Ten Years Later, Ratepayers Still Paying for the Energy Crisis

California’s energy crisis in the winter of 2000 — spot market prices hit $2,000 per megawatt hour — may seem like a thing of the past for electricity customers. It’s not.

They’re still paying the price: About $3 billion each year for the next three years.

Of the 58 contracts the state Department of Water Resources negotiated in 2001 and 2002 at a cost of $42.5 billion, 26 still exist with an estimated portfolio cost of $9.8 billion between now and 2015 when the final two contracts expire.

Customers of utilities like Southern California Edison and Pacific Gas & Electric pay those costs.

Part of the savings Gov. Arnold Schwarzenegger scores in his budget for the state’s natural resources agency is the expiration of 11 of the department’s contracts in 2010 and 2011.

The California Energy Resources Scheduling division was created in the department in January 2001 by then Gov. Gray Davis. The idea was to enter into long-term contracts with energy producers to bring more stability to the market.

In addition, the division purchased power that the investor-owned utilities couldn’t because the price of the electricity was significantly higher than what they could recoup from ratepayers.

The situation was dire enough that Pacific Gas & Electric declared bankruptcy in April 2001.

When the division was created four months earlier, the spot market price was $355 a megawatt hour. That fell to $72 a megawatt hour in May.

At the beginning of 2003, the division stopped buying power, returning that responsibility to the investor-owned utilities whose credit-worthiness had improved with the fall in energy prices.

Since then, the department renegotiated 35 of its original contracts, saving what the state estimates to be $7.5 billion.

The state also succeeded in winning $5.5 billion in settlements from companies who gamed the spot market during the crisis.

Power purchases made by the state in 2001 and 2002, when suppliers wouldn’t sell to the utilities, were repaid with an $11.2 billion bond that won’t be paid off until 2022.

Annually, the division totals its contract and bond-related costs and presents it to the Public Utilities Commission in order to pass those costs onto utility customers.

For 2010, the department estimates it will incur $2.2 billion in power charges and nearly $900 million in bond-related costs.

As the filing with the PUC says:

“The costs of the department’s purchases to meet the net short requirements of retail end use customers in the three California investor-owned utilities’ (“Utilities” or “IOUs”) service territories, including the costs of administering the long-term contracts, are to be recovered from payments made by customers and collected by the IOUs on behalf of the department.”

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