Report 2002-009 Highlights - April 2003

California Energy Markets:

The State's Position Has Improved, Due to Efforts by the Department of Water Resources and Other Factors, but Cost Issues and Legal Challenges Continue


The Department of Water Resources (department) has renegotiated 23 power contracts with 14 suppliers to improve the energy delivery, financial, and legal aspects of these contracts. In addition, the investor-owned utilities are once again responsible for purchasing the net short.

  • The portfolio better fits California's power needs by converting nondispatchable power to dispatchable power, but much of the improved fit is due to a reduction of forecasted demand, not the renegotiated contracts.
  • Reported contract cost reductions were estimated at $5.5 billion on a nominal basis and based on assumptions at the time of the renegotiations.
  • The terms and conditions of the restructured contracts have significantly improved reliability, but the department remains restricted in its ability to assign contracts to other parties and thus remains legally and financially responsible.
  • Based on March 2003 market assumptions, replacement power costs, and discounting to present value, the department consultant currently estimates ratepayer savings as $580 million.
  • During 2002 the department was not able to coordinate its power supplies with the utilities' generating facilities so as to minimize ratepayers' costs.

Even though the investor-owned utilities have resumed purchasing the net short, the department retains substantial responsibilities, including:

  • Stewardship of the Electric Power Fund.
  • Vigilance to mitigate the potential high costs of its contracts.
  • Management of operating and service agreements with the investor-owned utilities.
  • Administration of the bonds issued to finance the power-purchasing program.

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