Uploaded: Tuesday, February 20, 2001 2 p.m.
Protecting the future of power
the lights on:
An ongoing report of local power conditions
Utilities director hopes to secure energy
supply, despite debate
by Marv Snow
The cloud of controversy over authorizing Utilities Director John
Ulrich and City Manager Frank Benest to sign long-term power contracts
has likely blown by, now that the city's Utilities Advisory Commission
concurred with the argument that the community's future power needs
must be secured as soon as possible.
Ulrich was criticized at the City Council's Feb. 12 meeting when
he sought authorization for the he and Benest to enter into long-term
contracts to lock in the city's power supply and prices. Two commission
members told the council that night that they were upset Ulrich
had not discussed the issue with them before going to the council.
At last week's Utilities Advisory Commission meeting, held Feb.
14, however, Ulrich explained it would be better to sign a contract
for power over a longer period, like 10 years, instead of trying
to buy it on the open market as PG&E is doing at skyrocketing prices.
Apparently satisfied, the advisory commission signed off on Ulrich's
proposals, with some changes.
The commission suggested signing contracts for up to 50 megawatts
instead of 75 as Ulrich originally requested. Members also felt
that purchases should not be conducted on a lump-sum basis, but
instead be bought over a period of time in different amounts.
Commissioners also asked for the formation of an oversight committee
made up of at least two City Council members and others to be picked
by the council.
As the Weekly went to press, the matter was scheduled to go back
to the City Council at their Tuesday meeting.
Ulrich said he considers the securing of energy contracts to be
urgent because of PG&E's well-publicized financial woes. "These
are not normal times," he said.
Although the city is currently locked into a power contract through
the year 2004 that will keep rates lower than those charged by PG&E,
that contract expires in four years. The new 20-year contract the
city recently signed is only for hydroelectric power from the Western
Area Power Administration, which purchases power itself from PG&E.
And that is why, according to Ulrich, the city could be in danger.
If PG&E goes bankrupt, it will not be supplying power to anyone
on the grid, including Palo Alto.
"If PG&E goes bankrupt, they won't honor their contracts with anyone.
Then what do we do?" Ulrich asked. "The contract is with Western,
Ulrich said the city has to hope PG&E's financial situation improves,
but there is no guarantee.
"I have put together a defensive position in case this happens,"
Ulrich said that there was a risk of entering into a long-term
contract at a set rate and having the market value fall below the
The other risk is if the federal government doesn't limit PG&E's
ability to charge higher rates, it could mean Western could pass
on soaring rates to the city.
"During the life of that 40-year contract, Palo Alto did pay higher
rates during some periods of time," Ulrich said.
In his report to the Council on Feb. 12, Ulrich said "...if the
Pacific Gas and Electric Company files for bankruptcy or if PG&E
gains approval from the Federal Energy Regulatory Commission to
increase the wholesale energy rate it charges Western, the cost
of Western power to the City may soar to current market prices...
"A PG&E bankruptcy and other factors could reduce the availability
of long-term power contracts in the region," Ulrich said. "In January
2000, electricity could be purchased for nearly 3 cents (per kilowatt
hour) A year later, in January 2001, the same product was selling
for nearly 20 cents/kWh--a 600 percent increase.
"California can expect high energy prices and continued market
structure uncertainty for several years before the actions needed
to stabilize the crisis--new power plants, increased conservation,
upgrades to transmission lines, new rules for the market--are put
in place," Ulrich's report stated.