CA Spot Markets, Pricing Shrink Dramatically

California electricity costs and volumes in the spot market dropped dramatically in June and the first two weeks of this month, according to state officials releasing figures during a conference call last week initiated by the governor's press secretary. The percentage of daily and hourly spot market purchases by the state has dropped to less than 10%, compared to 45% in May.

"We've virtually wiped out the spot market (through conservation and long-term contracts)," said David Freeman, the state's chief energy adviser. "On most days we have more kilowatt-hours chasing demand than there is demand."

The downward trend is evidence that critics of Gov. Gray Davis's plans were wrong, Freeman said. "These numbers are certainly within the budget we presented, and there was a lot of consternation when we were showing (in the spring) that we would buy electricity cheaper in June and July than we did in May; it seemed unbelievable to a lot of people."

As a result, Freeman said the Davis administration feels they will not need to raise private-sector utility rates any higher. "In my opinion, rates are plenty high enough to cover the needs for the foreseeable future. Utilities traditionally file for more than what they get."

Spot prices have averaged $82/MWh so far in July, compared to $271/MWh in May, according to B.B. Blevins, assistant director of the state water resources department's (DWR's) power buying program. Overall, prices averaged $133/MWh the first two weeks of this month, compared to $243/MWh in May. In May, the state was spending an average of $100 million/day for power; so far in July, the expenditures have been $30 million/day or less, Blevins said.

The state cut its power costs in half from May to June, spending nearly $2 billion in May and a little more than $1 billion for power last month, Blevins said. So far in July, the state had spent $368 million through Saturday, and it hopes to keep that figure well under the million-dollar mark this month.

Blevins attributed cooler-than-normal temperatures statewide for helping, as well as the federal wholesale price mitigation measures, but he attributed the bulk the success to a combination long-term power contracts and a concerted conservation effort. The latter two, he said, have given the state "greater control of the marketplace."

The declining numbers will be reflected in the DWR revenue requirements that will be submitted to the California Public Utilities Commission later this week as part of a complex process of establishing a rate agreement, designed rates and the revenue requirement to cover all of the state power buying costs.

"We're feeling pretty good about our estimates on revenue needs," DWR's Blevins said.

Freeman cautioned that there will still be "bumps in the road," but he noted that the current statistics indicate the state is "on the road to victory," adding that he does not think the long-term contracts need renegotiating, and he thinks the current relatively depressed wholesale prices now are an indication of just how "outrageous the nature of the overcharges of the past" were. "What this is saying is that they (merchant generator/suppliers) really took us to the cleaners, real bad," Freeman said.

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