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Dan Walters: Secrecy marks power buying
(Published Feb. 7, 2001) California is embarking on a years-long, multibillion-dollar and potentially risky program of state electric power purchases as its primary response to a crisis that threatens to drive the state's utilities into bankruptcy, shut off power to California homes and businesses, and damage the state's investment climate.
Will it work? No one really knows, including Gov. Gray Davis and the other politicians who have decreed it.
What we do know, however, is that the program is being conducted behind a shroud of unprecedented secrecy that undercuts our traditional ability to know what politicians are doing with our money. And that secrecy will make it very difficult for the media and public to gauge whether the program is working and could mask political manipulation of the public.
The state already has spent upward of $745 million on short-term power purchases, burning through reserves at the rate of $40 million-plus a day, and Davis administration officials have refused to say from whom they are buying or how much they are paying. The rationale, whether real or contrived, is that if power sellers know what the state is paying, they'll manipulate the market.
"We see it happen every day," Tom Hannigan, director of the state Department of Water Resources, said Tuesday when pressed by lawmakers for some details of what the state is spending. The department is acting as the state's power-purchase agent. "Prices fluctuate by the hour," Hannigan continued in explaining the secrecy, "depending on how much money they think we have."
The state could be issuing $10 billion -- or even more -- in revenue bonds over the next couple of years to finance long-term power contracts. Administration officials have said that they could keep customers' rates relatively low if they can nail down enough juice in these contracts, but there are strong indications that the prices will be substantially higher in the early years than retail prices, with the bonds being used to absorb the difference in a form of deficit financing. Presumably, the bonds would be repaid later, when wholesale rates are lower, by keeping retail rates level, but many in the Capitol believe that rates will have to be raised, perhaps sharply.
It's impossible to judge whether the administration's scheme is economically feasible or just a bit of financial and political sleight-of-hand that would postpone inevitable rate increases until after Davis is re-elected in 2002, unless one has access to the details of the contracts now being signed.
The administration's intentions to maintain secrecy were signaled late Tuesday when the brief announcement of the first long-term contract was made with minimal detail. It said only that the "first round" of contracts would be for power deliveries beginning at 500 megawatts, rising later to as much as 5,000 megawatts, on "terms ranging from three to 10 years." The announcement quoted negotiator David Freeman as saying, "We are unable to discuss specifics of the contracts because we are still in the negotiating process, and it is not in the interest of the people of California to discuss prices or terms."
One wonders whether legislators who put themselves on the political knifepoint by voting for the purchase scheme will be satisfied by such a lack of detail, and whether the prospective buyers of the state bonds to finance the purchases will be given equally scant information. On the other hand, if legislators and bond purchasers are made privy to details that Davis wants to keep secret from the rest of us, what does that say about who's important and who's not?
Somehow the implied message to "trust us" doesn't ring true when it involves politicians who have already screwed up the situation so badly.
DAN WALTERS' column appears daily, except Saturday. Mail: P.O. Box 15779, Sacramento, CA 95852; phone (916) 321-1195; fax: (781) 846-8350; e-mail: email@example.com. Recent columns: http://www.capitolalert.com/voices/index_walters.html
-- Martin Thompson (firstname.lastname@example.org), February 07, 2001
This is becoming more bizarre everyday. California is spending 45 to 50 million bucks a day and in secret to boot. Why isn't there some outrage among the California public? It sure isn't showing up in the California media.
-- Martin Thompson (email@example.com), February 07, 2001.
Published Thursday, Feb. 8, 2001, in the San Jose Mercury News
Secretive power deals spur outcry WATCHDOGS WANT DETAILS OF COSTLY DAILY PURCHASES Greater disclosure to the public on negotiations would frustrate their efforts to get good electricity prices from energy companies because of effects on the market rates, state officials argue.
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.
-- Martin Thompson (firstname.lastname@example.org), February 08, 2001.