to be in sync with how important it is to keep that information confidential at this juncture,'' Maviglio said.

California began buying power for the state's largest utilities, Pacific Gas & Electric and Southern California Edison, under a Jan. 17 emergency proclamation from Davis. Energy companies had threatened to stop selling power out of concern that the utilities couldn't pay as rising electricity prices pushed them toward insolvency.

The emergency order authorized the state's Department of Water Resources to buy power for the utilities out of its $450 million electricity budget. Emergency legislation signed two days later gave the department $400 million to continue buying power.

State officials have declined to say how much the water department spent out of its own budget buying power, but will say the $400 million appropriation lasted 10 days.

The water department had to dip into its budget again for two days until last Thursday, when another law provided a $500 million loan and authorized the agency to negotiate long-term power contracts.

That money is expected to run out by next Thursday. In a letter to lawmakers Tuesday, Davis said he may request another $500 million to cover ongoing daily power needs.

Administration officials are continuing to negotiate long-term power deals but have revealed little about them. The law allows the state to float up to $10 billion in revenue bonds for the contracts. But Maviglio said the state will not disclose details of the deals, saying other major public utilities have similar policies.

The administration has said only that they received 39 bids averaging 6.9 cents a kilowatt-hour and reached agreements for up to 5,000 megawatts of power in contracts ranging from three to 10 years. That's more than the state had wanted to pay for power and only a fraction of the electricity California needs.

State officials initially reported their daily power costs, but stopped after a few days, blaming the disclosure for an unspecified rise in prices offered by energy companies.

``We saw a dynamic in the market we didn't like,'' said department spokesman Mike Sicilia. ``We feel it was attributed largely to the fact that we were giving out too much information.''

The only detail since then came when an administration official told a legislative committee last week that power was costing the state $45 million a day.

Because California's energy situation is unprecedented, administration officials argue the unique circumstances warrant caution over disclosure.

``This is uncharted territory,'' Sicilia said.

State and local governments have been in the power business for over a century, with more than 2,000 public utilities nationwide. But several distinctions make comparisons with California difficult.

For one thing, no municipal utility comes close to buying power on the scale of California, and at a time of such heightened public interest.

The nation's largest public utility, the Los Angeles Department of Water and Power, has 1.4 million customers. But state officials are buying electricity for six times as many people -- the nearly 9 million customers of PG&E and Southern California Edison.

Payment details from such a large customer could have a greater effect on market prices than they would with a smaller agency, said John Roukema, assistant director of Silicon Valley Power, Santa Clara's utility.

Most public utilities also generate much of their own power, while the state is forced to buy huge amounts on the market, making it much more vulnerable to price swings, Roukema said. Given the circumstances, the state's caution seems warranted, he said.

``If you're trading in the short-term market, it's probably less wise to be disclosing prices,'' Roukema said. ``And if there are active negotiations going on, it may just make good business sense to hold some of that information.''

Silicon Valley Power, which generates 40 percent of its power and buys the rest in long-term contracts, doesn't disclose daily details of its payments. It reports its average costs for power -- 4.5 cents a kilowatt-hour -- and gives quarterly budget updates to the Santa Clara City Council, Roukema said. One-on-one deals with power suppliers are protected by confidentiality agreements, he said.

But Roukema added that no one has ever asked for details beyond what customers are being charged. ``That's the number we report because that's the number that affects them,'' Roukema said.

Contact John Woolfolk at jwoolfolk@sjmercury.com or (408) 278-3410

-- Swissrose (cellier@azstarnet.com), February 08, 2001