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California DWR lowers revenue requirement $6 billion

By the OGJ Online Staff

HOUSTON, Nov. 7, 2001 — The California Department of Water Resources in a updated assessment said it will need $6 billion less than initially forecast to buy electricity for state consumers.

The DWR said it will need a total of $18 billion in its latest revenue request filed with the California Public Utilities Commission, down from $21.45 billion the agency indicated it needed in August. The DWR began buying electricity after the state’s investor-owned utilities quit paying their wholesale power bills. Wholesale power costs skyrocketed and the utilities, which were operating under a retail rate freeze, couldn’t pass the full amount along to customers.

The DWR and the PUC have since tried to reach agreement on how much money to allocate the DWR from cash collected by the utilities to pay for DWR power purchases. The PUC rejected the earlier formula, and, in doing so, caused a delay in a proposed state bond issue to reimburse the general funds for power purchases.

In a letter to the PUC, the DWR’s Thomas Hannigan said it was essential for the PUC to act on its request “with no further delay” because repaying the general fund is more important than ever considering the “circumstances presently faced by the state.” Some California officials have warned the state faces a big deficit, if the bond sale doesn’t move forward. If the bond sale isn’t “imminent” by mid-2002, Hannigan said, it may be necessary to increase the DWR’s revenue requirement.

Broken down, the DWR said expenses will include $5.3 billion in contract power costs to cover the net short requirement of the utilities; $9.5 billion to cover residual net short requirements; $1.1 billion to acquire ancillary services and associated energy not otherwise provided by the investor-owned utilities from their retained generation; $288.9 million in demand management costs; and $98.8 million in administrative and general expenses.

The DWR said its lowered revenue needs resulted from the following:

— Changes to the load forecast, reflecting an increase in direct access loads.

— Changes to the DWR’s financing requirements, principally resulting from the inability of the department and the commission to reach agreement on a rate agreement and the resulting delay in the sale of bonds to refinance the department’s interim loan.

— Changes to assumptions regarding future natural gas prices.

— Changes to the amount of power under long-term contracts.

— Changes to the methods of calculating ancillary service costs.

— Changes in the estimated prices for sales of contracted power to wholesale power purchasers.

The DWR has signed 54 power supply contracts for electricity with 25 power suppliers. Under law, the DWR is prohibited from entering into new electricity contracts after January 2003, although it can continue administering existing contracts and enforcing revenue requirements beyond that date.