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Calif. Signs Power Contract with Mexican Company

Reuters - December 10, 2001

SACRAMENTO, (Reuters) - California on Monday said it had signed a long-term power contract with a Mexican company, Intercom Energy, that is seeking to build a plant in northern California.

"They are looking to actually put steel in the ground in northern California. We are obviously intrigued by that because of the need for peak time energy in northern California," said Oscar Hidalgo, spokesman for the California Department of Water Resources which buys power for most of the state's residents.

The two year contract is for 200 megawatts of electricity or enough for about 200,000 homes. It covers peak hours and has an average price of $45 per megawatt hour (MWh).

The DWR also announced it had restructured a deal with Bonneville Power Administration, cutting the average price down to $29 per megawatt hour from $55 per MWh previously.

BPA, based in Portland, Ore., is a federal agency which markets power from massive federal hydropower dams in the Pacific Northwest.

The contract, for 18 megawatts of electricity, runs through the end of April 2002.

The DWR has signed an estimated $42 billion in long-term contracts. Many were signed in the spring when the state was desperate to secure additional supplies to avoid widely forecast summer power blackouts.

The average contract price negotiated last spring was about $69 per megawatt hour, well below spot market prices at that time but more than double the current spot market price of about $25 per MWh.

The DWR has been under intense pressure to renegotiate the deals at lower prices amid a growing economic crisis in California which threatens to trigger major cuts in spending by the state on services such as schools and housing.

Hidalgo said the BPA contract had a two week termination clause without any reason, giving the agency the complete option to terminate if a cheaper price had not been agreed.

He noted that many other contracts signed by the DWR did not contain such a clause and those deals would therefore be much more difficult to renegotiate.

The agency took over purchasing power for most of the state's residents in January as a financial crisis linked to flawed state power deregulation legislation meant its two largest utilities were no longer credit worthy. Edison International (EIX) unit Southern California Edison saw its credit ratings fall to junk status while PG&E Corp. (PCG ) unit Pacific Gas & Electric filed for Chapter 11 bankruptcy protection in April.

Calif. Signs Power Contract with Mexican Company
Reuters December 10, 2001

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