Long-Term Energy Contracts Bring Stability

Re “8 State Power Contracts Seen as Bad Deals,” Sept. 30: Long-term contracts bring stability to energy prices. They encourage construction of new power plants that will increase electricity supply to meet the needs of California as it grows in the future. In May, Sempra Energy Resources signed a 10-year agreement with the state Department of Water Resources. Under this contract, we are building a fleet of new state-of-the-art, natural-gas-fueled power plants to produce desperately needed, clean power for California. These facilities will generate 45% to 50% more power from the same amount of fuel input than existing plants.

At today’s natural gas prices (about $2 per million BTU), our new fleet of generating plants would produce base-load power at 4.1 cents per kilowatt-hour and peaking power at 5.1 cents per kwh--making the Sempra contract, now and over its life, the lowest priced of all of the long-term contracts signed by the state. Under this contract, the state has the option to fix a low cost of power by purchasing forward lower-cost natural gas. Natural gas costs now are less than half what they were at the beginning of this year.

If these contracts are renegotiated every time energy prices rise or fall, what company would ever want to sign a contract with the state again? No bank would want to finance a power plant under such arrangements. Without long-term energy-supply contracts, the conditions that brought them about likely will return: higher prices, a lack of incentive to build new power plants and the threat of blackouts.

Michael J. Niggli

President, Sempra Energy

Resources, San Diego