Subject: CBO Criticizes California
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Date: Wed, 3 Oct 2001 11:28:04 -0700 (PDT)

Report critical of California's energy deals

By Toby Eckert
COPLEY NEWS SERVICE
October 3, 2001

WASHINGTON -- A new congressional report is adding to the mounting
criticism of California's foray into the purchase of electricity.
The Congressional Budget Office study warns that Californians could pay
a steep price for the long-term contracts negotiated by the state, given
a recent decline in electricity prices. It also faults the lack of
independent oversight of the state's power deals.
"If the state cannot recover all of its electricity-related costs
through retail prices, California taxpayers will have to make up the
difference. . . . The state may be at risk of creating a major
government-subsidized industry -- an industry that private suppliers
could be at a disadvantage in competing against," the report says.
A spokesman for Gov. Gray Davis could not be reached for comment on the
report. But the administration has noted that while the contract prices
appear high now, they are significantly lower than what electricity
sellers were charging at the height of the power crisis, when many of
the contracts were negotiated.
The Congressional Budget Office is a nonpartisan agency that explores
major economic issues for Congress. The concerns the budget office
raised about the state's electricity purchases are part of a 43-page
report on the power crisis that gripped California for more than a year
as wholesale electricity costs skyrocketed.
The report cites numerous flaws in the state's attempt to deregulate the
power market and also raises the possibility that power sellers
intentionally withheld supplies to raise prices.
To stem the crisis and avert blackouts, the state Department of Water
Resources started buying power on behalf of financially battered
utilities in January. The crisis has abated, but the state has come
under intense criticism from consumer groups that say it spent far too
much on the power purchases, which total more than $40 billion.
The budget office report echoes those concerns and faults the state for
moving further away from a workable competitive power market.
"California's actions represent a blunt solution to the problems of
insecure supply and volatile prices -- a solution that ultimately may
present the state with many of the same problems that (power market)
restructuring was intended to solve," the report says.
It also cites a "lack of transparency" and oversight of the state's
power purchases.
The California Public Utilities Commission recently asked federal
regulators to review the power contracts and determine whether the
prices are reasonable.
The budget office report broke no new ground on the origins of the power
crisis, attributing it to a combination of factors that have been cited
in other studies. They include a flawed attempt to deregulate
California's power market, a lack of adequate power generation in the
state and a spike in the cost of natural gas, which is used to fuel many
power plants.
The report said it was "also possible that individual sellers tacitly
colluded to withhold supplies in order to push prices above competitive
levels," a charge repeatedly leveled by Davis and consumer groups.
"However," the budget office concluded, "evidence about how much, if
any, capacity was withheld for competitive rather than legitimate
operational reasons is unclear."

Copyright 2001 Union-Tribune Publishing Co.

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