Tossing aside criticism that California’s new-found reliance onlong-term power contracts may over time cost consumers billions ofdollars extra for electricity, the state’s chief negotiatorThursday defended his work, arguing no one can predict where powerprices will be five and 10 years from now.

His only regret from a five-week non-paid role heading nonstopnegotiations is that there isn’t more power under contract for thissummer. He believes California has locked up every megawattavailable, and short-term deals will be converted to longer termcontracts in the weeks ahead.

Even in California’s supply-short market, the state had”something the generators’ wanted — long-term contracts,” said S.David Freeman, the state’s chief negotiator. Many of the supplierswere able to lock-in long-term fixed natural gas deals or “buy agas company” (as in the case of Calpine Corp.) as part of theirdealings with the state.

Overall, Freeman, the outspoken 74-year-old head of the nation’slargest municipal utility, Los Angeles Department of Water andPower (LADWP), is satisfied with what he and a former SouthernCalifornia Edison Co. Senior Executive Vikram Budhraja accomplishedsince the legislature and governor put the state in charge ofbuying power for two near-bankrupt private-sector utilities.

Freeman acknowledged that his employer, LADWP, was in on acouple short-term deals with the state, but he said he stayed outof the talks on those contracts.

California now has under contract or in various stages ofpre-contract agreements more than 10,000 MW of power, valued at $40billion over a 10-year period with a mixture of lengths of time,including five-, three-, one-year deals, along with the 10-yearpacts. For this year, the six-month-and-under deals include about5,000 to 6,000 MW, which is about one-third of the power requiredto prevent rolling blackouts this summer.

By itself, conservation will not fill all of the void, Freemansaid, but he thinks there are power supplies still “out there” forthe state. “They just haven’t been nailed down yet.” The real powerof the state’s stepped up conservation efforts, Freeman said, is”to affect the market price” for electricity, driving it down.”We’re in a supply-demand situation, and one of the things weintend to do is change the whole psychology of the market,” hesaid. “Knocking 10% off the total demand, changes this from a clearshortage situation to one where we might get by. We’re talkingabout 5,000 MW.”

Freeman said Gov. Gray Davis’s upcoming announcement on acomprehensive statewide conservation effort should be able to makeup for the shortage of megawatts needed in peak-demand times thatare unavailable for sale on anything other than a spot marketbasis. Longer-term, he said the state now has a portfolio thatblends reliance on both the spot and long-term markets.

“Basically, we have purchased all that we want to purchase inthe out (over five) years and used it to get lower prices in theearly years,” Freeman said. “Frankly, there is a shortage thisyear, and we don’t have under contract as much as we need so wecan’t relax and say the lights are going to stay on.

“We acquired essentially all the power that had not beenpreviously committed, so we now have a bunch of power (5,000-6,000MW) under short-term deals that we expect to convert to long-termcontracts. There is a whole team of people in Sacramento at DWR andthrough its consultant, Navigant, that is perfectly capable ofreshaping this portfolio and filling it out a bit as necessary.

Nevertheless, Freeman emphatically disagrees with those -particularly the consumer activists – who contend that what hecalls “low-cost electricity” will return in a few years. “I find itironic that the crowd of folks who are trashing deregulation themost are completely enamored with the prospect of seriouscompetition emerging and bringing the prices down in the out years(5 to 10 years from now). I don’t think I have quite that clear acrystal ball and there is at least as much of a chance that theprices will be higher than the contract prices. The supplierssigning the 10-year contracts are taking as much of a risk as thestate is.”

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