Surplus Power Sold at a Loss

SACRAMENTO —  Caught with an excess of electricity as a result of cool weather and heavy conservation, the state government sold power at a loss approaching $14 million in the first 16 days of July.

The loss amounts to roughly 3.5% of the total amount the state spent on power during that period.

To keep power flowing to 27 million Californians, the state purchased 3.5 million megawatt-hours at an average price of $118 per megawatt-hour, according to the state Department of Water Resources. It sold off 177,000 surplus megawatt-hours at an average price of $36.95 per megawatt-hour.

Department of Water Resources Director Thomas Hannigan disclosed the details in response to an inquiry by Assemblyman John Campbell (R-Irvine).

The sales of surplus power “get to the issue of, do these people really know what they’re doing? Are they really competent to be managing this to the lowest cost for the ratepayers?” Campbell said. “It reinforces to me that we should get the state out of doing this as soon as practically possible.”

Industry officials, however, say it is routine for utilities and electricity companies to at times find themselves with more electricity than their customers need. They either sell the power at a loss, work out an exchange of power or give it away.

“It’s not all that uncommon for utilities to be buying one day and selling the next,” said one Pacific Northwest trader who asked not to be identified because his company does not permit him to talk to reporters. He said a rule of thumb in the industry is to match supply to demand within 1% to 2%, although “5% on a load like California isn’t that much.”

Assemblyman Roderick Wright (D-Los Angeles), chairman of the Assembly utilities committee, said he did not see a problem with DWR’s power sales.

“Right now the summer is cool,” he said. “If this had been a normal July, we would have used all that power.”

“The worm could have turned the other way.”

Department of Water Resources spokesman Oscar Hidalgo said the state’s crew of 15 power purchasers found themselves selling a “very minimal” amount of electricity in May. In June, more power was sold, but less than was sold in July, he said. The department has not released those figures.

Department officials expect the sales to stop if temperatures heat up later this week.

The water department was thrust into the role of buying 30% to 50% of the state’s overall electricity in January after the state’s major utilities became so financially crippled by high wholesale electricity prices that energy companies refused to sell to them.

The department has so far spent roughly $8 billion of taxpayer money purchasing power that is sent to the customers of Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric.

Hidalgo said the sales show that the water department has stabilized the state’s electricity market. The average price the department has paid for a megawatt-hour is falling, from $271 in May to $119 in June to $89 so far in July.

“If we were out scrambling for power right now,” Hidalgo said, “the market would reflect that and adjust to it, and we would most likely be paying much more in overall purchases.”

Campbell said he assumes the department sold its most expensive, marginal megawatts of power. But Hidalgo said that is not necessarily so. The department does not track what it paid for the power it sells, he said.

The department’s statement to Campbell shows sales to 25 different companies, including the federal Bonneville Power Administration, the Los Angeles Department of Water and Power, and several private energy companies that bought power plants from California’s utilities under the state’s 1996 deregulation scheme. Those firms include Dynegy Corp., Reliant Energy, Mirant Corp. and Duke Energy.