San Diego Utility gets approval to hedge electricity prices


SAN DIEGO, Sept. 22, 2000 (The Orange County Register)à‚–Customers of San Diego Gas & Electric have a long shot at paying slightly lower electricity bills by year-end.

The California Public Utilities Commission approved a proposal Thursday from SDG&E to negotiate a type of long-term electricity contract, using a trading practice known as hedging. Hedging would allow the utility to lock in lower prices, compared with skyrocketing power prices this summer. The savings would go directly to customers, who have seen their rates triple or quadruple in the past three months.

“We’ve got a broken market,” said Gary Cotton, a senior vice president at SDG&E. “I’m hoping we’ll get some market response.” But it is unclear if hedging can provide much relief in the volatile wholesale electricity market, where prices are high and supply tight.

Terms of any contract vary, typically from 30 days to five years, Cotton said. SDG&E could negotiate contracts to buy as much as 50 percent of its power, or 1,900 megawatts. The process can take weeks before any results show up on electricity bills.

The approval from the CPUC is the latest in a series of decisions by state lawmakers and regulators as they try to get control of California’s two-year experiment with deregulation.

Half-way through the four-year transition to a free market, few experts hold out hope for a return to the lower rates of just two years ago, when wholesale power prices hovered between two to three cents per kilowatt hour, excluding transmission costs.

Last week, SDG&E sent bills to customers in which wholesale prices averaged 15 cents per kilowatt hour, down from a high of 20.8 cents in late August.

Mike Zenker, director of the Western region for Cambridge Energy Research Associates, a consulting firm, said prices on long-term contracts for next year are hovering at just over 10 cents a kilowatt hour.

In the short term, SDG&E’s 1.2 million customers in San Diego, including 100,000 in south Orange County, will only pay a portion of the price because the state legislature approved a temporary rate cap at 6.5 cents per kilowatt hour. But customers will ultimately pay the higher prices at a later date.

Both Southern California Edison and Pacific Gas & Electric won approval in the past few months to hedge, with no clear results.

“It’s too early to tell,” said Gil Alexander, an Edison spokesman.

“It works as an economic principle. It remains to be seen if utilities will be successful at finding lower prices, similar pricing or worse.”

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à‚© 2000, The Orange County Register, Calif. Distributed by Knight Ridder/Tribune Business News.

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