California Department of Water Resources (DWR) has lowered its estimate for electricity purchases from January 2001 through December 2002 by 20%. DWR buys electricity on behalf of the cash-strapped and bankrupt utilities in California.

In July, DWR estimated power costs for that period to be $21.45 billion but with the decrease in the cost of natural gas, lower spot market prices, and conservation, the revenue requirement dropped to $17.2 billion, DWR said.

Last winter, the energy crisis in California reached a point when Pacific Gas & Electric Co. and Southern California Edison Co., squeezed between frozen retail rates and soaring wholesale power , could no longer afford to buy power for their customers. DWR was authorized by the state legislature to buy power on their behalf. So far, the state treasury footed the $11.3 billion already spent this year on power. The state is now trying to issue long-term revenue bonds paid through rates to compensate the state for those purchases.

While DWR’s revenue requirement has been revised downward by about 20%, electricity rates in California that were finally increased earlier this summer will not be lowered by a commensurate amount. Electricity consumer rates can only come down by about 5.5% to reflect the new lower DWR revenue requirement, said Ron Nichols, energy consultant to Gov. Gray Davis.

Nichols blamed the California Public Utilities Commission (CPUC) for why rates could not be decreased more.

Because the CPUC did not suspend “direct access” to electricity by consumers earlier this summer as requested by Davis, there are now fewer ratepayers to spread the costs of DWR’s power purchases. Direct access means consumers can leave the utility system and contract for power from a third party, escaping payment for any of DWR’s expenses.

The CPUC delayed suspending the direct access program until Sept. 20, said Nichols. During that delay 13% of total utility load contracted for their own power, bypassing DWR, compared to 2% in July, he said.

Nichols also said the CPUC delayed action on the rate agreement with the DWR which meant that the cost of interim financing for the power increased. DWR had a $4.3 billion interim loan that had to be converted to a 3-year term loan with higher costs.

A spokeswoman for CPUC said regulators could not approve a revenue requirement for DWR without a full review of DWR’s costs.

DWR and Gov. Davis have been criticized by legislators for signing long term contracts for power that lock the state into the electricity purchasing business for years to come and also into what appears now to be high cost power.

The average cost on these contracts is $103/Mw-hr, DWR officials said.

Recently there has been a meltdown in the price of power nationwide as the economy slips into recession, natural gas prices plummet, and consumers react to last year’s higher prices with less demand.

“We can live with what we signed. The long term contracts allow us to deliver energy at rates we have established,” said Nichols.

Long-term contracts are necessary so investors who buy the revenue bonds that power will be available to deliver to customers who ultimately pay the bonds.

Spot market power prices average about $30/Mw-hr today in California.