A combination of above-market priced, long-term contracts and demand-side programs is the best formula for avoiding a return of high prices and power blackouts, the California Consumer Power and Conservation Financing Authority concluded at a recent board meeting in Sacramento. It is pointing the state toward achieving reserve levels of more than 20%, with ideally half coming from the demandside.

As part of its still developing role in assuring adequate reserves, the power authority board is considering asking the California Public Utilities Commission eventually to designate a portion of the major private sector utilities’ retail rates to the authority to fund its ongoing programs. Those programs have been hamstrung so far for the 18-month-old agency because it has no credit-worthy partners with which to use its state legislative-mandated $5 billion in public borrowing authorization, given the current depressed finances of both the utility and merchant sector companies.

The power authority concluded that either the private sector utilities need to step up and make new longer term power deals or the utilities and merchant power plant developers need to do deals with the state power authority and use some of the low-cost financing available to a public sector entity.

AES Corp., struggling financially and needing just $5 million to complete some environmental protection equipment upgrades at one of its units at its Huntington Beach, CA, power plant, indicated it would be willing to talk with any public or private sector entity willing to provide the remaining funds to get the state-of-the-art air pollution equipment installed, according to a recent report in the Los Angeles Times.

The key for generators like AES in upgrading existing plants or building new ones is getting the bulk of their output tied up in long-term contracts.

“We have had companies come in and talk to us in the last few days, saying they are losing money operating their old plants and they can’t keep it up without contracts,” said the power authority’s head S. David Freeman, as quoted in the LA Times report. “We’re vulnerable to being manipulated again, perhaps even legally.”

Although it is still trying to figure out how to do it, the state power authority is clear it has the responsibility to make sure reserves are high enough to avoid another power supply/price crisis like the one in 2000-2001.

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