Little power demand makes California give some away

Oct 26, 2001 02:00 AM

Demand for electricity in California has been so slack at times that the state has had to give away power and even pay utilities to take it, state financial records show. The state altogether lost about $ 26 mm in its first three months of trading power on the daily wholesale electricity market as demand and prices declined, documents released indicate.
The figures reflect a dramatic shift in market conditions from earlier this year when the state couldn't find enough power to buy on the spot, let alone sell. "Before, we had to buy all the power we could and we still came up short, and that's when we saw some (price) gouging," said Oscar Hidalgo, spokesman for the state Department of Water Resources, which has intervened as the power buyer for utilities.
Beginning in May, demand softened and prices gradually dropped as more generators came on line in peak hours and consumers heeded calls for conservation -- despite an unseasonably warm May -- energy analysts say. The state's entry as the biggest buyer in the California power market also tamed spot prices as it began to secure long-term power contracts.

The state's electricity purchases totalled $ 1 bn in June compared with $ 2 bn in May, primarily because of declining prices, Hidalgo said. But the softening market also hurt the state when it turned around and sold power at prices significantly lower than what it was charged. The losses fuel critics who want government out of the power-buying business, saying it's better left to private corporations structured to maximize profits. "They're selling electricity that taxpayers paid for at 10 cents on the dollar," said Harvey Rosenfield of the Foundation for Taxpayer and Consumer Rights.
Officials say the success of Gov. Gray Davis' power-trading program should be judged not by quarterly sales, but by whether its goals of taming prices and averting blackouts have been met. By that measure, they said, the program is succeeding.
The state began buying power in January but didn't begin selling it until April when the daily scramble to meet California's power needs eased. The records released show the state sold 224,871 MWh during the three-month quarter that ended June 30. Spot sales averaged $ 45 per MWh.

The average includes days when power went for next to nothing, or nothing at all. State traders found themselves in the position of having to give away a total of 1,415 MWh. They found no takers and wanted to avoid paying penalties that the operator of the state's power grid charges for dumping surplus electricity, Hidalgo said.
A few times the state had to pay a utility to take the excess power. On May 28, for example, the Los Angeles Department of Water and Power charged the state about $ 33,000 to take 2,175 MWh of electricity off its hands, the records show.
Although the losses aren't out of the ordinary for a large power buyer, the numbers for April-June indicate that bigger losses are in store, said Gary Ackerman, a spokesman for power generators and traders. Ackerman said the third quarter, July through September, when the state experienced a major power glut, will almost certainly reveal heavier losses.
The state withholds public release of its quarterly figures for three months to protect its negotiating power. But earlier this year it revealed power transactions for the first half of July indicating it had lost $ 14 mm.

Source: Sacramento Bee
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