PG&E; criticizes revamped Calpine power pact

Pacific Gas & Electric Co. blasted state officials Wednesday for renegotiating a major electricity contract signed during the energy crisis, contending that the new terms would boost costs for consumers by hundreds of millions of dollars.

The power supply contract, one of many deals the state struck to secure energy during the 2000-01 market meltdown, was signed by the California Department of Water Resources. It called for San Jose-based Calpine Corp. to provide 1,000 megawatts of electricity around the clock at a fixed price to areas served by PG&E.;

Calpine, which is preparing to exit Bankruptcy Court protection, tried to nullify the contract through the bankruptcy process, but the state fought to keep it intact. It said replacing the power from the Calpine pact would cost consumers $150 million to $200 million more. The state prevailed, and in August Calpine pledged to honor the deal.

Under the revised contract, the state will buy 82% less power from Calpine and it will be earmarked for use during peak demand periods. The Department of Water Resources said the new arrangement cuts the agency’s power bill by about $1 billion over the life of the contract.

PG&E;, however, has to buy power to fill the gap. And the company is worried that its ratepayers will get stuck with the bill.

“This represents anything but a savings,” said Brian Hertzog, a spokesman for the San Francisco-based utility, a subsidiary of PG&E; Corp. “It heaps additional costs onto our customers.”

In a harshly worded letter to Tim Haines, a deputy director at the state water resources agency, PG&E; questioned the rationale and the legality of the contract changes.

“We are deeply troubled and puzzled as to why your agency would literally give away up to hundreds of millions of dollars of value in a power purchase contract,” Christopher Warner, the utility’s chief counsel, wrote to Haines on Wednesday. The company asked the state to provide “immediate assurance . . . that CDWR will remedy this unlawful action.”

Haines said in an interview that the state believes that when all aspects of the changes are considered, “this amendment comes out a clear winner.”

The core problem is that the total cost of the state’s power contracts is spread across California’s dominant utilities, even though the individual power contracts might serve only one or two of the utilities.

The disputed Calpine contract, for example, provides power to PG&E; customers, but customers of Southern California Edison and San Diego Gas & Electric pay a share of the cost. Under other contracts, PG&E; ratepayers help pay for power that gets delivered to other utility customers. Under the new contract, PG&E; is stuck with the entire tab for buying the replacement power.

“We understand that we’ve unsettled the cart here” and disrupted the cross-subsidies underpinning the state power contracts, Haines said. But he said his agency would urge the California Public Utilities Commission “to restore the equity that was in place” by offsetting some of PG&E;’s extra costs.

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elizabeth.douglass@latimes.com