State's energy mix has improved, but could be better, audit says

By JENNIFER COLEMAN
Associated Press Writer

SACRAMENTO (AP) California officials improved the state's energy portfolio by renegotiating the state's long-term energy contracts, but could realize more savings, a state audit released Wednesday said.

Since the Bureau of State Audits first looked at the long-term energy contracts in 2001, the state has tried to renegotiate a large number of the deals originally worth $43 billion for electricity purchases over the next decade. Contracts worth $23 billion have been restructured, saving the state $5.2 billion, state energy officials say.

The audit said the renegotiated contracts helped the state by cutting the amount of power the state must purchase if it needs the electricity.

State Auditor Elaine Howle estimated the savings to ratepayers amounted to $1.5 billion over 20 years, because much of the savings came from shortening the length of contracts. The utilities will still have to buy power for their customers, but it could be at a lower cost, she said.

``One contract went out 20 years and it was shortened to 10 years,'' Howle said. ``We still have to buy the replacement power, we just won't have the contract anymore. Hopefully it cost less, but we have to factor that in.''

DWR spokesman Oscar Hidalgo said the department's savings estimate was based on how it presented the cost of the contracts, and the department never tried to translate that into customers' savings.

``Looking at replacement power savings over 10 years is not very reliable,'' Hidalgo said.

Additionally, the audit said the department could better coordinate with utilities on delivery of the electricity to save even more money. Department officials told auditors they didn't have access to data about the utilities own contracts, power plant production and forecasts for customer demand.

In January 2001, the state began purchasing power on behalf of three utilities that were near bankruptcy. State energy traders then signed the long-term contracts to escape the volatile and high-priced spot market.

While Gov. Gray Davis credited the contracts for taming the spot market, critics said the contracts locked the state into high-priced power for the length of the deals.

Davis since has challenged many of the contracts at the Federal Energy Regulatory Commission, saying that they were signed under duress.

FERC has not made a final decision about whether to help California and other Western states undo their contracts, but last week two of three commissioners said they were inclined to uphold the deals.

The renegotiated contracts improved the portfolio by restructuring the way some of the power is delivered, the state audit said. Additionally, the new deals shifted some purchases from Southern California to Northern California, which reduced the amount of surplus power in Southern California.

The auditor said many of the improvements to the contracts resulted in changes in forecasts of demands for electricity. For example, some utility customers are able to buy their electricity from alternate suppliers, so demand for the contracted power is lower.

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