Renegotiated Energy Contracts Allow Power Company to Gouge for Eight Years (Instead of Ten)
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NEWS RELEASE
Apr 23, 2002


CONTACT: Doug Heller - 310-392-0522 x309

Renegotiated Energy Contracts Allow Power Company to Gouge for Eight Years (Instead of Ten)

Consumer Group Urges Davis to Pursue Litigation If Companies Won't Dramatically Reduce Price of Deals
The text of the letter to Governor Davis follows the news release.

Santa Monica, CA -- The Foundation for Taxpayer and Consumer Rights (FTCR) criticized Governor Davis's renegotiated power contracts, in a letter sent to the Governor today. The Governor announced the reformulation of deals with Calpine and Constellation energy companies late Monday afternoon, indicating that the new contracts would save consumers $3.5 billion, a number that FTCR claims is vastly overstated. FTCR has been calling for either dramatic restructuring or outright disposal of the contracts since they were first made public last spring.

"To provide consumers with real relief from these exorbitantly priced contracts, the largest contracts -- two ten year deals signed with Calpine, each for 1,000 MW of power -- should have dropped in price by approximately 60%. Instead, one contract was reduced a mere 2%, from $61/Megawatt-hour (MWh) to $59.60, while the other was not reduced at all and remains at $58.60. These renegotiations appear to be little more than a fig leaf that does little to cover the obscene electricity rates Californians continue to pay," wrote FTCR.

Focusing on two of the largest contracts with Calpine, FTCR pointed out that although the Calpine contracts were reduced in length of term, consumers will be subject to the high prices through 2009.

"The power companies will be gouging for eight years instead of ten years. This is not a victory for consumers," said Doug Heller, senior consumer advocate with FTCR.

The organization also criticized the administration for giving up efforts to hold power companies accountable for the manipulation of the energy market during the state's power crisis. The power industry applauded Governor Davis for throwing out the state's legal claims against power companies and indicated that other power companies may be interested in such favorable renegotiation terms.

"If companies will not agree to substantially reduce the price of the contracts as well as the length, then Californians would be better served by an aggressive litigation strategy rather than continued backroom negotiations that result in deals such as those you announced yesterday," the group's letter concluded.

FTCR will continue to review the various contracts and provide further analysis as it is conducted.

-30-

April 23, 2002

Honorable Gray Davis, Governor
Office of the Governor
State Capitol
Sacramento, CA 95814

RE: Renegotiated long-term energy contracts

Dear Governor Davis:

Last year, on behalf of the ratepayers of California, you signed energy contracts with private power companies that were at least $22 billion overpriced. To provide consumers with real relief from these exorbitantly priced contracts, the largest contracts -- two ten year deals signed with Calpine, each for 1,000 MW of power -- should have dropped in price by approximately 60%. Instead, one contract was reduced a mere 2%, from $61/Megawatt-hour (MWh) to $59.60, while the other was not reduced at all and remains at $58.60. These renegotiations appear to be little more than a fig leaf that does little to cover the obscene electricity rates Californians continue to pay. That these contracts were shortened from ten years to eight years, only means that for the next eight years California ratepayers will be gouged pursuant to your contract with Calpine.

We argued in January of last year, at the height of the energy crisis, that the state should not be negotiating long-term contracts without parameters to guard against high-priced, excessively long-term contracts, yet your administration resisted such statutory standards and signed contracts that were too long-term and too expensive. We are pleased that you have reduced the term of some of the contracts, but, again, you have not gone far enough. Californians are still locked in for the rest of this decade to the outrageous electricity prices established during the worst price gouging and market manipulation in state history.

It should be noted that the numbers your office put out identifying the consumer savings as a result of the renegotiations are highly misleading. The $800 million savings associated with reducing the term of one contract from twenty years to ten ignores the fact that power will eventually have to be purchased to replace the power excised from the contract. Certainly it should be lower priced, but it won't be free. The savings from this round of renegotiation will be substantially less than you project.

Finally, we do not believe that you should sign away the state's right to legally challenge the behavior by Calpine or any other power company during last year's crisis. After a massive assault on California taxpayers and ratepayers by the unregulated power companies during 2000 and 2001, it is incumbent upon you to respond aggressively and hold these companies accountable for their profiteering and generally outrageous economic abuse. Freeing them from liability for the devastation caused by their manufactured energy crisis in exchange for renegotiated contracts that retain excessive prices for a decade plays right into this industry's hand.

You have to go no further than the industry itself to understand that the new contracts continue to benefit power companies at the expense of consumers and at the expense of taxpayers' rights to hold the power industry accountable. Gary Ackerman, a power industry lobbyist told the Sacramento Bee, for example, that dropping charges against the power companies "could be a very tantalizing thing that other companies may want to go for as well."

The public has demanded that you renegotiate contracts in order to save the public from unreasonably high-priced electricity, and your renegotiations do not appear to have succeeded in that regard. If companies will not agree to substantially reduce the price of the contracts as well as the length, then Californians would be better served by an aggressive litigation strategy rather than continued backroom negotiations that result in deals such as those you announced yesterday.

Sincerely,

Douglas Heller



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