Conservation, cool temperatures and more long term contracts have pressured power prices lower in California to the point where generators “are having to compete for first time in months to sell us energy,” Ray Hart, deputy director of the California Department of Water Resources (DWR) said Thursday.

“There is liquidity in the market now. We’ve been able to push back, and prices have taken quite a tumble.” Hart, in a teleconference briefing, said DWR has improved its long term contract position to the point where it now has signed long term contracts covering nearly 50% of its net short requirements in the peak market. The chief power buyer for much of the state, as of May 31 had 38 signed contracts, up from the 24 announced in its last update, April 18. It also now has 23 agreements in principle, although Hart said he did not expect all of those to result in final contracts. The contracts (including tentative ones) represent 10,950 MW of average annual capacity through 2010, up from 9,725 MW in the last report.

And the price has gone down. The average purchase price under the combined contracts for the remainder of 2001 dropped from $284/MWh in the last report to $138/MWh at the end of May. The average cost over the ten-year life of the contracts stands at $70/MWh.

Also, adding to the price downturn is the return to operation of two nuclear power plants, which are contributing 2200 MW and additional power from qualifying facilities. The QF outages, which took 2,000 MW offline during April, currently have only 600 MW out, which Hart said “is about normal.”

Conservation is cutting demand by about 11%, Hart advised, saying all those factors “are taking a significant chunk out of the spot market that we used to have to buy on a daily basis.”

Nancy McFadden, an assistant to Gov. Gray Davis, also credited “increased scrutiny of the behavior of generators,” and “turning up the public heat,” for deflating power prices. Both Hart and McFadden, however, said the current prices do not mean the problems are over. If the state has a stretch of “super hot days, I fully expect prices will be much higher. We still need a price cap,” Hart said.

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