Energy companies strike tentative deal

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Posted at 9:43 p.m. PST Sunday, Jan. 21, 2001

Energy companies strike tentative deal

Energy producers agree to cut prices in half, negotiators say BY MARK GLADSTONE Mercury News Sacramento Bureau

SACRAMENTO -- Negotiators trying to end the state's deepening power crisis Sunday reached a tentative accord to cut the price of some electricity purchased by utilities -- an important step toward a comprehensive solution.

After marathon bargaining sessions -- and another day of Stage 3 power alerts -- Assemblyman Fred Keeley, D-Santa Cruz, said the bipartisan legislative leadership has been ``able to reach agreement in concept to significantly lower the price'' of power produced by independent energy companies.

That amounts to at least 25 percent of the juice used by Pacific Gas & Electric Co. and Southern California Edison, the state's two giant utilities.

With the utilities on the brink of insolvency, Gov. Gray Davis and lawmakers have spent the past two weeks seeking to cobble together a rescue plan that holds down consumer costs.

Davis has insisted that in any resolution to the crisis the price residential and small business customers pay remain around 5.5 cents per kilowatt-hour or, with a recent temporary rate increase, 6.7 cents for PG&E customers.

That has presented negotiators with a challenge that is compounded, according to Keeley and other lawmakers, by the complexity of electricity prices.

PG&E generates about one-third of its own power, largely through nuclear and hydroelectric plants at a cost of about 3.5 cents per kilowatt hour.

Roughly another one-third is contracted through the independent energy companies for about 17 cents.

The final one-third is purchased on the volatile spot market, where prices have swung between 30 and 70 cents.

To craft a solution acceptable to Davis, the independent energy price must fall and the fluid spot market price be lowered, probably through long-term contracts.

Keeley and another source close to the talks said Sunday the independent energy producers have agreed to cut their price to less than 8 cents. Details were not disclosed, but one possible benefit for them would be long-term price stability.

Lowering the price, Keeley said, ``is very significant in order to solve the problem overall.''

Still unresolved is just how far the spot market price will drop when the state opens bids in a test auction, possibly later today.

Spurred by rolling blackouts, the state began buying electricity on behalf of the utilities. This week, lawmakers are expected to examine legislation to allow a state agency to purchase power through long-term contracts -- another piece of the deal.

In other developments Sunday, legislative negotiators were reviewing a plan to have the cash-starved utilities give the state their hydroelectric generating plants, and Davis indicated he soon will recruit an energy czar to help speed the construction of new power plants. He hopes to name someone in two weeks.

On Sunday afternoon, 20- to 30-minute power outages affected about 50,000 to 70,000 Central Valley customers. Independent System Operator spokesmen said the outages resulted from a problem that occurred when an Oregon substation registered some faulty equipment and tripped off-line. The resulting surge could have knocked out Northern California's electric supply, had the ISO not ordered the Central Valley municipal providers to shed 101 megawatts of power.

Mercury News Staff Writer Michelle Guido contributed to this report.

http://www0.mercurycenter.com/local/center/powout0122.htm

-- Martin Thompson (mthom1927@aol.com), January 22, 2001


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