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The Whistleblower

The Whistleblower #20 - Apr 24, 2002

The power industry calls the Governor's new energy negotiations "tantalizing." Late Monday, Gov. Davis announced that he had reached agreements with a few power companies to alter the long-term energy contracts California signed with those firms last year. One energy lobbyist called the new deals "tantalizing;" a major Wall Street firm said: "We regard this as a positive development as it removes a longstanding legal and regulatory overhang with only modest concessions on the part of the companies." Guess what that means for ratepayers.

Since the public was first allowed to review the contracts last spring, we have pressed for either a major reworking or outright disposal of these exorbitantly priced sweetheart deals. Unfortunately, the new contracts look more like a political fig leaf that fail to cover the obscene prices of the original deal. Despite the Governor's press pitch, the power contracts cannot be gauged merely against the versions of the contracts signed last year at the height of the crisis. We have to consider the larger context of historic prices. That is, a minor concession is being held up as a shining victory, only by comparing it to the miserable deals of last year. Here's what's wrong, at first blush, with the new pacts:

- The main argument against the old contracts was that they were "high-priced," but, for the largest two deals re-worked Monday, one dropped in price only 2%, from $61/megawatt-hour (MWh) to $59.60/MWh, and the other did not go down at all.

- One contract was shortened from 20 years to ten and two others from ten years to eight, which still means that the power industry will be gouging us through the end of the decade.

- The new contracts are predicated on the termination of litigation against these power companies. In exchange for the minimal gains, the Governor released these companies from accountability for the manufactured energy crisis of 2000 and 2001.

Is Edison in merger talks with the State of California? The Los Angeles Times reported last week that Vikram Budhraja, an advisor to the State of California's power buying operations, received over $100,000 in consulting fees last year from Edison International, Southern California Edison's parent company. Consumer groups are pursuing an investigation into the legality of this, as Mr. Budhraja was deeply enmeshed in the state's energy policy, which centered largely around Edison's financial problems. But beyond this conflict of interest, Gov. Davis and Edison have been quietly consolidating over the last year. Davis' chief energy advisor at the height of the crisis was former Edison President Michael Peevey, whom the governor recently appointed to the Public Utilities Commission (PUC). One Edison executive took a leave of absence from the company in February 2001 to work as Davis' energy construction czar. In March 2001, Davis hired an Edison lobbyist to work for the state. And he hired two public relations consultants -- also under contract with Edison -- last May, at $30,000/month. Those contracts were eventually cancelled because of public outrage. More evidence that a merger is in the works: Davis has agreed to assume Edison's debt. (Actually ratepayers would cover the debt, according to an illegal bailout negotiated between Davis's PUC and Edison last fall; it is currently being reviewed in federal court.)

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