California Gov. Gray Davis said Monday that the state has signed40 long-term power deals with 20 companies for 8,800 MW over thenext 10 years at an average price of $69/MWh, giving the state whatthe governor estimates are 65-70% of its peak power-demand needsthis summer. Together with a projected 10% reduction in demand anddeals still in the works that involve another 6,000-7,000 MW, thegovernor said he thinks California may be able to squeak by withoutrolling blackouts.

Suppliers include: Dynegy, Enron, Reliant, Sempra Energy,Merrill Lynch, Morgan Stanley, El Paso, Constellation, Panda, CalPeak, Avista, PX BFM, PacifiCorp and Primary Power, in addition toCalpine, Williams and Duke, who were included in earlier deals. Forthe first five years, the average price is $79/MWh, according tothe governor, who calls it “75% below the recent spot marketprices,” dropping to $61/MWh for the last five years. BonnevillePower Administration (BPA) and Powerex have seasonal powerexchanges as part of the deals.

Another 11 short-term contracts have been signed, said Davis,noting that his negotiation team has helped lower the average spotpower price by more than $100/MWh over the past month ($330 MWh endof January vs. $228/MWh end of February).

“We got into this problem in the state and we are going to getout of it in the state,” the governor said, reiterating the needfor massive conservation that he plans to push harder later thismonth. “We’re very serious about reducing the amount of power weconsume (this summer), which in turn will affect the price and thegap between what we purchase and what we need.”

Davis also mentioned that “good progress” was being made in theseparate negotiations with the three major private-sectorutilities, but there were still no signed deals for the state tobuy the transmission systems and secure long-term power supplydeals at below-market rates.

He also said at this point the state “still does not have allthe answers,” and that a massive conservation effort will beneeded. Davis reiterated his intent to “stabilize” retailelectricity prices, and that during the length of the newcontracts, consumers will ultimately have to pay “a little bitabove market prices” but they will know what they are going to pay.The new contracts are within existing utility retail rates, whichDavis clarified include a temporary penny-per-kilowatt rateincrease in effect since January that he expects state regulatorsto make permanent later this month and another 10% hike called forunder the state’s existing electricity restructuring law.

Duke Energy announced Monday it has a memorandum ofunderstanding (MOU) with California’s water resources department toprovide long-term electricity over a nine-year period in a contractthat could total about $4 billion. Initial supplies of 550 MW wouldbegin Jan. 1, 2002.

Left out of the announcement was whether Duke is talking to thestate about any deals that would bring added supplies this summerwhen demand is expected to greatly exceed supply in peak-demandtimes — even with greatly stepped up conservation efforts.

As a continuing harbinger of the shortfalls ahead, the Cal-ISO,Monday returned to its power alerts, calling a Stage One when itsexpected imports into the state dropped by more than 3,000 MW andin-state capacity continued to be hampered by more than 10,000 MWof capacity out of service for planned and unplanned maintenance.

Calling the MOU “a significant step,” Duke’s Bill Hall, a seniorvice president and head of its California operations, said hebelieves long-term contracts are “the critical underpinning for astable electricity market.

“We will continue to work with the governor and the legislatureas they develop the legal and regulatory framework necessary tomake such contracts viable.”

Noting that “good progress” was being made with statenegotiators led by the state’s chief power negotiator, S. DavidFreeman, Hall said the Duke MOU envisions the initial Jan. 1, 2002volumes increasing to 800 MW the following year and the overallcontract running through 2010. Freeman praised Duke for its”ongoing cooperation in helping meet California’s electricityneeds.”

The announcement comes after long-term contract signings lastweek by Calpine Corp. and Williams with the state, and with theadvent of increased speculation more deals will be announced laterthis week. Freeman, the chief negotiator, is scheduled to returnMarch 15 to his job heading the Los Angeles Department of Water andPower, the nation’s largest municipal utility.

Davis again Monday repeated his call for the state to form apower authority to push power plant construction and conservationprograms and state takeover of the transmission grid from theutilities, although ironically when questioned, he said he is notsure whether he is for or against ultimate deregulation ofelectricity in the longer term.

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