Please see the following articles:

Sac Bee, Wed, 6/20:  Weather an early test for fee caps:
Any severe jump in prices will likely be curbed, experts say

Sac Bee, Wed, 6/20: State to borrow up to $5 billion to buy energy

Sac Bee, Wed, 6/20: Dan Walters: Once burned, lawmakers are very
wary of Davis-Edison agreement

SD Union, Wed, 6/20:  Senate Democrats lay back to see if FERC action
provides rate relief

SD Union, Wed, 6/20: House panel erases Bush energy cuts

LA Times, Wed, 6/20: Davis, Regulators Face Off at Hearing

LA Times, Wed, 6/20: Energy on Agenda, but Issue Is Blame

LA Times, Wed, 6/20: Blackout Forecasts' Dark Side

LA Times, Wed, 6/20: FERC Move Short-Circuits for Hard Price Caps

LA Times, Wed, 6/20: Plan Won't Raise Rates, Davis Says

LA Times, Wed, 6/20: State to Pay Electric Bill With Loan, Not Taxes

LA Times, Wed, 6/20: Edison Unveils Blackout Warning Plan

LA Times, Wed, 6/20: State Joins Challenge to Bush on Air-Conditioner
Standards

LA Times, Wed, 6/20: New Price Caps Not a Deterrent, Power Firms Say

LA Times, Wed, 6/20: The FERC's Action Is Good, Bad, Ugly   (Commentary)

SF Chron, Wed, 6/20: Davis OKs stopgap loan
CRISIS POWERS: Action sidesteps Legislature

SF Chron, Wed, 6/20:  Experts say state must seize the day
ANALYSIS: Price caps set stage for future

SF Chron, Wed, 6/20: California's energy crisis hits Northwest like a tidal
wave

SF Chron, Wed, 6/20: Davis demands nearly $9 billion for electricity
overcharges

SF Chron, Wed, 6/20:  Fed price caps placate Demos
But Feinstein's bill to regulate energy producers was more strict

SF Chron, Wed, 6/20: Potrero Hill power plant hit by 2 lawsuits
Neighbors, city ask court to cut back hours of operation

SF Chron, Wed, 6/20: Washington wakes up

Mercury News, Wed, 6/20: Feinstein halts electricity price caps bill

Mercury News, 6/20: FERC's fixes have fallen short     (Commentary)

OC Register, Wed, 6/20: Easing the crunch on costs of power  (Commentary)

Individual.com (Bridgenews), Wed, 6/20: [B] POWER UPDATE/ US Senate panel
to hold off vote on Calif. cap bill

Individual.com (Bridgenews), Wed, 6/20: [B] FERC order seen having little
effect
on US generator profits

Individual.com (PRnewswire), Wed, 6/20: SCE Unveils Rotating Blackout Web Site
and Public Notification Plan

Individual.com (AP), Wed, 6/20: Edison CEO/ Ruling Hasn't Helped

NY Times, Wed, 6/20: At Last, Action on California  (Editorial)

NY Times, Wed, 6/20: Regulators' Order Could Bring Broad California Power
Accord

Wash. Post, Wed, 6/20: Davis Finds Hope in Calif. Power Crunch

NY Times, Wed, 6/20: The Lesson of When to Give Aid to Free Markets

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Weather an early test for fee caps: Any severe jump in prices will likely be
curbed, experts say.
By Dale Kasler
Bee Staff Writer
(Published June 20, 2001)
California electricity prices have shot back up recently, potentially posing
an early test of a new federal price-control plan that takes effect today.
Warm weather has sent wholesale prices doubling this week, partially
reversing a dramatic slide that had some state officials believing they'd
tamed the wildly unpredictable California electricity market.
The rebound in prices "would be expected," said Arthur O'Donnell, editor of
the California Energy Markets newsletter. "It's 110 degrees in Phoenix, and
it's 100 degrees (in Sacramento) and points in between."
Prices this week moved back above $100 a megawatt hour, about double what
they were last week -- although well below the roughly $300 suppliers were
charging California in mid-May. Prices showed signs of stabilizing Tuesday,
analysts said.
Experts said the Federal Energy Regulatory Commission's new price-mitigation
plan is likely to curb the most severe price spikes. "This will eliminate the
astronomical prices," said Severin Borenstein, director of the University of
California Energy Institute.
But the plan probably won't bring California a cascade of cheap power,
either.
Prices likely will bump up constantly against FERC's new price caps, which
will fluctuate from time to time, and they're not likely to go much below the
caps unless there's a significant glut of energy, said Peter Stiffler of the
energy consulting firm Economic Insight Inc.
"Traders will always trade in at the price ceiling," Stiffler said. "They're
going to offer power at the highest price they can."
The fluctuating FERC caps are tied to the production costs of the
least-efficient, most-expensive generating plant operating in California when
supplies are tight and an official "power alert" is declared by the state's
Independent System Operator, which runs most of the power grid. When there
isn't a power alert, prices can't exceed 85 percent of the price established
during the most recent alert.
FERC said the system would begin today with a cap of $108.49 a megawatt hour
but would rise to $127.64 if a power alert is declared.
But the cap can fluctuate significantly. Under the old FERC plan, the price
cap in May was set at $267 a megawatt hour. The old plan was similar to the
new system but applied only to California and only kicked in during power
alerts.
With the caps flexible, generators could have incentives to withhold power at
some plants in order to raise the caps, said Stanford University economist
Frank Wolak.
The FERC plan "still doesn't solve the problem of withholding," said Wolak,
chairman of the ISO's market surveillance committee.
Wolak also said he's afraid FERC will let power generators exaggerate their
costs in order to bump up the caps.
"The good news is, they seem to be more serious," Wolak said of the
oft-criticized commissioners. "But given how many times we've been taken in,
I'm wary."
In addition, generators will be allowed to exceed the price caps if they can
justify it to FERC officials. Borenstein said FERC in the past has allowed
generators to justify just about every price level imaginable, and he's
suspicious that the commission will let generators do the same in order to
evade the new price controls.
State officials, while cautiously optimistic about the plan, were upset that
FERC will allow a 10 percent price premium on electricity because of the risk
of selling to the California market.
"We recognize that the risk of nonpayment in California continues to be
greater" than in other states, the commission said in its written opinion,
released late Tuesday.
Gov. Gray Davis' spokesman, Steve Maviglio, called the premium ludicrous
because the state Department of Water Resources has been buying electricity
ever since the state's troubled utilities exhausted their credit in
mid-January.
"The state is as creditworthy a buyer as you can get," Maviglio said.
Experts said the plan also won't correct the state's energy imbalance.
"None of this is going to have much effect on blackouts," Borenstein said.
"This is solving part of the problem; I'm worried people will think
everything has been solved.
"The emphasis now has to be on getting California to conserve," he added.
A spokesman for power generators, Gary Ackerman, said the price controls
could worsen shortages this summer and will discourage generating firms from
investing in the new power plants the West desperately needs.
Builders "are going to sit on the fence and think about this," said Ackerman,
head of the Western Power Trading Forum.
Acting in the face of mounting political pressure and unrelenting criticism
from California, FERC voted Monday to impose round-the-clock price controls
throughout the 11-state Western region.
The FERC plan replaces a three-week-old plan that applied only to California
and took effect only when power reserves fell to below 7 percent of demand
and an official "power alert" was declared.
By extending the plan to the entire West, experts said the commission
probably put an end to the phenomenon known as "megawatt laundering," in
which power was shipped out of California and then re-imported. Imported
power wasn't subject to the old price controls.
The new controls, said consultant Stiffler, "significantly narrow the ability
of a trader to move power around and play the market."

The Bee's Dale Kasler can be reached at (916) 321-1066 or dkasler@sacbee.com.

State to borrow up to $5 billion to buy energy
By Emily Bazar
Bee Capitol Bureau
(Published June 20, 2001)
State Treasurer Phil Angelides announced Tuesday that he will borrow up to $5
billion to pay for future power purchases, a move he said was necessary to
avoid a continued drain on California's budget and cuts in other state
programs.
Since mid-January, energy purchased by the state Department of Water
Resources on the spot market and under long-term contracts has come out of
the state's general fund, the source of most state spending.
Once the loan becomes final by the end of next week, however, energy will be
purchased with the proceeds.
Made possible by an emergency order from the governor, the loan ultimately
will be paid off by customers of the state's investor-owned utilities through
their electricity rates.
"In essence, it stops the general fund bleeding," Angelides said.
The state has so far committed $8.2 billion from the general fund to
electricity purchases. Of that amount, Angelides said the Department of Water
Resources has actually spent about $6.1 billion through June 12 on power
purchases, and has received about $900 million back from customers'
electricity rates.
Officials expect the loan to finance power purchases through September, when
they plan to issue up to $13.4 billion in revenue bonds.
The bonds will reimburse the general fund and and pay off the loan.
"This gives the state some more running room, some more cushion in case
anything goes awry with the bond sale to make sure ... the state does not run
out of general fund money, jeopardizing education programs, law enforcement
programs, children's and health services," the Democratic treasurer said.
Angelides said he has obtained firm commitments for $3.5 billion from JP
Morgan and Lehman Brothers at a blended interest rate of about 4.5 percent.
If the long-term bonds are not issued by Oct. 31, the interest rate would
climb to about 7 percent.
Lawmakers initially had hoped to close the short-term loan in May and float
the long-term bonds shortly thereafter. However, Republicans in the state
Legislature balked at the plan, forcing the delay of the bond sale until
mid-August.
Rather than wait, Gov. Gray Davis invoked his emergency powers to allow for
the loan and circumvent the delay.
Assembly Republicans don't mind that the governor used his emergency powers
to expedite the loan, said James Fisfis, a spokesman for the caucus. Instead,
he said, they're concerned the loan could backfire and hurt Californians.
"If the larger bond offering falls through, the penalties and added interest
could add up on ratepayers' bills," he said.
But Angelides argued that the loan would benefit ratepayers on several
fronts: Power generators can no longer argue the state should pay a "credit
premium" on electricity, he said, and for the most part will not be able to
walk away from long-term energy contracts that have provisions requiring the
Department of Water Resources to obtain external financing by July 1.
Outside the Legislature, the announcement drew praise from financial analysts
who had criticized the state for buying power with taxpayer money.
In late April, for instance, Standard & Poor cited fears over the state's
mounting power costs when it downgraded California's credit rating on state
bonds.
But S&P managing director Steven Zimmermann called the governor's executive
order a step in the right direction.
"We're very happy," Zimmermann said. "We were very anxious for the state to
take the general fund out of the energy purchasing position it's been in."

The Bee's Emily Bazar can be reached at (916) 326-5540 or ebazar@sacbee.com.

Dan Walters: Once burned, lawmakers are very wary of Davis-Edison agreement

(Published June 20, 2001)
The Capitol's politicians rarely attempt to resolve big, complicated policy
issues, preferring to occupy their time with relatively trivial matters --
which also tend to be the priorities of well-heeled and generous interest
groups.
And when they even acknowledge a need to address something big, they'll often
just nibble at the edges rather than confront the underlying conflicts
squarely. That's been the pattern on water, transportation, population growth
and public education, to name but a few of many examples.
The Capitol completed just one comprehensive, or seemingly comprehensive, bit
of policymaking during the last quarter-century. But the issue on that
occasion was electric utility deregulation, which has exploded into an energy
crisis of monumental proportions. And that experience is having a paralyzing
effect on the Capitol's denizens.
Some Capitol old-timers call it "1890 disease," named after the number of the
1996 bill that created California's fatally flawed system of pricing electric
power. The legislation was written largely by lobbyists for affected interest
groups and then presented to the full Legislature for take-it-or-leave-it
approval. The measure was passed without a single dissenting vote, even
though only a few lawmakers even began to understand its ramifications.
It was a huge failure of the legislative process, virtually a dereliction of
duty, and those who participated have been doing some fancy explaining. But
given the history, both veteran legislators and those who came to the Capitol
after 1996 are very leery about putting their names on additional pieces of
energy policy that could backfire if the real-world outcome is markedly
different from the purported effects.
One example is the $43 billion in long-term energy supply contracts
negotiated by Gov. Gray Davis' administration to end the state's dependence
on volatile spot market prices. When the long-term contracting program was
authorized by the Legislature early this year, it was on the assurances of
the administration that it could obtain large quantities of power at cheap
prices. But by the time that the contracts were made final, months later, the
average price was 25 percent higher than what was stated earlier, while the
spot market had fallen dramatically. Now the long-term contracts that seemed
like such a good idea in January and February could become financial
albatrosses.
An even more telling example is the deal Davis made with Southern California
Edison to keep the utility from joining Pacific Gas and Electric in
bankruptcy. The utilities accumulated at least $13 billion in debts in six
months, buying power at prices much higher than they were allowed to
recapture from their customers. Consumer groups are denouncing the Edison
deal as a corporate bailout that would impose multibillion-dollar burdens on
customers while imposing virtually no financial onus on Edison or its
creditors. And the deal's critics are pouncing on legislators' reluctance to
do something that might haunt them later -- especially in 2002, a critical
election year.
"Five years ago, lawmakers and the utilities foolishly foisted this
deregulation scheme onto California consumers, and now the governor and
Edison expect the ratepayers to pay billions more to save the utilities from
their own mismanagement and bad policy decisions," consumer gadfly Harvey
Rosenfield said Tuesday as legislative hearings opened on the Edison deal.
"This time, the whole world is watching the Legislature."
Harry Snyder of Consumers Union echoed Rosenfield's pledge to hold
legislators accountable. "It looks a lot like 1890," Snyder said. "It's too
big, (and) this is the same process all over again."
The sheer complexity and potential ramifications of the deal are weighing
heavily on lawmakers. "This is not a Mother's Day resolution," Senate Energy
Committee Chairwoman Debra Bowen said wryly as the hearings began. Davis and
Edison lobbyists are pulling out all the stops, but legislators are very,
very nervous about taking another big step that could generate public
backlash.

The Bee's Dan Walters can be reached at (916) 321-1195 or dwalters@sacbee.com
.

Senate Democrats lay back to see if FERC action provides rate relief

By Finlay Lewis
COPLEY NEWS SERVICE
June 19, 2001
WASHINGTON ) Key Senate Democrats called a truce Tuesday in the political
wars raging over California's energy crisis, as they adopted a wait-and-see
posture over the Federal Energy Regulatory Commission's latest order
restricting electricity prices across much of the West.
Senators of both parties expressed relief over FERC's action on Monday. But
Sen. Dianne Feinstein, D-Calif., said she was skeptical that the order would
end wholesale price manipulation by power providers or result in refunds to
overcharged ratepayers.
Feinstein and Sen. Gordon Smith, R-Ore., have prepared legislation seeking a
much tighter pricing formula than the one FERC used. But she asked that their
bill be set aside temporarily in deference to the agency's action.
"I think we should wait and see what happens," Feinstein said during a Senate
Energy and Natural Resources Committee hearing on the FERC order.
Democrats on the committee pressed FERC Chairman Curtis L. Hebert and the
four other commissioners on why they had not acted sooner to control the
daily price turbulence in the California energy market. A market-intervention
order issued by FERC in April was designed to cope only with energy-supply
emergencies, despite pleas by California Gov. Gray Davis and other California
Democrats for more drastic measures.
"It's time to stop blaming and start problem-solving," said Hebert, a
Republican appointed chairman by President Bush.
Hebert noted that electricity prices on the volatile spot market have dropped
considerably since the April order. Prices on the energy futures market have
also tumbled, as have natural gas prices ) a key component in the cost of
electricity.
On Monday, FERC unanimously ordered around-the-clock restraints on wholesale
electricity prices in California and 10 neighboring states over the next 15
months.
As was the case with the April measure, prices will be pegged to the costs of
the least efficient power provider when reserves in California fall below 7
percent. But when reserves are more plentiful, the prices will drop to 85
percent of the level established during supply shortages.
The order also provides for a 22-day period, involving arbitration and review
by an administrative law judge, for resolving price-gouging allegations and
providing refunds in cases of improper pricing.
Adamantly opposing price controls earlier, FERC acted after coming under
intense pressure from lawmakers of both parties. Republicans said they were
worried that their GOP colleagues in California would have been blamed and
possibly imperiled at the polls if FERC had failed to act.
Bush, who also took a hard line against price caps, blessed FERC's action
after it was taken.
Hebert criticized the bill advanced by Feinstein and Smith as an attempt to
solve California's problem by "bureaucratic fiat."
Their measure would calculate wholesale electricity prices based on the
reported production costs of the individual generators, with an added
allowance for a profit margin.
Hebert argued that the "mitigation price" that FERC will establish "is not a
blunt, arbitrary figure that bears no resemblance to market conditions and is
subject to political pressures and whims."
Meanwhile, Commissioner William Massey made it clear that he harbors
misgivings about the FERC measure, although he supported it.
He said the agency should have acted earlier to avoid the subsequent
"carnage" in California, has failed to provide guidelines that would assure
refunds to overcharged consumers and has acted questionably in allowing power
providers to impose a 10-percent surcharge to cover credit-worthiness risks.
Massey, a Democrat who has consistently criticized his colleagues for moving
too slowing in the California crisis, also said he wondered whether the order
would provide an unintended incentive for generators to continue using
inefficient units in order to assure higher profit margins for their more
modern facilities.
Sen. Barbara Boxer, D-Calif., said she would propose legislation later this
week designed to assure refunds to customers who have had to pay unfair
prices for their electricity.
"If FERC won't do it ... Congress should," Boxer said.
A spokesman for Sen. Jeff Bingaman, D-N.M., chairman of the committee, said
Bingaman agreed with Feinstein on the need for a time-out while the FERC
order is being implemented.
Gov. Davis will testify today (6/20) before the Senate Government Affairs
Committee, which is investigating FERC's role in the crisis. Hebert and the
other commissioners will also appear.

House panel erases Bush energy cuts

By Alan Fram
ASSOCIATED PRESS
June 19, 2001
WASHINGTON ) A House subcommittee voted Tuesday to spend $1.2 billion more
next year than President Bush proposed for energy and water programs,
underlining lawmakers' sensitivity to the West's power problems and their
desire for home-district projects.
The $23.7 billion measure, approved by voice vote by a panel of the House
Appropriations Committee, is normally one of the more routine of the 13
annual spending measures Congress must approve. But with this year's
escalating battle between Bush and Democrats over energy policy, the
measure's profile has been raised.
The bill would provide $18.7 billion for the Energy Department, $641 million
more than Bush requested and $444 million more than this year. Fiscal 2002,
which the bill covers, begins Oct. 1.
It also includes nearly $4.5 billion for the Army Corps of Engineers and the
hundreds of water projects it has under way across the country, $568 million
more than Bush proposed but $73 million less than this year.
The measure was approved shortly after top members of the committee met with
Bush at the White House.
Participants said Bush and the lawmakers reaffirmed their goal of keeping the
price tag of the 13 bills to $661 billion, which is one-third of the overall
federal budget. That would be a 4 percent boost over 2001, which many
Democrats ) and some Republicans in private ) say is too low.
"He said there would be attempts to raise this as we go through the process,
and let's stick with him," said Rep. Sonny Callahan, R-Ala., chairman of the
energy and water subcommittee.
Illustrating the pressures Republicans face, David Sirota, spokesman for the
Democrats on the committee, said the bill lacked the new spending needed for
renewable energy and other programs that could help alleviate power
shortages.
Under the bill approved Tuesday, renewable energy programs would get $377
million, $100 million more than Bush wanted and $1 million more than this
year. Nuclear energy, basic energy sciences, biological and environmental
research and a study of whether spent nuclear fuel should be stored at a
Nevada site would all get about what Bush proposed.
The bill's $7.03 billion for environmental cleanups is $699 million more than
Bush proposed. Programs aimed at containing the nuclear arsenals of former
Soviet states would get $845 million, $71 million more than Bush's plan.
Members voted to hold the brief meeting behind closed doors after citing the
national security sensitivity of publicly discussing some of the nuclear
weapons programs covered by the bill.

Davis, Regulators Face Off at Hearing

From Reuters

?????WASHINGTON -- California Governor Gray Davis, a Democrat, today blamed a
Republican-led energy regulatory agency for not doing enough to help his
energy-starved state and demanded refunds of $6.7 billion for alleged
price-gouging by power generators.
?????Davis, whose political future has been linked to his state's electricity
woes, was testifying at a Senate hearing with members of the Federal Energy
Regulatory Commission.
?????The hearing marked the first time that Davis met face to face with all
five FERC commissioners.
?????FERC regulates interstate electricity markets and has jurisdiction to
order refunds by power generators found to have overcharged utilities.
?????Earlier this week the agency, led by a Republican majority, rejected
Davis' pleas for strict caps on prices that soared above $400 per megawatt
hour last month.
?????Sen. Joseph Lieberman, the former Democratic vice presidential nominee,
heads the Senate Governmental Affairs Committee that quizzed the FERC
commissioners and Davis on efforts to stabilize the chaotic Western
electricity market.
?????Davis accused FERC of failing to act aggressively against alleged
price-gouging by out-of-state generators.
?????"To date, not a single penny in refunds has been returned to
Californians," Davis said. "It is unconscionable for the generators to profit
from their egregious overcharges. FERC must move quickly to enforce the law
and order the energy companies to give back the money."
?????Davis said the state is owed refunds of at least $6.7 billion.
California's grid operator has estimated that from May 2000 to May 2001,
power generators charged the state nearly $9 billion more than a competitive
market would warrant, he said.
?????California, the nation's most populous state, has been hit with a series
of rolling blackouts, the bankruptcy of its largest utility, and an economic
slowdown since the power crisis began last year.
?????The state is expected to convene a criminal grand jury to investigate
whether some power generators withheld supplies, shut down plants or
exploited the bidding process to drive up prices. Out-of-state generators
deny any illegal activity, saying the high prices simply reflect supply
shortages.
?????Today also marks the day that FERC's newly expanded "price mitigation"
program goes into effect in all 11 Western states with a wholesale price
limit of $107.9 per megawatt hour linked to a market formula. The plan had
previously applied only to California during emergency power outages.
?????Since FERC's action earlier this week, Senate Democrats dropped a
legislative effort to strictly cap electricity prices in the West. However,
California Democrats in the House were still trying to force a full vote on a
package of energy amendments, including a price cap.
?????The Bush administration and many Republicans oppose price caps,
contending they would discourage more power production.
?????Separately, today the U.S. Energy Department issued a study that
supported the White House's view that strict price caps would hurt, not help,
California.
?????The study found California faces about 113 hours of rolling blackouts
this summer, a level that would double if wholesale prices were capped at
$150 per megawatt because some 3,600 megawatts of generating capacity would
shut down. An alternative approach of setting a price cap based on production
costs plus $25 per megawatt would delay or close about 1,300 megawatts of
capacity scheduled to be built in the state, according to the study.
?????However, lawmakers from both political parties have scrambled for some
kind of solution to address the shortages in California well before the
congressional elections next year.
?????The FERC plan expands an existing "price mitigation" program in
California to 10 other Western states. The plan, which runs through September
2002, means that during nonemergency periods the price for wholesale power
cannot exceed 85 percent of the cost of electricity sold during a Stage 1
power shortage emergency in California.
?????A Stage 1 emergency is declared when electricity supplies fall below 7
percent of demand on the Western power grid.
?????The plan also imposes a 10 percent surcharge on all power sales into
California as financial protection for generators reluctant to sell to the
state's financially weak utilities.
?????Davis was due to meet the two newest FERC commissioners, Patrick Wood of
Texas and Nora Brownell of Pennsylvania, today. Both are former utilities
regulators in states that successfully deregulated their power industry and
nominated to the agency by President Bush.

Copyright 2001 Los Angeles Times

NEWS ANALYSIS
Energy on Agenda, but Issue Is Blame
Politics: Gov. Davis will try to sway voter anger toward the GOP as he faces
a Senate panel.

By RONALD BROWNSTEIN, Times Political Writer

?????WASHINGTON--When California Gov. Gray Davis testifies at a high-profile
Senate hearing today, the issue formally on the table will be the expanded
electricity price controls that federal regulators approved this week. But
the session's political subtext will be the escalating struggle between Davis
and national Republicans to determine where California voters look for
solutions--and blame--for the state's power woes.
?????In both California and Washington, Republican strategists believe Davis
is trying to manufacture a succession of conflicts with the White House that
will allow him to run in 2002 as much against President Bush as against
whomever the state GOP nominates in the gubernatorial race. In return,
Republicans are trying to shift the focus back toward Davis--most
aggressively through a California-wide television advertising campaign
organized by Scott Reed, a former executive director of the Republican
National Committee.
?????"Our goal is to get the focus back to Sacramento, where it belongs,"
Reed said.
?????Both sides see the same prize in this tug of war: the opportunity to
determine where most Californians direct their anger during what could be a
long, hot summer of power shortages.
?????"The situation is that the public's minds are not made up on this
issue--whether it is Sacramento or Washington who has acted too little, too
late," said Mark Baldassare, a pollster at the independent Public Policy
Institute of California. "That gives both sides an opportunity to get their
messages out. The stakes are fairly high in terms of how the public in
California ends up assessing blame over the next few months."

?????A Slight Uptick in Davis' Popularity
?????Overall, Davis' political situation appears to be stabilizing. After
months of runaway power costs, the prices the state pays for wholesale
electricity are falling and new plants will come online next month. And
following a free fall in private polls, Davis has seen his numbers tick back
up slightly. Similarly, a poll financed by independent power generators
showed that in mid-June, for the first time in months, Californians were
becoming slightly more confident that the crisis is easing.
?????Within the state Capitol, Davis is asserting himself, demanding that
lawmakers hold hearings on his rescue plan for Southern California Edison. On
Monday, he released details of a similar plan for San Diego Gas & Electric.
Last week, he announced an agreement that is likely to increase generation by
alternative energy producers, who account for about a fourth of the state's
supply.
?????"This guy is changing," said state Sen. Steve Peace (D-El Cajon), who a
few months back had been urging that Davis take a more aggressive stance on
the crisis. "There is a difference in his demeanor and focus."
?????Yet the energy crisis still looms as a vast cloud over a reelection
campaign that once looked like a stroll on the beach.
?????The paradox for Davis is that the substantive victory for pricecontrol
advocates at the Federal Energy Regulatory Commission meeting this week may
complicate his political goal of maintaining a heavy focus on Washington.
Though Davis and some congressional Democrats portrayed FERC's decision as
insufficient, it appears to have lanced the pressure for federal legislation
to impose the tighter price controls that Davis supports.
?????Sen. Dianne Feinstein (D-Calif.), a principal sponsor of that bill, on
Tuesday announced she would shelve the measure for six months to give the new
FERC plan time to work.
?????As a result, the political effect of the FERC ruling could be to shift
the focus away from Washington back toward decisions in Sacramento, which is
exactly what Republicans prefer. "Gray Davis is the dog that finally caught
the car," said Dan Schnur, a San Francisco-based GOP consultant. "Davis is
going to keep screaming about price caps and refunds, but now Republicans can
point to substantive action."

?????Davis: 'Much More They Should Do'
?????For months, Davis has criticized Bush for refusing to support
electricity price controls and other measures that the governor says could
ease California's energy crunch. At almost every opportunity, Davis offers
the same message: California is taking the steps it needs to, but Washington
has failed to help enough. That was precisely Davis' message Monday when FERC
significantly expanded the limited price caps it had imposed previously.
?????While saying that FERC had "finally taken a step in the right
direction," Davis added: "There is much more they should do"--including
providing refunds to California for alleged overcharges. The overall tone of
Davis' statement was much more skeptical about FERC's action than the remarks
from Feinstein, who described the decision as "a giant step forward."
?????Aides say Davis plans to repeat that two-part message in his appearance
today before the Senate Governmental Affairs Committee, chaired by Sen.
Joseph I. Lieberman (D-Conn.). In his testimony, and in a round of scheduled
television appearances, Davis will demand that FERC order refunds in the
range of $5 billion to $6 billion to the state, aides said. Davis also will
distribute to every member of Congress a 177-page book chronicling the
state's response to the crisis.
?????Inside the Bush White House, some officials see in Davis' cool response
to FERC's decision more evidence that the governor is determined to use the
White House as a foil in his reelection campaign. The prevailing view, one
official said, is that, no matter what concessions the administration offers,
Davis will immediately raise the bar and demand something else--the way he
did by talking about rebates as soon as FERC offered tougher price controls.
?????"That is Davis' M.O.," said one official involved in the White House's
energy strategy. "He asks the administration to do something, the
administration does it, and then he attacks the administration for not doing
enough. . . . He needs someone to blame."
?????Davis aides reject that characterization, arguing that the governor is
merely representing the state's interests against an administration that they
maintain is favoring energy producers over consumers. But Davis advisors
acknowledge that they have used focus groups to test campaign messages that
pin the blame for the energy crunch primarily on Davis' Republican
predecessor, Pete Wilson, and a "Republican president who has failed to stop
his rich friends in the energy industry" from gouging consumers, one aide
said.
?????"You don't have to tell people in focus groups more than once how this
is connected," the Davis aide said.

?????Gubernatorial Rivals Are Free of Blame
?????Baldassare, the independent pollster, notes it may be especially
imperative for Davis to keep Bush's energy decisions in the spotlight because
none of his potential Republican opponents in 2002--California Secretary of
State Bill Jones, former Los Angeles Mayor Richard Riordan or businessman
William E. Simon Jr.--is easily tagged with complicity in the problem. "None
of them were really involved in the decision-making over deregulation,"
Baldassare said. "The only one else to blame, in a political sense, is
Washington and the Bush administration."
?????The new independent advertising campaign against Davis was inspired
largely by the fear of that strategy succeeding--damaging the standing in
California not only of Bush but also of other Republicans, particularly those
in Congress. Reed, whose American Taxpayers Alliance is funding the ads, said
he decided to launch the campaign after Davis appeared to gain the upper hand
in the media debate following Bush's visit to California late last month.
?????"The Bush trip really changed the terms of debate about Davis' problem
and made it more of a possible national Republican problem," Reed said. "The
entire terms of debate turned around and was focused on the issue of price
caps as opposed to negligence on Davis' behalf. Our group is attempting to go
out and engage Davis."
?????To "engage" Davis, Reed's group, which has not revealed its donors, is
spending what he said would be $1.5 million on an initial ad criticizing
Davis this week, though a spot check of TV stations around the state
indicated a far more modest buy. Reed said the group is planning to air a new
ad as soon as this week.
?????Democrats plan to answer the ads with attacks of their own and will be
filing complaints with the IRS and other federal agencies about the anonymous
funding of the Reed ad.
?????Today's Senate hearing will give Davis another chance to respond to the
GOP and make his case for greater help from Washington. But Lieberman aides
acknowledge the hearing is likely to be much less confrontational than it
would have been if FERC had not acted Monday. The agency's decision "changed
the dynamic," the aide said.
?????That assessment may apply not only to the conflict between FERC and its
critics but also equally to the hostilities between Davis and the White House.
---
?????Times staff writers Dan Morain in Sacramento and Mark Z. Barabak in Los
Angeles contributed to this story.

Copyright 2001 Los Angeles Times

Blackout Forecasts' Dark Side
If optimists are wrong and the power runs out, California's energy crisis
could quickly cost lives and cripple the economy.

By JENIFER WARREN, Times Staff Writer

?????It's here. Summer 2001, the blackout season, is only a day away.
?????Already Californians anticipate power outages when temperatures rise. By
August, the occasional annoyances endured so far--stoplights gone dark,
computers, air conditioners and elevators idled--could seem almost quaint.
?????Gov. Gray Davis insists we needn't worry. Four large new power plants
are firing up soon, he said, and government's best and brightest are locking
up still more megawatts to help meet our peak summer need. Californians,
Davis predicts, will valiantly heed his call to conserve, helping the state
survive the hot months, no sweat.
?????With luck, he'll be right. Power prices have stabilized, and some energy
analysts are wondering whether California may have tamed the blackout beast.
?????But what if those plants don't get built in time, people don't trim
their electricity use 7% and energy imports are more meager than expected?
?????And what if the state gets hit by a summer that is not moderately hot,
as Davis bets, but blistering, record-setting hot?
?????Government experts who ponder such questions don't expect disaster in
the coming months. But they are planning for it nonetheless.
?????At best, they say, Californians can expect some gridlocked
intersections, an occasionally overloaded 911 system, perhaps some business
bankruptcies, certainly inconvenience. At worst, the Western power grid could
crash, causing uncontrolled blackouts that might lead to looting,
contaminated water supplies, even civil unrest.
?????"How bad could this summer get?" said state Sen. Joe Dunn (D-Santa Ana).
"This summer could be the worst disaster to ever hit the state of California."
?????Imagine it's a Thursday morning in the third week of July. Relentless
heat grips California, the curse of a stubborn high-pressure ridge that just
won't budge.
?????As air conditioners from Redding to Chula Vista lumber to life, managers
of the state's power grid in Folsom gulp their third and fourth cups of
coffee, stare at a bank of computers and begin to fret.
?????Demand is jumping. Supply is static, Canada and Arizona have nothing to
sell. It's looking tight.
?????Thirty minutes later, the picture is gloomier. A brush fire shuts down
transmission lines near Fresno, squeezing supply in the Central Valley. In
the Bay Area, the unusual heat drives demand well past projections.
?????By noon things look bleak. Operators of the Diablo Canyon nuclear power
plant near San Luis Obispo have cut output by 80%. The trouble? Chunks of
kelp have lodged in one of the plant's seawater intake valves, creating a
clog like one that plagued the facility in January.
?????With a chorus of groans, the grid's keepers scour the market for power
to offset the Diablo loss. No luck. As the mercury climbs and the Golden
State economy roars into full swing, electricity consumption ticks upward,
minute by minute. And when managers of a power plant near Long Beach cut
output because of a cracked turbine, everyone knows what it means.
?????Alert the utilities. It's lights out, California, for the fourth day in
a row.
?????Dr. J. Michael Leary dreads blackouts--not personally, but
professionally. Leary is an emergency room physician in the desert city of
Rancho Mirage. When air conditioners go on the blink there, the
victims--scores of them, mostly old folks--wind up in his ER.
?????In a normal year, 75% of his emergency patients are geriatrics. Like
infants, the elderly are unusually vulnerable to the heat. When blackouts
hit, they are most at risk.
?????"It's as if you lived in Maine and they turned the heat off in January,"
Leary said. "This is an extreme environment we live in. The effects can be
devastating."
?????Many desert seniors are on fixed incomes and live in mobile homes, some
of them poorly insulated boxes that turn into ovens under the brutal summer
sun. Take away the air conditioning and the humans inside start baking, quick.
?????For Leary, the specter of continual, back-to-back blackouts in
July--and, some predict, in June and August too--conjures images of an
82-year-old man, living alone in one of those mobile homes, taking medication
for heart disease. The cardiovascular drugs plague the man with numerous side
effects; one inhibits his body's ability to cool itself.
?????When a person gets overheated, body temperature eventually rises
uncontrollably. Then comes a nasty spiral of effects, and pretty soon "you go
into shock," Leary said. "Everything just shuts down."
?????On average each year, 371 Americans die from heat-related causes, more
than the number killed by earthquakes, tornadoes, hurricanes, lightning and
floods combined. In 1995, a record hot spell in Chicago killed 465 people.
Eleven Californians died from the heat in 1998.
?????A new report by the United Seniors Assn. predicts that more than half a
million elderly Californians could need hospitalization for heat-related
ailments this summer.
?????Some communities have laid plans for cooling shelters, wading pools and
other measures to provide relief. But will all who need help get it? Or get
it in time?
?????Out in the desert, paramedics expect a crush of 911 calls when the power
goes out and the ill, frail and frightened seek help. Leary and others at
Eisenhower Medical Center will be waiting, armed with ice packs, cooled IVs
and ventilators.
?????"I am very, very worried," the doctor said. "I think we'll see a great
toll in human suffering, even mortality."
?????California's tomato processors are no less anxious. They wash, cook,
peel, chop, mash and can about 1 million tons of tomatoes a week from July to
October--enough to account for half the world's supply. For them, a string of
unexpected power losses could mean economic ruin in a matter of days.
?????The reason lies in the peculiar nature of food processing--a sterile
system instantly contaminated if the power fails and the plant's precise
temperature is disturbed.
?????Once a batch of tomatoes is tainted, it must be thrown out--all 50,000
pounds. The plant must then be sanitized, a painstaking process that takes
about 36 hours.
?????"If you get hit by blackouts every third day for, say, two weeks, you're
starting, stopping, cleaning, restarting--it's a nightmare," said Jeff Boese,
president of the California League of Food Processors. "You could lose three
batches and be out $40 million before you knew what hit you."
?????Meanwhile, farmers with still more truckloads of tomatoes line up
outside the plant, waiting to be paid for their crop: "If we can't process
them, the farmers have spent an entire season growing them for nothing,"
Boese said.
?????In Sonoma County, the object in peril is the chicken. Egg producers
equip their laying houses with fans and swamp coolers to keep the hens
comfortable. Power is also needed to run giant refrigerators filled with eggs.
?????"In a blackout, those hens can overheat in no time," said Rich Matteis
of the Pacific Egg and Poultry Assn. "In 20 or 30 minutes, you could have
100,000 birds die."
?????Many large producers have backup generators, but they are not designed
for ongoing, intensive use. Will they hold up? Small-scale egg producers
often have no backup power at all.
?????Hundreds of other California businesses could suffer if summer shapes up
as bad as some predict.
?????The Valero Refining Co. of California, northeast of San Francisco,
produces 115,000 barrels of gasoline a day. Because restarting a refinery is
a complicated task, two or three blackouts close together could prompt
officials to shutter it until electricity supplies stabilize--costing
California about 10% of its gasoline supply.
?????At a Berkeley medical laboratory, doctors say power losses to their
freezers could destroy bone marrow needed to give young leukemia patients
lifesaving transplants. The state's 400 dialysis centers, where patients
without kidney function go to have their blood cleansed every other day, are
in the same fix. Few have backup generators, so when an outage hits,
technicians must crank the machines by hand.
?????Most Californians, of course, face far more ordinary consequences. The
scoreboards will fizzle at summer softball games, joggers on treadmills will
be stopped in their tracks, electric organs will go silent, leaving choirs to
sing without accompaniment.
?????Parents will be asked to retrieve children from day-care centers when
the lights and cooling systems conk out. Anniversary lunches may be ruined
when restaurants cannot grill salmon or blend margaritas.
?????Most people will tolerate occasional disturbances, psychologists say,
doing their part in a time of crisis. But what if such irritations become an
everyday fact of life?
?????Hundreds of "essential" energy users--including prisons, fire
departments and airports--are protected from blackouts, and hundreds more
have applied for exemptions. That means the pool of people bearing the
blackout burden is shrinking, so more frequent outages are likely.
?????Blackout predictions vary widely, but at least one forecaster, a
consultant for California water districts, anticipates an outage almost every
afternoon of every workday this summer if temperatures are unusually warm.
?????Californians are accustomed to trash compactors, giant-screen TVs and
having the Internet at their fingertips. How much deprivation will they
tolerate?
?????"So far, the version of blackouts we've experienced hasn't looked too
scary to people--it happens on a workday, in the afternoon, and you basically
have to come home and reset your VCR," said Dan Kammen, a professor of energy
and society at UC Berkeley.
?????But if outages become daily events, and start to invade the evening
hours, the public mood could change abruptly.
?????"When there's a disaster or crisis or trauma, people tend to act
heroically and work together," said Robert Butterworth, a Los Angeles
psychologist and trauma specialist. "But the civilized behavior only lasts a
short period. Then people start acting in unpredictable ways."
?????That tendency may be exacerbated, Butterworth said, by the nature of the
energy crisis--not a natural disaster, but a man-made one.
?????"People start to look for a scapegoat," he said. "People will look for a
target, and there's a tendency to strike out at whoever is closest to you."
?????One place that tendency may surface, Butterworth said, is on
traffic-clogged roads. Blackouts already have led to scores of accidents. Add
summer heat to the mix, and repeat the pattern day after day at rush hour,
and motorists' patience could wear thin, law enforcement officials say.
?????"We're bracing for . . . possible acts of violence and road rage," said
Sacramento County Sheriff's Lt. Larry Saunders.
?????Lon House is the water consultant who predicts California could see
blackouts almost every summer weekday. Among the worries for the 440 water
agencies he represents: losing the ability to pump water during wildfire
season.
?????"I'm telling them to be ready for a major earthquake every day this
summer--meaning all your power is out throughout your district for multiple
hours," House said.
?????House insists he isn't an alarmist. But on top of the fire fears, he
warns that blackouts of more than a few hours would allow air into water
pipes, contaminating supplies. If that happens, Californians would be urged
to boil their water until the system can be disinfected from one end of the
pipe to the other.
?????Though rolling blackouts are risky, they remain essentially a controlled
phenomenon, occurring when and where the grid managers and utilities decide.
Far more frightening--and devastating--are unexpected, cascading outages that
could shut down the entire Western power grid. It happened in August 1996,
leaving 4 million people without power during a triple-digit heat wave.
?????The problem began when power lines in Oregon sagged into trees and shut
themselves off. That triggered a chain reaction of automatic switch-offs and
oscillating surges of energy that ultimately shut down all four of the main
power arteries between California and the Pacific Northwest.
?????That robbed the system of thousands of megawatts--enough to power the
city of Seattle four times over--and scattered outages across California and
six other Western states. Thousands of customers were without power for more
than a day.
?????Though such an episode is rare, California grid managers say it is more
likely today because the system is taxed by the ever-increasing load of
electricity it bears.
?????"The system is very dynamic, and when it's heavily loaded and highly
stressed, like it is now, the smallest little thing could cause big trouble,"
said Kevin Bakker, who oversees California's connection to the greater
Western power grid.
?????If a massive, uncontrolled outage should hit, the ramifications could be
dizzying, said Mike Guerin, chief of law enforcement for the state Office of
Emergency Services. Police departments would probably go to tactical alert,
guarding against looting by criminals who might take advantage of disabled
alarm systems and darkened street lights.
?????In hot areas, cities might convert municipal buses--parked with air
conditioners running--into cooling shelters, Guerin said. The state would
provide emergency generators to nursing homes and others in need, while the
California National Guard might be called into action.
?????"With this kind of blackout scenario, you're not worried about the
bologna going bad in the refrigerator," Guerin said. "We're talking about
doctors doing surgeries on backup generators for three days. We're talking
about a lot of things we don't like to think about."
---
?????Times staff writers Nancy Vogel and Alexander Gronke and researcher
Patti Williams contributed to this story.

Copyright 2001 Los Angeles Times

FERC Move Short-Circuits Push for Hard Price Caps

By RICHARD T. COOPER and JANET HOOK, Times Staff Writers

?????WASHINGTON--The Federal Energy Regulatory Commission's decision to
impose full-time price ceilings on wholesale electricity in California and
the West appears to have deflated the congressional drive for a return to
traditional utility regulation.
?????Sen. Dianne Feinstein (D-Calif.), calling the "price mitigation" system
FERC unveiled Monday "a giant step forward," announced Tuesday that she is
pulling back her bill to force a return to the "cost of service" pricing
system that prevailed before deregulation. Republican Sen. Gordon Smith of
Oregon, a co-sponsor, agreed, as did Sen. Jeff Bingaman (D-N.M.), chairman of
the Senate Energy Committee.
?????House Democrats vowed to fight on for tougher controls, but they were
given little chance to succeed.
?????As a result, although the political blame game will rage on, the reality
of a long, ugly summer for California appears to have arrived: at least
several months of tears, toil, sweat--and fast-rising electric bills.
?????California consumers are likely to face an unpleasant paradox, energy
analysts said: Given present power shortages, blackouts are virtually
inevitable this summer. And, since state authorities are beginning to let
high wholesale prices flow through into retail bills after months of
subsidies, many consumers could face higher charges at the same time their
lights begin to flicker.
?????Even if FERC's order succeeds and wholesale prices fall, as they have
begun to do in recent weeks, consumers' bills are likely to rise. Since
retail charges lag well behind wholesale prices, closing the gap will
probably mean a period of higher costs for consumers, regardless of what
happens in wholesale markets.
?????There is light at the end of the tunnel, energy analysts said, but it is
probably a year away. And reaching it, they said, depends in part on
government officials taking no action that might spook investors and disrupt
present plans for expanding the region's capacity to generate and deliver
more power.
?????The new FERC system, which its designers said would provide temporary
price relief while preserving incentives for energy investment, imposes
cost-based curbs on wholesale prices throughout the West and covers all such
sales, not just those during periods of extreme shortages, as did the order
issued in April.
?????FERC Chairman Curtis L. Hebert Jr. told the committee the new system
will prevent "megawatt laundering" and other potential abuses. He said his
agency is "committed to ferreting out any forms of market misbehavior 24
hours a day, seven days a week."
?????With the apparent collapse of demands for more intervention, Congress
now seems ready to give FERC a year or more of leeway to see whether its plan
will curb wholesale prices and create what FERC member Linda Breathitt, a
Democrat, called "a breathing spell" in which California and the West can
"repair their dysfunctional markets."
?????"It still remains to be seen whether there can be manipulation, but I
think we should wait and see," Feinstein said Tuesday at a Senate Energy
Committee meeting attended by all five FERC members. The commissioners call
their new system "price mitigation," not price caps, but Feinstein said it
amounts to the same thing.
?????"Whether you call it price mitigation or something else, a rose is a
rose is a rose," said Feinstein, a member of the energy committee.
?????And Sen. Barbara Boxer (D-Calif.), appearing before the committee as a
witness, said: "I was very pleased with [Monday's] about-face by FERC. I
believe they have a new tone."
?????Democrats on the other side of the Capitol pledged to keep fighting for
traditional regulation, but with Republicans in control of the House, the
struggle appears to be largely symbolic.
?????House Democrats wanted to introduce amendments on price controls and
other energy policy to a mid-year supplemental appropriation bill due to come
before the House today. However, GOP leaders expected to block Democrats from
even offering the amendments on procedural grounds.
?????The most sweeping of the amendments would set cost-based limits on
wholesale energy prices in the West. Rep. Henry A. Waxman (D-Los Angeles) and
other sponsors insisted that the measure is still needed in spite of the FERC
action, which he said would continue to provide windfall profits to
generators, encourage suppliers to withhold power and do too little to
restrain the price of natural gas.
?????He called the FERC policy an "experiment" that is using California and
other Western states as subjects.
?????Similarly, Rep. Nancy Pelosi (D-San Francisco) said: "Although the FERC
decision [Monday] is a step in the right direction, I am concerned it does
not remove incentives for energy suppliers to withhold power, drive up prices
and gouge consumers."
?????The commission went as far as it did in part because of the specter of
broader price control legislation, Pelosi said. "They felt the heat, they saw
the amendments coming and decided to act."
?????And Rep. Bob Filner (D-San Diego), in an interview Tuesday, said he will
press ahead with legislation to impose hard price caps. "I would advise the
senators that after a year of dealing with these price gougers that they will
easily manipulate this latest order," he said, calling it a "Swiss cheese
order--full of holes."
?????Feinstein's shift put House Democrats in an awkward political position
because it came just as they prepared to make their big push for tougher
controls. But the Democrats tried to minimize the differences in legislative
strategy.
?????"She too is waiting to see if the FERC experiment works," Waxman said.
"I'm a little more skeptical, but we're both watching carefully."
?????As a political matter, a Democratic leadership aide acknowledged, the
FERC order muddies the debate at a time when Democrats have been working hard
to make it a defining issue--and one they had hoped would help them win
control of the House in the 2002 elections.
?????"It's hard to describe to people what the difference is between what we
want and what FERC has done," said the aide.
?????And Republicans said FERC's action had clearly taken the wind out of the
sails of price control efforts that some GOP strategists feared might have
passed the House.
?????"I would have thought [it would pass] last week," said John Feehery,
spokesman for House Speaker J. Dennis Hastert (R-Ill.). "But now, with what
FERC did, it takes a lot of air out of the balloon."
?????"I think the FERC action will dissipate that strong push," agreed Emily
Miller, a spokeswoman for House Majority Whip Tom DeLay (R-Texas). "It will
take the heat off."
?????House Majority Leader Dick Armey (R-Texas) said the message to Democrats
was, "It's time to come off your political high horse."
?????He said he wanted to keep Democrats from offering their price control
amendment to Wednesday's supplemental appropriation bill because the proposal
is "a political statement, not a policy statement."
---
?????Times staff writers Megan Garvey and Richard Simon contributed to this
story.

Copyright 2001 Los Angeles Times

Plan Won't Raise Rates, Davis Says
Edison: Governor seeks to assure Senate, where Democrats say action is a
bailout of nearly bankrupt utility.

By CARL INGRAM, Times Staff Writer

?????SACRAMENTO--Gov. Gray Davis sought to assure the state Senate on Tuesday
that his plan to save Southern California Edison from threatened financial
collapse would work without increasing customer rates.
?????Davis sent assurances to the Senate Energy Committee through his top
attorney, Barry Goode, who helped negotiate the controversial proposal with
the utility.
?????Senate Republicans have taken a wait-and-see attitude on the plan. But
they generally contend that the business of utilities belongs in the hands of
private enterprise.
?????But Democrats in both houses have charged that the deal between Democrat
Davis and Edison represents a state bailout of the nearly bankrupt
Rosemead-based utility. The analysis is shared by leading consumer activists.
?????At the first in a series of Senate hearings on the package, which is
considered all but dead in its current form, Sen. Byron Sher (D-Palo Alto)
voiced concerns about political problems with the plan.
?????He asked Goode, who was flanked at a witness table by Edison executives,
whether monthly bills of the utility's customers would increase as a
consequence of approval of the governor's package.
?????"Our models say there will be no additional impact on the ratepayers,"
Goode replied.
?????Other members appeared ready to pursue rate increase questions, but
Chairwoman Debra Bowen (D-Marina del Rey) cut them short. She said the issue
would be fully examined at a later hearing.
?????To spare Edison from going into bankruptcy and to restore its
credit-worthiness, Davis and executives of the utility reached a complex
compromise in April, the centerpiece of which was a state purchase of
Edison's transmission grid for about $2.8 billion, more than twice its book
value.
?????Edison has estimated that it owes $3.5 billion to creditors, including
wholesale power generators, as a result of deregulation of retail electricity
prices in 1996.
?????Because of a freeze in retail rates, Edison was prohibited from passing
its energy costs to customers.
?????Other features of the deal include dedicating a portion of consumer
rates to help pay off the debt, a guaranteed 11.6% rate of return to Edison
on its sales and investments, and termination of an ongoing Public Utilities
Commission investigation into financial dealings of Edison's parent company,
Edison International.
?????The energy committee held the hearing for fact-finding purposes and did
not consider the Edison bill, SB 78x by Sen. Richard Polanco (D-Los Angeles).
?????But the Davis-Edison deal has angered consumer activists, who contended
that bankruptcy for Edison would be preferable.
?????They deplored it as a bailout that would cost Edison customers $5
billion to $7 billion.
?????"If the Legislature makes the mistake of forcing the ratepayers of
California to pay one more penny to bail out these companies, we will put [an
initiative] right on the ballot," said Harvey Rosenfield of the Foundation
for Taxpayer and Consumer Rights.
?????Consumer organizations in 1998 put to the voters an initiative to junk
the 1996 deregulation law. The measure failed.
?????Rosenfield, Harry Snyder of Consumers Union and Matt Freedman of the
Utility Reform Network all asserted at a news conference that the Davis
rescue program should be killed.
?????Snyder, who opposed deregulation, said the governor's bill is shaping up
as a replay of 1996.
?????"It's too big, too complicated. . . . This is the same process that
brought about this [deregulation] disaster," Snyder said.
?????Separately, San Diego Gas & Electric agreed Monday to sell its
transmission grid to the state for about $1 billion on the same terms as
Edison.
?????With all the controversy surrounding the Edison deal, the chance of
SDG&E winning legislative approval of its sale is slightly better than 50%,
said Stephen L. Baum, chief executive of Sempra Energy, parent of SDG&E.
?????"I think there's a widely shared view in the Legislature that they don't
want the state in the long-term business of power procurement. . . . In order
to get Edison back into that business there has to be this infusion of
capital" to pay off past electricity debts and make the utility
credit-worthy, Baum said.
---
?????Times staff writer Nancy Rivera Brooks contributed to this story.

Copyright 2001 Los Angeles Times

State to Pay Electric Bill With Loan, Not Taxes

By MIGUEL BUSTILLO, Times Staff Writer

?????SACRAMENTO--California taxpayers, who have had to bankroll billions of
dollars in electricity purchases for the teetering power utilities, will soon
no longer see their money evaporate at record rates, under an executive order
by Gov. Gray Davis.
?????As early as next week, the order will stop the hemorrhaging of the state
budget by allowing Treasurer Phil Angelides to borrow $5 billion to buy
electricity. That money is expected to cover power purchases until this fall,
when the state plans to sell an unprecedented $12.5 billion in bonds to repay
the general tax fund and buy future electricity.
?????Angelides said Tuesday that he has already lined up $3.5 billion in
loans from two Wall Street firms, and expects to secure at least another
billion by next week, when he plans to close the deal and obtain the money.
?????The loan is critical, he said, because without it, electricity purchases
would completely deplete state coffers as early as October.
?????"In essence, it stops the general-fund bleeding," Angelides said. "What
this interim financing does is take the pressure off the general fund and,
hopefully, avert a cash crisis."
?????The loan could also ease concerns on Wall Street that California's risky
entry into the power business has placed the state budget in a precarious
position. Those concerns were one of the main reasons two major credit rating
agencies downgraded the state earlier this year.
?????"We have been looking forward to this day," said Ray Murphy, a vice
president at Moody's Investors Service, one of the two firms that downgraded
California's credit rating. "We view this as a positive first step toward
getting the state out of the power business. We wanted the state to get the
general fund out of the business as quickly as possible."
?????California has allocated $8.2 billion in taxpayer money for electricity
since January because the state's private utilities became too saddled with
debt to continue purchasing power on the open market. and massive blackouts
loomed.
?????Under a plan devised by Davis and approved by the Legislature, the state
budget is supposed to be reimbursed for the power purchases with the bond
issue, the largest in American history. The bonds, in turn, are to be paid
off by utility ratepayers through their monthly bills.
?????The bond issue, however, has been delayed by partisan politics and
complex legal issues raised by the bankruptcy of Pacific Gas & Electric Co.,
the state's largest private utility.
?????A bond sale initially planned for May is now scheduled for late
September, according to Angelides' latest estimate. The state's Public
Utilities Commission still needs to take a number of technical actions before
the sale can take place.
?????As a result, the state budget has been drained for power purchases far
longer than initially anticipated--a situation that has imperiled spending on
education, transportation and other critical needs, at least temporarily.
?????Angelides had earlier sought to secure a $4-billion bridge loan to repay
the state budget for power purchases until the bonds were sold, but was
rebuffed by Republicans in the Legislature, who argued that the loan was not
necessary.
?????Davis' executive order, issued late Monday as part of the Democratic
governor's emergency powers during the energy crisis, gives Angelides the
authority to press ahead.
?????But it does not allow the treasurer to use the loan to repay the budget
for the billions spent so far this year on electricity, as he had originally
intended. Rather, it permits Angelides to use the loan proceeds to assist the
Department of Water Resources, the state agency buying power, with its future
electricity expenses.
?????If the bond issue is further delayed, Angelides estimated, the loan
would gives California another four to six months before it would begin to
run out of money. Furthermore, the loan closes a potential loophole that
existed in the long-term contracts Davis had signed to stabilize the cost of
electricity, which would have let power suppliers walk away from the deals if
the state had not secured a source of financing by next month.
?????But Republicans warned that by entering into a bridge loan deal without
knowing when the bonds would be sold, Davis and the Democrats were incurring
major risks that could further drive up the price tag of the crisis.
?????The loan carries a blended interest rate of about 4.5%, but if it is not
repaid by Oct. 31, the rate jumps to 7%. Because the loan is to be repaid by
the bonds, which have been marred by a history of delay, GOP officials
Tuesday were already calling the bridge loan a "bridge to nowhere."
?????"The thing that is most troubling is that the governor did not bother to
consult with anyone," said Assembly Republican leader Dave Cox (R-Fair Oaks),
who learned of Davis' order from reporters. "It's disappointing, but the
governor does not seem to recognize there is a legislative branch."

Copyright 2001 Los Angeles Times

Edison Unveils Blackout Warning Plan
Technology: The utility will notify customers by Internet and telephone when
power might go out.

By DANIEL HERNANDEZ, Times Staff Writer

?????Southern California Edison on Tuesday unveiled a system that will
forecast coming blackouts over the Internet and by telephone.
?????Ordered by the state to create a warning system for customers as
California enters a summer that will almost certainly include rotating
blackouts, Edison is also preparing to use automatic phone calls, faxes and
wireless communications to alert subscribers to outages.
?????With these steps, Edison is complying with an order by the state Public
Utilities Commission, which in April told the company to notify customers of
coming outages. Privately held Pacific Gas and Electric Co. established a
similar program months ago.
?????Edison previously opposed a notification system, arguing that such a
system could incite looters and burglars. But police agencies, including the
Los Angeles County Sheriff's Department, saw more danger in not warning
customers, said Richard Rosenblum, an Edison senior vice president.
?????"On balance, [we concluded] it was preferable for public safety to make
that information available," Rosenblum said.
?????Consumer advocates said Edison's notification system is welcome, if
tardy.
?????"It's fair to say that Edison has been a little behind where PG&E has
been in trying to implement this," said Mike Florio, an attorney with the
Utility Reform Network and a member of the California Independent System
Operator board, which runs the state power grid.
?????Edison's Web site, www.sce.com, now features a pop-up screen that warns
of any blackouts coming in the next hour. It also links to a page, which can
be reached at www.outagewatch.com, that forecasts which "outage groups" will
be cut off next in the event of rotating blackouts. Detailed maps outline
which areas are included in each group.
?????The new Web features are expected to handle about 4 million simultaneous
users. Beginning this month, Edison customers also can learn their block
number by looking at their bills, said Edison spokesman Gil Alexander.
?????Outage information also will be made available on an automated phone
line, (800) 611-1911.
?????Edison officials are negotiating with another company to provide
additional warnings by e-mail, fax, phone and wireless communications. SDG&E,
which like Edison was required to inform customers of outage forecasts, has
moved more quickly, providing large industrial customers with blackout
notification via pager since June 4.
?????Up-to-the-minute outage reports also will be provided in several
languages to radio and TV stations, Edison officials said.
?????Edison officials emphasized that the new alert system can never be 100%
accurate, and that sudden blackouts, although rare, are always a possibility.
?????"We have planned as aggressively as we think is warranted, understanding
that you can't predict how your customers will respond," Alexander said.

Copyright 2001 Los Angeles Times

State Joins Challenge to Bush on Air-Conditioner Standards
Regulations: U.S. rolled back Clinton rule from 30% increase in efficiency to
20% on manufacturers' urging.

By JENIFER WARREN, Times Staff Writer

?????California and two other states joined environmentalists Tuesday in
suing the Bush administration over its decision to weaken efficiency
standards for home air conditioners.
?????The lawsuit caps weeks of criticism heaped on the administration after
it rolled back a rule requiring manufacturers to increase the efficiency of
air conditioners 30% by 2006.
?????That rule was adopted by President Clinton during his final days in
office and after years of research and debate. California and other
states--including Texas--endorsed it as a way to substantially cut energy use
and improve air quality.
?????But after reviewing the rule at the industry's behest, Bush
administration officials in April sliced the mandated increase to 20%. The
higher standard, they said, would have made home coolers too expensive,
especially for the poor.
?????Conservationists and consumer groups blasted the policy change, calling
it shortsighted at a time when California and other states are enduring an
energy crunch.
?????In California, residential air-conditioning accounts for about 15% of
the peak energy demand. Weakening efficiency standards, critics say, will
require as many as 60 new power plants nationwide, four in California.
?????"This is a time when we need to conserve electricity and reduce our
dependence on the large energy generators and importers," state Atty. Gen.
Bill Lockyer said in an interview. "Weakening this standard is precisely the
wrong message at precisely the wrong time."
?????In their lawsuit, Lockyer and the attorneys general of New York and
Connecticut allege that federal law bars the U.S. Department of Energy from
softening an appliance efficiency standard. A separate but similar suit was
filed by the Natural Resources Defense Council, the Consumer Federation of
America and another nonprofit group.
?????Joe Davis, the Energy Department's deputy spokesman, said there would be
no immediate comment on the suit, filed in federal court in Manhattan. He
added, however, that "we believe all of the actions of our decision-making in
the air conditioner standards are well within the law."
?????When Clinton's rule was issued in January, his outgoing energy
secretary, Bill Richardson, said the payoff in power savings and cleaner air
would be one of the administration's greatest environmental achievements.
?????But a trade association representing air conditioner manufacturers
challenged the new rule, arguing that it would dramatically increase costs of
the units--priced between $2,000 and $4,000--and thus discourage people from
replacing old ones.
?????The Department of Energy sided with the industry group in April.
Officials said Clinton's proposal would have added $335 to the price of a new
air conditioner, while the lower, 20% standard would boost prices only about
$213.
?????Others, however, say those figures do not take into account the
economies of scale gained when manufacturers increase production of the more
efficient units. When Congress passed the first efficiency standard for air
conditioners in the late 1980s, "industry said the sky was falling, and that
it would increase the cost of air conditioners by $700," said Andrew Delaski,
executive director of the nonprofit Appliance Standards Awareness Project. In
fact, he said, U.S. Department of Commerce data showed no price jump.
?????Dan Reicher, the assistant secretary of Energy under Clinton who oversaw
development of the stricter standards, added that high-efficiency air
conditioners "are not some exotic, untested technology."
?????"There are lots and lots of air conditioners already meeting the
standards--between 5% and 10% of the units sold today," he said.
?????Although most manufacturers support the Bush rollback, the second
largest maker of air conditioners--Houston-based Goodman Global Holding,
which produces the Amana brand--opposes it, saying any higher upfront costs
would be recovered by consumers in lower utility bills.
?????On Tuesday, the company's president, John Goodman, issued a statement
supporting the lawsuit, saying the tougher standard would "give consumers an
enormous cost saving, U.S. energy consumption will drop and our environment
will benefit from reduced air pollutant emissions and greenhouse gases."
---
?????Times staff writer James Gerstenzang in Washington contributed to this
story.

Copyright 2001 Los Angeles Times

New Price Caps Not a Deterrent, Power Firms Say
Regulation: Producers are unhappy with the federal action but say it is
unlikely to discourage them from constructing new plants.

By NANCY VOGEL and THOMAS S. MULLIGAN, Times Staff Writers

?????The expanded electricity price limits approved by federal regulators
could squeeze big energy traders but will probably not discourage power plant
construction in California, electricity producers said Tuesday.
?????Power plant owners and marketers said they had not had time to digest
the 53-page order and thus could not say exactly how it would affect
California and the 10 other Western states it covers.
?????But the companies generally asserted Tuesday that the order would not
deter them from investing in the vast, power-starved Western region--though
they have often raised such a prospect in arguing against price controls.
?????Whatever its long-term effects, Monday's order by the Federal Energy
Regulatory Commission appeared to have an immediate effect in dampening
prices in California's volatile daily, or spot, market.
?????The order does not take effect until today, but the prospect of new
measures aimed at limiting prices appeared to tame markets Tuesday.
Californians used more electricity at the late-afternoon peak than on any day
this year, yet market prices hovered around $100 a megawatt-hour.
?????That is well below the average of $284 a megawatt-hour that the state
paid for electricity from January through April, with prices soaring as high
as $1,900 at times of tight supply.
?????"All the markets in the West have come down," said Mike Wilczek, senior
power markets reporter for Platts, the energy market information division of
the McGraw-Hill Cos. "It's bearish news."
?????Nevertheless, several generators minimized the effects of the FERC
order, contradicting earlier warnings from some industry sources and
officials of the Bush administration who consider price limits to be
impediments to future investment in power plants.
?????"Calpine will have no problem operating under this order," said Joe
Ronan, vice president of regulatory affairs for San Jose-based Calpine Corp.,
which has three power plants under construction in California and plans to
build at least three others.
?????The federal order lasts only until September 2002, he said, and because
it sets prices based on the cost of running the most expensive, inefficient
power plant in the market, it should guarantee the owners of modern plants a
profit.
?????Another company planning major investments in California, Duke Energy
Corp. of North Carolina, said it will not be seriously affected by the
federal order because it has sold the output of its four California plants
well into the future.
?????"We've already forward-sold 90% of our generation for 2001 and 70% for
2002," company spokesman Pat Mullen said.
?????Reliant Energy Inc. of Houston, which owns five power plants in
California, was not so sanguine about the federal order, but it has not
backed away from plans to install more generators.
?????"We remain committed to California, as hard as it is to do business here
today," spokesman Richard Wheatley said. "We have plans that are on the
drawing boards for at least one, possibly two projects."
?????On Monday, Reliant Chief Executive Joe Bob Perkins called the FERC
action "more of a political response" than an acknowledgment of the gap
between electricity supply and demand in California.
?????"Price caps don't work," Perkins said, and he warned California
consumers against assuming that the energy crisis is over simply because
wholesale electricity prices have recently dropped to their lowest levels in
a year.
?????Prices are falling because of mild weather, not price controls, he said.
?????"Without sound economics that increase available supply and reduce peak
demand . . . consumers can only hope for favorable weather and look forward
to [rolling blackouts]," Perkins said.
?????Energy analyst Frederick Schultz of Raymond James & Associates in
Houston called the FERC order "a nonevent to the California generators"
because so much of their power is now being sold through long-term contracts.
?????However, every long-term deal reduces the size of the electricity
market, which supplies about 20% of California's needs. And that, in turn,
limits trading opportunities for such firms as Enron Corp., which profit on
the daily market's ups and downs, Schultz said.
?????Enron representatives did not respond to calls for comment.
?????The federal order imposes round-the-clock price curbs on wholesale
electricity sold in 11 Western states that are connected by transmission
grids.
?????Under the order, traders say, market prices will probably hover around
$100 a megawatt-hour, depending upon the price of the natural gas that fuels
most of the state's electric generating plants. Though that is well below
recent market prices, it is higher than the average of about $32 a
megawatt-hour that California utilities paid in 1999, before the state's
deregulated market spiraled out of control.
?????The FERC order dictates that the price for spot market electricity
across the West will be based on the cost of producing one megawatt-hour of
power at the least-efficient plant selling to California grid operators. May
31, when a previous FERC order based on a similar formula took effect, the
price set was $127 a megawatt-hour.
---
?????Vogel reported from Sacramento, Mulligan from New York.

Copyright 2001 Los Angeles Times

Wednesday, June 20, 2001
The FERC's Action Is Good, Bad,Ugly
By PETER NAVARRO

?????The Federal Energy Regulatory Commission's new wholesale price caps will
save the Western states literally tens of billions of dollars in electricity
bills. As wonderful as that sounds, the FERC order still allows wholesale
generators to extract enough windfall profits to drive the region into
recession.
?????The FERC's approach may also perversely lead to more air pollution and
natural gas shortages.
?????Let's look at what the FERC did right. First, the order approved Monday
establishes price caps on a 24/7 basis rather than simply during power
emergencies--a long overdue reform.
?????Second, the order protects the entire West, not just California. This
regional cap will end "megawatt laundering," whereby in-state generators sold
power across California lines and then resold it back into the state to evade
caps.
?????Third, the order closes the ridiculous broker loophole that made the
FERC's previous price caps Swiss cheese. Before, generators could redirect
their sales from the market to energy brokers who were exempt from the price
caps.
?????So where did the FERC go wrong? The problem may be traced to the two
competing methods of imposing price caps and the all-important concept of
"economic rent."
?????Economic rent, in the wholesale electricity market, is the market price
of electricity minus the producer's cost, where cost includes not just labor
and fuel but a "fair profit" on the invested capital as well. In traditional
regulation, this fair profit is calculated very simply as the market cost of
the money borrowed to build the power plant.
?????Under this definition, if the producer's cost is a nickel a kilowatt
hour and he can sell it for 35 cents--as producers in the West have been
doing--the producer can extract 30 cents of economic rent from consumers.
?????In California, the extraction of such economic rent through market
manipulation has taken place on a grand-theft scale. In 1999, California's
electricity bill was about $7 billion. Last year, it was almost $30 billion
for roughly the same amount of electricity. This year, California's bill is
well on its way to $50 billion annually.
?????To stop this rip-off, Gov. Gray Davis proposed "cost-based" price caps.
Such caps are calculated on a plant-specific basis. Each generator is allowed
to recover its cost of production, including the fair profit, but not a penny
more.
?????Thus, for example, a newer, highly efficient plant generating power at a
nickel per kilowatt hour would collect a nickel. The oldest, least efficient
plant that generated power for 20 cents would be allowed to collect 20 cents.
?????By setting different prices for different plants, the economic rents are
driven to zero. Yet each generator still has a fair profit incentive to
produce. From a public policy perspective, it's the best of all possible
worlds. And it was categorically rejected by the FERC. Instead, the FERC sets
a single price for all generators based on the cost of the "least efficient
plant."
?????The obvious problem with this umbrella pricing rule is that it still
allows generators to extract billions in economic rent from consumers.
?????In our previous example, and under the FERC's rule, the least efficient
plant still collects 20 cents a unit to recover costs. However, the most
efficient plant producing power at a nickel-per-kilowatt also collects 20
cents rather than a nickel and thus extracts a full 15 cents of economic
rent.
?????Thus, under the FERC's rule, wholesale generators still will be able to
capture tens of billions of dollars more from consumers and businesses than
under Davis' cost-based rule.
?????The FERC's approach is still subject to the same kind of strategic
gaming that has been the hallmark of this crisis. Generators will ensure that
during peak times, when the price cap is being established, the most
expensive possible plant is in operation--whether it needs to be or not. This
will peg the price at the highest level.
?????In addition, the FERC provides generators with a perverse incentive to
run their least efficient units more often. Since these least efficient
plants are also the highest polluting, the result will be dirtier air.
Moreover, the excessive running of these plants may also put a strain on
already stretched natural gas supplies. These least efficient plants use up
to 40% more natural gas to produce a unit of electricity.
?????The bottom line: The FERC "done good." But it could have done a lot
better. And the way things stand now, there still is a danger that higher
electricity costs could push California and the rest of the West--and
eventually the nation--into a nasty recession.
- - -

Peter Navarro Is an Associate Professor of Economics and Public Policy at Uc
Irvine. E-mail: Pnavarro@uci.edu

Copyright 2001 Los Angeles Times

Davis OKs stopgap loan
CRISIS POWERS: Action sidesteps Legislature
Greg Lucas, Sacramento Bureau Chief
Wednesday, June 20, 2001
,2001 San Francisco Chronicle
URL: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2001/06/20/MN173816.DTL
Circumventing the Legislature, Gov. Gray Davis used his emergency powers
yesterday to authorize borrowing up to $5 billion for energy purchases in
advance of a record bond issue.
Sidestepping the Legislature with a stroke of the pen, Davis' action
indicates that the state may need more time to prepare a $12.5 billion bond
issue this fall, the largest sale of its kind in history.
The Democratic governor's action was swiftly assailed by the Republican
leadership.
"This is not a dictatorship. It's a democracy," said Assembly GOP leader Dave
Cox of Carmichael. "There is a judiciary, a legislative side and an executive
side, and everyone has roles and responsibilities. Yet we continue to have
the governor say, 'I'm the only one around here that makes any difference.
The rest of you shall do my bidding.' "
Normally, it is the Legislature that has the power to raise and spend money,
and a governor may not spend a cent unless lawmakers allow him to.
But Davis has broad powers under the state of emergency, which he declared in
January to combat California's energy crisis.
NO ADVANCE NOTICE
The governor's aides declined to comment on yesterday's executive order and
gave no advance notice of it.
"This executive order, authorizing a bridge loan, will allow us to get
California's General Fund out of the power-buying business," was the
governor's only comment in a written statement issued last night.
State Treasurer Phil Angelides said lawyers had advised him and the governor
that such borrowing could be authorized by an executive order.
The loan from Wall Street will temporarily fill the $5.2 billion -- and
growing -- hole in the state budget created when the state began buying
electricity on behalf of the state's cash-starved utilities in January.
The idea is to tide the state over until a larger bond sale of $12.5 billion
can be arranged later this year. A portion of that sale will pay back the
$5.2 billion borrowed from Wall Street.
'STOPS THE BLEEDING'
"It stops the general fund bleeding," said Angelides. "It takes the pressure
off, and hopefully we'll avert a cash crisis."
The state runs out of internal borrowing power sometime in October. Angelides
said the loan would buy the state another four to six months.
The idea of a loan was floated earlier this year.
Cox and other GOP lawmakers objected, wondering why the state should pay
interest on borrowed money when it could still borrow from various accounts
within the state budget.
They refused to vote for a bill authorizing the larger bond sale of $12.5
billion, forcing a delay in issuing it until at least Aug. 14.
The idea of borrowing from Wall Street appears to have been abandoned, since
both Davis administration and legislative budget-writers said the state could
keep borrowing internally into October, well after the bond sale.
Yesterday's executive order authorizing the borrowing suggests that neither
Angelides nor Davis are confident that the steps needed to prepare the $12.5
billion bond issue for market can be completed before then.
Angelides had previously said he hoped to sell the bonds in early September.
Yesterday, he said the governor's "hope is to still sell long-term bonds by
Sept. 30."
ACT OF DESPERATION?
Sen. Tom McClintock, R-Northridge, described the executive order as an act of
desperation that "would suggest they are expecting the large bond sale to
occur later rather than sooner.'
Numerous actions must be completed before the bond sale.
Among them are the approval by the Public Utilities Commission of several
deals with the state and utilities, to ensure that enough money from
consumers flows back to bond buyers to pay off interest and principal.
Although Davis' executive order authorizes $5 billion in loans, Angelides has
only lined up $3.5 billion.
So far, only two lenders have come forward to offer the state a loan, J.P
Morgan with $2.5 billion and Lehman Brothers with $1 billion, at an interest
rate of 4.5 percent. If the long-term bonds are not sold by Oct. 31, that
will increase to 7 percent.
Angelides said he hoped to line up another $1 billion by next week, when the
loan deal occurs.
Assuming a loan of $4.5 billion, Angelides said the state would pay out $8
million in fees.
E-mail Greg Lucas at glucas@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?A - 1

Experts say state must seize the day
ANALYSIS: Price caps set stage for future
David Lazarus, Chronicle Staff Writer
Wednesday, June 20, 2001
,2001 San Francisco Chronicle
URL: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2001/06/20/MN58963.DTL
One day after federal authorities ordered long-sought electricity price caps
throughout the West, analysts said yesterday it is up to California to
respond with measures to bring an end to the state's long, frustrating
experiment with deregulation.
Possible steps the experts point to include raising power bills, easing
pollution controls and spending billions of dollars in taxpayers' money on
new plants.
"Gov. (Gray) Davis and his team have been making this up week by week," said
Paul Joskow, director of the Center for Energy and Environmental Policy
Research at the Massachusetts Institute of Technology.
"It's time for them to get together with the Federal Energy Regulatory
Commission (FERC) to come up with some solutions," he said. "The state needs
to get down to business and decide how the power market is going to look 18
months from now."
Easier said than done. To date, California's strategy for tackling its energy
woes largely has consisted of wheedling, cajoling and all but begging federal
officials to come to the rescue.
Now that the federal regulators have gone much of the way toward granting the
state's wishes, analysts said Davis and other officials must act swiftly and
decisively to further remedy California's prolonged power troubles.
For his part, however, the governor feels that federal regulators have not
done enough. He will push today during congressional hearings in Washington
for billions of dollars in refunds for California ratepayers.
"FERC has taken some first steps, but the proverbial fat lady hasn't sung,"
said Steve Maviglio, a spokesman for Davis.
This persistent focus on federal assistance could slow progress toward a
lasting solution to California's problems, some analysts believe.
"We are still likely to experience blackouts this summer," said Michael
Zenker, director of Cambridge Energy Research Associates in Oakland. "It's
not yet clear that the state will do what it can to address other aspects of
the problem."
Put simply, such steps would require enormous political courage -- and would
be very expensive. In the end, taxpayers and ratepayers will bear the burden
for this prolonged fiasco.
Among measures under consideration:
-- Raising electricity rates even higher. Although Californians got the
largest rate increase in state history last month, even higher charges would
promote conservation and lessen the need for California to borrow billions of
dollars in the bond market.
-- Loosening emissions restrictions for power plants statewide. This would
provide more electricity during shortages but turn back the clock on
California's strict environmental standards.
-- Building new plants at taxpayers' expense. This would guarantee a steady
supply of juice but would leave the state struggling for years to recoup the
huge investment costs.
Of the three, easing pollution controls is the easiest first step and the
most likely, analysts said. Such environmental protections have been roundly
criticized by power industry officials who claim the restrictions have
hampered the construction of new generating plants.
Taxpayer-financed power plants are possible under a new state power authority
backed by the governor, but the timing and financing remain undecided.
Higher electricity rates could be the toughest move to make, analysts agree.
They note that Davis will seek re-election next year and doesn't want to be
seen as the governor who sent voters' power bills into the stratosphere.
Already, critics are trying to paint him as the governor who was asleep at
the power switch.
As federal regulators were moving at last on the price-cap front this week,
another big development took place closer to home Monday when Davis disclosed
a tentative deal with Sempra Energy's San Diego Gas & Electric Co. The plan
calls for the state to purchase the utility's 1,800 miles of power lines for
nearly $1 billion.
As with a similar accord reached with Southern California Edison, the Sempra
deal is intended to counter the catastrophic effects of California having
deregulated wholesale power prices but not allowing the state's utilities to
pass on costs to customers.
Between them, California's three major utilities have rung up more than $15
billion in debt.
Here, too, the state appears unsure how to proceed. Both the Sempra and
Edison agreements require approval from the Legislature. It's anyone's guess
whether such approval is forthcoming.
"It's going to be a really, really tough sell," said Nettie Hoge, executive
director of The Utility Reform Network in San Francisco. "These aren't
fabulous deals."
ONE SCENARIO FOR UTILITIES
Rather, she believes the agreements will be reworked so that less taxpayer
money changes hands while allowing the utilities to retain possession of
their power systems.
Hoge said this could subsequently influence a speedy resolution of Pacific
Gas and Electric Co.'s bankruptcy proceedings. If it can avoid selling off
key assets like power lines, PG&E may be more open to any settlement plans
put forward by the state.
"The utilities are all going to end up with similar deals," Hoge forecast.
State Senate President Pro Tem John Burton, D-San Francisco, isn't so sure.
He observed that the Edison deal hinges on a sale of the utility's power
lines to the state, while the Sempra accord could stand even without such a
transaction.
"The two deals are totally unrelated," Burton said, adding that approval of
the Edison accord is "very much in flux." A bankruptcy filing by the state's
second-largest utility remains a distinct possibility, he said.
This would only increase the importance of price caps in bringing some
stability back to California's power market.
While the state's current rate freeze will continue cushioning consumers from
the volatility of wholesale electricity prices, the caps -- or "price
mitigation," as federal regulators are calling it -- will limit the amount
that power generators can charge on the open market.
SYSTEM HAS FLAWS
It is not a perfect system: Power companies can base prices on the cost of
running the least-efficient -- and thus costliest -- generating facility. But
this amount almost certainly will be below some of the more outrageous prices
seen when the sky was the limit.
On at least one occasion this year, California's wholesale power price topped
$3,000 per megawatt hour, compared with just $30 about a year ago.
"This is a plan that is good for California, good for the Pacific Northwest
and good for the entire West," said FERC Chairman Curt Hebert.
That remains to be seen. As it stands, the price caps will remain in effect
through next summer.
E-mail David Lazarus at dlazarus@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?A - 1

California's energy crisis hits Northwest like a tidal wave
Jeff Hammarlund
Wednesday, June 20, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/06/20/E
D165509.DTL
THERE WAS a time when many Northwesterners thought we could watch
California's energy crisis from a safe distance.
We have since learned that a major energy crisis does not stop at the Golden
State's borders but, instead, rolls over the Northwest like a tidal wave,
wreaking havoc with our economy and overwhelming our carefully crafted energy
policies.
As one Northwest utility official put it, "We learned that everyone else is
the tail. California is the dog."
To understand why the Northwest is now facing its own energy crisis and how
the energy problems in the Northwest and California each affect each other,
one must understand how the Northwest gets its power.
In the Northwest, falling water is our primary fuel. Depending on the
available snowpack, hydroelectricity produced at more than 200 dams in the
Columbia River basin generates between 60 and 75 percent of the region's
electricity. About two-thirds of this hydropower comes from 29 dams owned and
operated by the two federal agencies, the U.S. Army Corps of Engineers and
the Bureau of Reclamation.
By taking advantage of the region's geography and climate, the Columbia's
hydroelectric dams have produced some of the least expensive electricity in
the nation, power that has been the economic backbone of the region.
However, the Columbia's hydrosystem also has two curses.
One is that water conditions can vary greatly, and right now the Northwest
and California are in the middle of an extreme drought. The second is the
dams' negative impact on salmon. These dams operate under a federal salmon
recovery plan established under the Endangered Species Act that calls for
more water to be sent over spillways to help push the salmon downstream
instead of through the dams' power-generating turbines.
That power is sold at cost and transmitted to Northwest consumer-owned
utilities by yet another federal agency called the Bonneville Power
Administration. These "cost-based" rates cover the expense of repaying the
U.S.
Treasury for the cost of developing these hydropower projects, moving the
power over massive transmission lines, and supporting efforts to restore the
dwindling salmon runs.
Under federal law, Northwest consumers get preferred access to the relatively
low-cost power. Any surplus power can be sold, most often to California's
municipal and investor-owned utilities.
This Northwest "regional preference" to federal power was part of the deal
that led to the construction of the massive transmission lines, called "the
intertie," which first connected the Northwest with California and the
Southwest in the late 1960s.
For decades, the intertie worked almost flawlessly and to everyone's benefit.
During the summer, when air conditioners caused California's power use to
peak, many California utilities would supplement their needs by turning to
the Northwest. In the winter, when Northwest electric furnaces are turned on
for space heating, California utilities would return the favor and ship their
surplus power north.
Recently, the BPA has had to purchase large blocs of power on the wholesale
market to meet its contractual obligations to its Northwest customers.
The same exorbitant wholesale prices that began to plague California last
year have also affected the Northwest, meaning that the BPA has been running
out of money, and is now in danger of defaulting on its debt obligations to
the Treasury.
California's deregulation plan has affected energy relations between the two
regions in other ways. For example, the BPA has historically sold surplus
power to California for relatively low prices. However, the state's
deregulation law made it almost impossible for California utilities to enter
into favorable long-term contracts.
Instead, power had to be purchased at the much higher "market clearing price"
on the short-term spot market.
The BPA has taken extraordinary steps to help California keep the lights on.
At times, the agency even declared energy emergencies, which allowed it to
temporarily override salmon protections and use the water to generate power
for California rather than sweep salmon over the dams. California officials
have praised the BPA for its cooperation, but Northwest environmentalists and
tribal leaders complain that the BPA has been helping California address its
energy crisis by selling salmon down the river.
The Northwest will be helped by FERC's decision yesterday to extend limited
temporary price restrictions it had imposed in California in the spring to
other Western states during severe shortages. The order should also be good
for California. Without consistent price restrictions throughout the West,
power marketers would simply skip California during an emergency and sell at
higher prices elsewhere.
But not everyone is happy with the decision. Many critics say the rates are
still too high, and some critics said in s published report that the "order
rewards inefficiency by pegging price ceilings to the costliest California
gas plants."
The half-hearted response from FERC, along with continuing supply shortages
and other problems make it likely that California will continue to face
rolling blackouts and high utility bills -- even though they may not be as
high as we once feared.
The Northwest may follow suit next winter.
Some in our region fear that some desperate California political leaders
might try to wrest control of the BPA and a large portion of the Columbia
Basin's hydropower. The 6,600 megawatts of hydropower from the Columbia's
federal dams would only offer a few drops in the bucket for California's
massive 50,000-megawatt system, but its loss would devastate the Northwest
economy.
The four Northwest governors (of Washington, Oregon, Idaho and Montana) and
more than 40 state legislators met in February and agreed to explore ways to
ensure that the Northwest does not lose its regional preference to the
Columbia's hydropower.
Northwest governors have had some productive meetings with Gov. Gray Davis
and his staff this year regarding power sharing, and there are encouraging
signs that trust is growing at this and other levels.
Just last week, officials from the BPA, California's Department of Water
Resources, and the California ISO agreed on a plan that outlines when and how
the BPA may be able to help California during the expected summer shortages.
We will soon find out whether our two regions will succeed in collaborating
with or cannibalizing each other as we enter the next phase of the West Coast
energy crisis.
Ultimately, California's experience with energy deregulation makes the case
for a strong and supportive federal role in the energy markets. It also
reinforces the view that electricity should be treated as an essential
service and be sold at cost by utilities that are owned and controlled by the
public, rather than as a commodity and sold at the highest price.
In fact, something like a California power authority that places California
in charge of its own destiny makes more sense to me all the time.
Jeff Hammarlund is an adjunct associate professor and research fellow at the
Mark Hatfield School of Government at Portland State University where he
teaches graduate courses on energy policy. He is also president of Northwest
Energy and Environmental Str
,2001 San Francisco Chronicle ? Page?A - 19

Davis demands nearly $9 billion for electricity overcharges
H. JOSEF HEBERT, Associated Press Writer
Wednesday, June 20, 2001
,2001 Associated Press
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2001/06/20/nation
al1103EDT0569.DTL
(06-20) 08:03 PDT WASHINGTON (AP) --
California Gov. Gray Davis demanded that power generators refund nearly $9
billion in electricity overcharges and complained that federal regulators
have "looked the other way while energy companies bilked our state."
Davis told a Senate hearing Wednesday that the decision by the Federal Energy
Regulatory Commission to curtail price spikes in California and 10 other
Western states was a step forward. "But its actions do nothing about the
overcharges" over the past year, he said.
The governor, a Democrat, has been criticized by Republicans, who charge he
has allowed the California power crisis to get out of hand.
Davis defended his actions, saying the state has stepped up approval for new
power plants and strengthened conservation programs. He also said the state
has little control over price gouging by out-of-state power generators.
"The governor once said he could solve California's problems in 15 minutes.
... But it appears that California has continued to try and hide the true
cost of power by having the state pay for it instead of the utilities,"
putting California taxpayers in jeopardy, said Sen. Frank Murkowski,
R-Alaska.
Murkowski said many of the alleged overcharges are by public power entities
not under FERC jurisdiction
Sen. Joe Lieberman, D-Conn., chairman of the Governmental Affairs Committee,
said the FERC, which regulates wholesale electricity sales, has been slow to
respond and "surprisingly reluctant" to assure that electricity prices are
just and reasonable, as required by the 1934 Federal Power Act.
The agency's response to the Western power problem "raises serious questions
about whether (FERC) has or will oversee the newly deregulated energy
markets" not only in the West but across the rest of the country.
The federal agency, whose commissioners were to testify later in the day,
imposed limited, market-based price caps on Monday in California and 10 other
Western states from Washington to Arizona. The agency also ordered the
parties to attend a conference next week to try to work out agreements on
overcharges and other issues.
Months ago, the FERC singled out $124 million in alleged overcharges by power
generators. The power companies have since challenged the agency's findings
and the matter remains in dispute.
"To date not a single penny in refunds has been returned to California,"
complained Davis. He said that between May 2000 and the beginning of this
month power generators are believed to have overcharged California $8.9
billion.
"They must be required to give us back our money," said Davis. "It is
unconscionable that FERC looked the other way while energy companies bilked
our state for up to $9 billion."
The state spent $7 billion for electricity in 1999 and $27 billion in 2000
and is projected to pay nearly $50 billion this year, said Davis. "Power
generators have been able to exert extreme power over our energy market," he
said.
Davis rejected Republican criticism that the state is not addressing the
problem. He said newly approved power plants will provide 20,000 additional
megawatts of electricity by 2003, including 4,000 megawatts by the end of
this summer. "Everything that can be done to bring reliable, affordable
energy to California is being done ... except wholesale price relief," he
said.
"This administration has minimized this crisis (for) more months," said Sen.
Patty Murray, D-Wash., alluding to President Bush's repeated refusal to urge
the FERC to mitigate electricity prices. Bush has strongly opposed price
controls, although he indicated support for FERC's limited price mitigation
effort this week.
Murray said the government should issue a disaster declaration so that
businesses can get low-income loans, and require that FERC press its
investigation into price gouging and demand refunds not only in California
but in the Pacific Northwest, where electricity prices have also skyrocketed.
Republicans continued their opposition to more stringent price caps based on
the cost of generation at individual power plants.
"Having a federal agency try to determine what is a just and reasonable price
is laughable," said Sen. Fred Thompson of Tennessee, the committee's ranking
Republican. Hard price caps "don't work when supply is the problem. ... They
make a bad situation worse," he said.
After FERC issued its limited price control order this week, Senate Democrats
on Tuesday said they would drop legislation to require more stringent
cost-based price caps on Western electricity sales.
Democrats in the House, however, said they would continue to pursue a bill
requiring the FERC to take more aggressive action.
,2001 Associated Press ?

Fed price caps placate Demos
But Feinstein's bill to regulate energy producers was more strict
Carolyn Lochhead, Chronicle Washington Bureau
Wednesday, June 20, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/06/20/M
N145950.DTL
Washington -- With federal regulators moving to cap prices on wholesale
electricity, California's Dianne Feinstein and other Senate Democrats
yesterday withdrew their threat to do it for them.
"A rose is a rose by any other name," Feinstein declared to the five members
of the Federal Energy Regulatory Commission, the day after they unanimously
imposed a sweeping price ceiling on electricity throughout eleven western
states.
"I'm very grateful," Feinstein told the commissioners, who were called to
testify to the Senate Energy and Natural Resources Committee. "Let's watch
and wait and see how this order works."
Feinstein had been leading the Democratic charge in Washington to force FERC
to impose price controls; indeed, yesterday's hearing had been intended to
highlight the agency's inaction. Gov. Gray Davis is still billed to appear
today at another Senate panel headed by Sen. Joe Lieberman, D-Conn., to
investigate price gouging.
The 60-page FERC order, which takes effect at midnight tonight and remains
until September 2002, limits prices based on the cost of the least-efficient,
and therefore highest-cost, generating plant. It is intended to mimic the way
a competitive market functions.
While Democrats hailed FERC's move, power generators and marketers warned
that it would backfire, leading to more blackouts and stifling investment in
new power plants.
"It doesn't create or conserve a single megawatt in California or the West, "
said Enron spokesman Mark Palmer. "Government price controls always have
unintended consequences, and history has proven that those have never been
good for consumers."
Joe Bob Perkins, president and chief operating officer of Reliant Energy,
bluntly called the price caps "a political response" to California's crisis
that ignores the basics of supply and demand.
"Price caps don't work," Perkins said in a statement. "This fact has been
proven over and over in the context of virtually every business sector in
which government regulators have experimented with such measures."
The Bush administration, which has fought electricity price caps since taking
office in January, yesterday insisted that FERC had actually spurned them.
"It's important to note that FERC rejected price controls," said White House
spokesman Ari Fleischer, who instead called it "a market-based mitigation
plan."
He added the order is "in keeping with the president's desire to help the
state of California and to make certain that there is no illegal price
gouging carried on by any companies."
FERC's action coincided with the arrival of two new Bush appointees to the
agency, Patrick Henry Wood III, a former Texas utility regulator, and Nora
Mead Brownell, a former Pennsylvania regulator.
The soft-spoken, boyish-looking Wood yesterday sought to allay Feinstein's
lingering concerns that the new price control scheme would still permit
generators to manipulate the market.
Feinstein's bill would have gone further than the new FERC plan, imposing a
cost-of-service based price cap that would return California to the
regulatory regime it had before its 1996 electricity restructuring.
"I am personally not allergic to that sort of remedy," Wood told the panel -
- a position that is toxic to the Bush administration's former opposition to
price caps. "The cost-of-service regime was good enough for 80 years," Wood
said. "We're trying to move away from it but we can still do it."
FERC's action, followed by Feinstein's bill withdrawal, quickly defused a
mounting political confrontation between the Bush White House and Democrats
over price caps -- one that saw Capitol Hill Republicans beating a retreat.
Democrats argued that Bush, by refusing to impose price controls, was
allowing out-of-state generators based mostly in Texas to gouge California
consumers.
The administration, especially Vice President Dick Cheney and Energy
Secretary Spencer Abraham, had insisted that price controls would backfire by
reducing electricity sales and power plant investment, making the state's
blackouts worse.
Yesterday, Sen. Gordon Smith, an Oregon Republican who co-sponsored
Feinstein's bill, as much as said the White House would have lost the fight.
Smith said their measure "would have won large majorities in both the Senate
and House" had it gone to a vote.
E-mail Carolyn Lochhead at clochhead@sfchronicle.com
,2001 San Francisco Chronicle ? Page?A - 11

Potrero Hill power plant hit by 2 lawsuits
Neighbors, city ask court to cut back hours of operation
Rachel Gordon, Chronicle Staff Writer
Wednesday, June 20, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/06/20/M
N238116.DTL
The San Francisco city attorney joined forces with environmental and
community groups and sued in federal court yesterday to force the operator of
the Potrero Hill power plant to cut its ramped-up electricity output until
more rigorous pollution controls are installed.
The plant, run by Mirant Corp., increased its output in response to Gov. Gray
Davis' move to relax environmental laws on power producers and generate more
electricity for Californians.
The lawsuits, filed against Mirant in U.S. District Court, allege the company
is illegally operating its so-called peaker plants. The suits appear to be
the first challenge in California to Davis' efforts to produce more power.
The Potrero Hill plant, which runs during times of peak demand, has a total
of six turbines that generate 156 megawatts of electricity, enough to power
156,000 homes. Each turbine is permitted to operate 877 hours a year -- a
threshold that already has been exceeded.
Mirant struck a deal March 30 with administrators of the Bay Area Air Quality
Management District -- the regional agency that regulates air pollution -- to
run the plants as much as needed to keep up with the energy demand. In
return, Mirant will pay $20,000 per ton of excess emissions of nitrogen
oxides, a pollutant that causes smog. The company placed $400,000 on deposit.
"The Mirant Corporation is behaving like an outlaw and the air district is
their willing accomplice in violating clean air laws," said Mike Thomas, an
organizer with Communities for a Better Environment, one of the plaintiffs.
The other groups that sued are Bayview-Hunters Point Community Advocates and
Our Children's Earth.
The city filed a separate suit over the same issue.
The lawsuits ask the court to order Mirant to stop operating beyond the 877-
hour cap until it obtains new permits. The city and environmental groups
argue the permits for expanded operation are required by the federal Clean
Air Act.
The lawsuits also demand that more stringent pollution controls be installed
on the peakers. The increased power production poses a potentially serious
health risk to the people who live and work in the surrounding neighborhood,
the plaintiffs charge.
Because the peaker plants weren't originally intended to run full time, they
aren't equipped with the most up-to-date pollution controls.
The plaintiffs also allege the air district regulators violated the
California Environmental Quality Act by failing to conduct thorough reviews
of the expanded operation and not allowing for public comment.
"We as a city are not saying no to power. We're saying there's a process and
they need to follow it," said San Francisco Supervisor Sophie Maxwell, who
represents District 10 where the power plant is located.
Terry Lee, a spokesman for the air district, said her agency and Mirant did
nothing illegal. Mirant spokesman Patrick Dorinson concurred.
They pointed to Davis' executive orders earlier this year that gave power
companies the right to step up production without going through the normal
permit process and adhering to the stricter pollution controls.
William Rostov, an attorney for Communities for a Better Environment,
contends Davis does not have authority to override federal air quality laws.
Lee said the U.S. Environmental Protection Agency signed off on the
governor's plan.
The plant, near 23rd and Illinois streets, long has been a target of
neighbors trying to close it. Mirant is hoping to build a new 540-megawatt
plant on the site that uses cleaner-burning natural gas. The existing plant
burns highly polluting distillate oil.
Lee said the money Mirant is paying for the extra emissions will help reduce
air pollution in Potrero Hill. The efforts include placing filters on Muni
diesel fuel buses that operate in the neighborhood and installing a lower-
polluting engine on a tug boat that runs off the nearby shores.
"Is this a perfect situation? No," Lee said. "But under the governor's
executive orders this is the way we're proceeding."
E-mail Rachel Gordon at rgordon@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?A - 13

Washington wakes up

Wednesday, June 20, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/06/20/E
D40132.DTL
WASHINGTON, after all, does feel our pain. Partial but reasonable price
controls will contain wholesale electricity prices beginning today under a
long-sought ruling by the Federal Energy Regulatory Commission. It's about
time.
Where was this agency until now, and why the sudden willingness to help?
Politics.
At first, the Bush administration denounced controls as market interference
that would chase off investment in power generation.
But the peril has spread beyond California to other Western states, whose
governors are Republicans. Mid-term elections for Congress are coming up next
year. Also, the White House was besieged by California Republicans and
business groups worried about blackouts and price gouging.
President Bush finally sounded the retreat the day before the commission
vote. He could accept a "mechanism" that would "mitigate any severe price
spike." He insisted that the final results were not firm price controls,
which arguably they are not.
Gov. Gray Davis, who begged for help for months, said the final package
didn't go far enough. What he wanted were tougher limits pegged to generation
costs, plus a profit figure of 30 to 50 percent.
The final formula approved by the commission amounts to a loose-fit limit
that should dampen the absurd price surges that have endangered the state.
The 24/7 plan rewards modern plants by setting prices based on the
least-efficient power producers. It covers 11 states, not just sickly
California.
There is room for doubt. Canny operators may find ways to exploit the pricing
mechanism. Also, California will be whacked with a one-state-only surcharge
of 10 percent. The commission took no action on another Davis complaint that
power generators may have overcharged the state by $6.2 billion.
Still, the new limits may be the most anyone could expect. Consider how far
Washington has come: A hidebound ideology has given way to real-world
recognition of a huge problem. U.S. Sen. Dianne Feinstein acknowledged as
much yesterday when she dropped a measure to impose stricter price limits.
California's troubles aren't over. Conservation remains supremely important.
New power plants need approval and speedy construction. The financial damage
to state utilities and the state's coffers needs attention. The severity of
summer blackouts is a wild card.
The federal controls add a measure of protection from this volatile mix. It's
a shame that help didn't come sooner.
,2001 San Francisco Chronicle ? Page?A - 18

Feinstein halts electricity price caps bill
Posted at 12:15 a.m. PDT Wednesday, June 20, 2001
BY JIM PUZZANGHERA

Mercury News

WASHINGTON -- Like a steam valve on an overheating boiler, the move by
federal regulators to enact broad new electricity price controls in the West
has relieved much of the growing political pressure for stronger action --
for now.
Sen. Dianne Feinstein removed one major source of that pressure Tuesday.
Satisfied that the Federal Energy Regulatory Commission has taken ``a giant
step forward'' in curbing California energy prices, Feinstein withdrew her
legislation to enact price caps on wholesale electricity prices throughout
the West.
``Let's watch and wait and see how this order works,'' the California
Democrat told members of the commission during a Senate hearing.
But while the battle over the actions of federal regulators may have
subsided, the larger political war over energy prices continues.
California Gov. Gray Davis, who has been pounding away for weeks at the Bush
administration for not providing enough help to the state, will step into the
fray here today. The governor will appear at a Senate hearing where he will
praise federal regulators for moving in the right direction with the new
plan. But he's also expected to continue to press for harder price caps and
criticize federal regulators for taking months to act while the state drained
billions from its budget to pay for electricity.
In addition, Davis will question some aspects of the plan, such as the lack
of strong action on forcing refunds from suppliers. ``He wants to make sure
that Congress gets the message loud and clear that we want our money back
from the overcharges by generators,'' said Davis media representative Steve
Maviglio.
But the Republicans are just as eager to lay responsibility for the
electricity crisis on Davis, who is up for re-election next year. A
hard-hitting Republican-backed TV ad campaign in California organized by
Scott Reed, a former executive director of the Republican National Committee,
blames the governor for failing to act quickly when the crisis first emerged.
The politics of shifting blame are likely to set the tone for the hearings
organized by the new Democratic chair of the Senate Governmental Affairs
Committee, Sen. Joe Lieberman, D-Conn. Davis and all five FERC commissioners
have been invited to the hearing to determine if the commission has lived up
to its legal obligation to ensure ``just and reasonable'' electricity prices
in California.
Price controls
With that oversight hearing pending this week, the commission called a
special meeting Monday and took stronger action. It expanded existing
electricity price controls around the clock and to 11 Western states. Under
the commission's plan, ceiling prices will be set that suppliers can exceed
as long as they provide justification for the higher price. A hard price cap
would set a price that could not be exceeded.
Commission Chairman Curt H,bert, a Republican, said politics played no role
in enacting the new plan. But Commissioner William Massey, one of two
Democrats on the five-member commission, acknowledged that political pressure
in recent weeks from Republicans and newly empowered Democrats in the Senate
had an impact.
``We are an independent agency but we operate in a highly charged political
environment. I would not imply that we did not rule on an independent basis
here, but you know, this is Washington, D.C., for God's sake,'' Massey told
the Mercury News on Tuesday. ``I think that it was enlightening to the agency
that this wasn't just a Democratic question, this was Democrats and
Republicans throughout the West saying, `My God, solve this problem.' And so
we hope we have.''
The White House, which had opposed any form of price controls, also moved to
adjust to this political reality.
``To the degree that it is a market-based program, this is in keeping with
what the president said, and the president is pleased to be able to help
California in that manner,'' White House press secretary Ari Fleischer said.
``It does not change the president's fundamental view that a separate
economic matter, which would be price controls, would not be productive.''
But Democrats are eager to point to the shift as evidence that the White
House realized it was paying too high a political price for its earlier
position, insisting that the electricity crisis was largely California's
problem to solve.
``The Bush administration is realizing the jig is up. The game is over,''
said Sen. Barbara Boxer, D-Calif. ``Their attitude of hands-off has hurt them
deeply.''
Democrats in the House have vowed to continue pushing for a vote on their own
price-caps bill. The legislation is adamantly opposed by Republican leaders
in Congress, who believe FERC's actions Monday are enough government
intervention.
``I hope that its actions are based on market principles, not political
half-measures,'' said House Majority Whip Tom DeLay, R-Texas. ``It's now time
for Governor Davis to stop pointing fingers and shifting blame.''
Feinstein has vowed to quickly resurrect her bill if electricity prices shoot
up dramatically. Boxer said she will introduce legislation to force FERC to
order power suppliers to refund what the state says are billions of dollars
in overcharges for electricity purchases.
Meeting on refunds
The commission has set up a conference for the state, suppliers and utilities
to settle the contentious refund issue by July 10. If no settlement can be
reached under the auspices of an administrative law judge, the judge will
make a recommendation to the commission and it will resolve the dispute,
H,bert said.
Massey had supported Feinstein's legislation to force him and his fellow
commissioners to enact price caps. But after the commission unanimously
approved its expanded price-control plan, he joined the four other
commissioners Tuesday in urging the Senate Energy and Natural Resources
Committee not to pass such a law.
The commission's chair, H,bert, strongly warned against legislative action,
saying, ``I believe in my heart, and I know in my educated mind, that we are
on the right track.''
But the issue disappeared Tuesday as Feinstein and the Republican co-sponsor
of the price-cap legislation tabled their plan.
``I think it renders substantially moot the legislative efforts that she and
I were pursuing,'' Sen. Gordon Smith, R-Ore., said of the commission's new
price-control plan. ``And I do believe that effort would have won large
majorities in the Senate and the House, and so I think what you are doing is
reflecting the will of the elected representatives of the American people.''
Feinstein said that whatever the commission calls the plan, it is close
enough to hard caps to merit a chance to work.
``I view this action by FERC as a giant step forward and I'm very grateful to
you,'' she told the commissioners. ``I also view the fact that Senator Smith
and I have worked hard on this bill perhaps has been helpful in urging you
along.''

FERC's fixes have fallen short
Published Wednesday, June 20, 2001, in the San Jose Mercury News
BY FRANK WOLAK
ON Monday, for the third time in the past eight months, the Federal Energy
Regulatory Commission, the agency charged with regulating wholesale
electricity prices in California, implemented remedies that it claims will
set just and reasonable wholesale electricity prices. This is a case where
the third time is unlikely to be a charm.
As chairman of the Market Surveillance Committee of the California
Independent System Operator, the independent committee formed by FERC to
monitor the California market, I have analyzed the results of FERC's previous
attempts. They reveal a misunderstanding of important details of the
California electricity market. It is therefore not surprising that they have
been ineffective.
Starting in November of 2000, FERC acknowledged that wholesale prices in
California during the summer of 2000 were unjust and unreasonable. Its
December 2000 order implemented the first set of remedies. Both the
California Power Exchange Market Monitoring Committee and the committee I
chair pointed out important shortcomings in FERC's analysis of the California
market and argued that its remedies would most likely harm, rather than
enhance, market performance.
At this time, FERC also did not order refunds for the unjust and unreasonable
prices, even though it acknowledged the prices reflected the exercise of
market power, which is the ability of a producer to force prices higher. The
Federal Power Act requires refunds under these circumstances. But FERC said
it was unable to find specific instances of firms exercising market power.
This makes no sense. If FERC finds that prices indicate market power, then
the generators who bid those prices are exercising market power.
Following the implementation of these remedies, conditions in the California
market deteriorated far beyond what had been predicted by the two market
monitoring committees. Even though January and February are the lowest demand
months of the year, average wholesale electricity prices were almost 10 times
higher in 2001 than they were during the same two months of 2000 and almost
double the average price during the summer of 2000. In January, March and
May, California experienced several days of rolling blackouts and had system
emergencies almost every day during January and February of 2001.
IN April, FERC made another round of market rule changes designed to lead to
just and reasonable prices. However, in response to growing pressure from
Congress, less than 10 days after these remedies were implemented, FERC
enacted its most recent order.
Before Congress declares victory, it should verify that FERC's most recent
plan achieves the following two goals.
First, the plan should guarantee that the average price of wholesale
electricity paid by California over the next two years is equal to the
average price that would occur in a competitive electricity market, with
California's current supply and demand conditions and fuel costs. The Federal
Power Act requires not just a high probability of just and reasonable rates;
it requires that they occur with certainty.
The second goal is to alter the incentives faced by all market participants
so that it will no longer be profit-maximizing for a firm to withhold
electricity from the market in order to drive up prices.
FERC's most recently implemented plan does not achieve either of these goals,
although it does come closer than any previous attempts.
One solution satisfying both of these goals has been proposed to FERC. In a
December report to FERC, the Market Surveillance Committee of the California
ISO proposed a one-time regulatory intervention. This intervention would
require that each generator serving California sign a forward contract
guaranteeing that California consumers can purchase 75 percent of the
generator's expected output over the next two years at a specified
competitive benchmark price. Once a firm has signed these forward contracts,
it is free to sell all remaining energy in the western U.S. wholesale market
at whatever price it can obtain.
The obligation to provide power under the contracts, and the incentive to
sell 25 percent of power at unrestricted prices, would prevent generators
from withholding power.
Unless FERC implements a solution satisfying these two goals, Congress should
require FERC to suspend the market-based pricing authority for all suppliers
in the Western U.S. for the next two years and order all sales during this
period at cost-of-service prices. This will guarantee that FERC meets the
statutory mandate of the Federal Power Act in California.

Frank Wolak is a professor of economics at Stanford University.

Wednesday, June 20, 2001

Easing the crunch on costs of power
It could have been worse. Yesterday the Federal Energy Regulatory Commission
expanded limited price caps on electricity to cover 11 Western states and to
last 24 hours a day during an emergency.
This follows an action in April that imposed caps only in California during
the hours the state declared a power emergency.
Under the new rules, "when reserves are below 7 percent in the California
Independent System Operator spot markets ... the maximum price that can be
charged for spot market sales ... will be 85 percent of the highest hourly
price that was in effect during the most recent Stage 1 [emergency] called by
the ISO," the FERC explained yesterday.
The order will last until Sept. 30, 2001.
The action came after intense pressure by Democrats and the Bush
administration on the FERC, whose three Republican and two Democrat members
all voted for the new controls.
It also comes after continuing stories about "gouging" by suppliers. On
Sunday, the Register reported how Tulsa-based Williams, an energy supplier,
manipulated the market to keep prices high.
And after Gov. Gray Davis last week attacked Los Angeles' government-run
Department of Water and Power for gouging the state on electricity purchases,
reported the Los Angeles Daily News, "the DWP caved in, and agreed to start
selling the state power at 'cost'."
The new FERC ruling certainly is better than the demand for across-the-board,
continuous price controls demanded by Gov. Davis and other Democrats.
"They're trying to let the market do the best it can under tremendous
pressure," Robert Michaels, a professor of economics at Cal State Fullerton,
told us of the FERC members. "It's explicitly only for one kind of power,
that on short-term, so-called spot market kinds of exchanges. Most power is
under other kinds of contracts not touched."
The main effect of the new order is that, unlike full-blown price controls,
it should not discourage the construction of new power generators.

[B] POWER UPDATE/ US Senate panel to hold off vote on Calif. cap bill

June 20, 2001

(BridgeNews) June 19, 2124 GMT/1724 ET
................................................................. TOP
STORIES:
US Senate panel to hold off vote on Calif. power cap bill
San Francisco, June 19 (BridgeNews) - U.S. Senate Energy and Natural
Resources Committee Chairman Jeff Bingaman, D-N.M., plans to hold off on
voting on a bill for U.S. West power price caps following a request by fellow
senators Dianne Feinstein, D-Calif., and Barbara Boxer, D-Calif., according
to an aide in Bingaman's office Tuesday. ( Story .20121 )
IPE says merger with ICE complete; will keep IPE name
New York, June 19 (BridgeNews) - London's International Petroleum Exchange
has completed its merger with the Intercontinental Exchange, an electronic
market for the trading of energy and metals products, IPE Chief Executive
Richard Ward said Tuesday. He said the company will still be called the IPE.
His statement follows ICE's announcement Monday that all of conditions of its
recommended offer to acquire the issued share capital of IPE Holdings had
been satisfied or waived and that the offer was unconditional. ( Story
.17970, .19353 )
................................................................. OF
INTEREST:
--AMERICAS--
FERC order seen having little effect on US generator profits
San Francisco, June 19 (BridgeNews) - A U.S. Federal Energy Regulatory
Commission order to impose a "soft" price cap on U.S. West wholesale power
prices will likely have little significant effect on producer profits from
electricity sales while the order is in effect over the next year, industry
analysts said Tuesday. Some analysts cautioned that some producers without
long-term contracts could be negatively affected by the order. ( Story .20340
)
White House says FERC power plan "helpful step" for California
Washington, June 19 (BridgeNews) - The White House Tuesday said action taken
Monday by the federal energy regulators to extend limits on electricity
prices in California "is and can be a helpful step" for the beleaguered
state. ( Story .18824 )
Calif. ISO rescinds Tues blackout forecast; supplies still tight
New York, June 19 (BridgeNews) - While the California Independent System
Operator has rescinded its forecast of possible blackouts for Tuesday, the
agency running the Golden State's electricity grid is currently projecting
very little surplus power generated in the state for the day. ( Story .14913
)
Three states sue DOE over air conditioning standards ruling
New York, June 19 (BridgeNews) - Attorney generals of California, Connecticut
and New York along with several consumer groups sued the Department of Energy
to block a Bush Administration plan allegedly designed to weaken efficiency
standards for residential appliances, including air conditioners and heat
pumps. The complaint filed Tuesday in Manhattan federal court calls the
administration "short sighted" and seeks to invalidate its rule changes. (
Story .18548 )
NY, New England ISOs expand power reserve sharing agreement
New York, June 19 (BridgeNews) - The Independent System Operators (ISO) for
New York (NYIOS) and New England (ISO-NE) have agreed to expand their
reserve-sharing agreement to allow for each ISO to draw on available reserves
in the other region in the event of a system interruption, according to a
statement issued Tuesday by ISO-NE. ( Story .19283 )
AGA Preview: US natural gas inventories seen up 85 to 95 bcf
New York, June 19 (BridgeNews) - The American Gas Association (AGA) is
expected to report Wednesday that U.S. natural gas stocks have risen by 85
billion to 95 billion cubic feet (bcf) for the week ended Friday, according
to a BridgeNews survey of brokers, analysts and traders. The AGA will release
the storage report at 1400 ET Wednesday. ( Story .1856 )
--ASIA/PACIFIC--
GAIL planning 20-bln-rupee gas pipeline in southern India
New Delhi, June 19 (BridgeNews) - India's state-owned Gas Authority of India
Ltd. plans to lay a new 500-kilometer-long natural gas pipeline connecting
the two southern states of Kerala and Karnataka at a cost of 20 billion
rupees, the Press Trust of India said Tuesday. The pipeline will carry 6
million cubic meters of gas. ( Story .12193 )
Indonesia official sees power cuts by 2004 unless new units built
Jakarta, June 19 (BridgeNews) - Indonesia will face power cuts by 2004 unless
additional generating capacity is built, Eddie Widiono, president director of
state power group PLN, said at an industry seminar here on Tuesday. But
experts warned that the capital markets were unwilling to finance the
billion-dollar investments needed and the public sector could not afford it.
( Story .12536 )
Indonesia to restructure PLN, raise power tariff, says minister
Jakarta, June 19 (BridgeNews) - The government aims to revive investment in
Indonesia's power sector with a scheduled 17.5% rise in electricity prices
this year and a later $3 billion debt equity swap to restructure state power
company PLN, minister of energy and mines Purnomo Yusgiantoro said Tuesday.
PLN will negotiate directly with independent power producers (IPPs) to
install additional capacity, he added. ( Story .10568 )
Indonesian minister claims ExxonMobil to resume Aceh operations soon
Jakarta, June 19 (AFP) - PT Exxon Mobil Indonesia will resume oil and gas
production in separatist-plagued Aceh province in early July, ending a freeze
of more than three months for security reasons, a minister said Tuesday. (
Story .10751 )
--EUROPE/MIDDLE EAST--
Czech's Temelin nuclear plant reactor to be restarted in July
Prague, June 19 (AFP) - Reactor number one at the controversial Temelin
nuclear plant in the Czech Republic will be restarted on July 21 after being
shut down for two months for repairs, the plant's spokesman announced
Tuesday. The reactor was shut down in early May when faults were detected in
its non-nuclear secondary circuit, the latest in a series of technical
glitches discovered since it was first put into service in October last year.
( Story .16716 )
British Energy: Sizewell B power plant back onstream
London, June 19 (BridgeNews) - The 1188-megawatt Sizewell B nuclear power
plant has been back onstream "for a few days," a spokeswoman for operator
British Energy told BridgeNews Tuesday, refusing to detail when exactly the
plant was recommissioned and whether its available capacity had since been
utilized by the market. ( Story .12928 )
Germany's Mueller says nuclear phase-down formula won't disrupt
Berlin, June 19 (BridgeNews) - The formula for shutting down German nuclear
power plants should cut atomic generating capacity only one-sixth by 2010,
insufficient to raise fears of shortages, said Economics Minister Werner
Mueller. ( Story .12337 )
TURKEY CRISIS: Press: Govt late on IMF pledged power sell-offs
Ankara, June 19 (BridgeNews) - The Turkish Cabinet has decided to propose to
the parliament to extend the transfer of operational rights of power plants
to the private sector by another four months, once again violating pledges
made to the IMF when securing a U.S. $10 billion bailout package after the
February crisis, Sabah newspaper reported Tuesday. The government, in its new
IMF-supported program, pledged to complete transfer of the rights by
end-June. ( Story .11978 )
se ................................................................. SPOT
NEWS LINKS:
Media://NewsSearch::/source=mar/category=n-eny/go/search
................................................................. THE
MARKETS:

US FUTURES:                           UK FUTURES

.1908 NY Natural Gas Pre-Opg .1795 IPE Nat Gas Review

.1906 NY Natural Gas Review .1794 IPE Nat Gas Midday
.1747 NY Natural Gas

US/CANADA CASH NATURAL GAS            UK/EUROPE CASH NATURAL GAS

.1894 Henry Hub natural gas .1807 UK Spot Gas
.1884 US/Canada Spot Natural Gas

US CASH ELECTRICITY                   UK/EUROPE CASH ELECTRICITY

.8575 California PX: Next day .1892 UK Power Index
.8576 .8577 WSCC Forwards (AM/PM) .1889 Nordic Power Market
.8585 .8586 PJM Forwards (AM/PM) .1890 Spanish Power Market
.8593 .8594 Cinergy Forwards (AM/PM) .1844 UK EFA Power Market
.8597 .8598 Entergy Forwards (AM/PM) CANADA CASH ELECTRICITY
.8601 .8602 ERCOT Forwards (AM/PM) .5637 Canadian Power Market
.8603 New England Forwards
.8587 .8600 TVA Forwards (AM/PM)
OTHER
.1873 US Nuclear Plants Operating Status
.2029 BRIDGE CALENDAR: US POWER: Key events to watch
.2030 US Utility Deregulation Digest
.1704 US Utility M&A Digest
................................................................. SYMBOL
LINKS:
Click below for adamb chart in Athena NATURAL GAS
NYMEX - Media://Chart:NYMEX:/symbol=US@NG.1
IPE - Media://Chart:IPE:/symbol=GB@NGP.1 NYMEX ELECTRICITY
Palo Verde electricity - Media://Chart:PaloVerde:/symbol=US@VK.1
COB electricity- Media://Chart:COB:/symbol=US@OW.1
Cinergy electricity - Media://Chart:Cinergy:/symbol=US@CN.1
Entergy electricity - Media://Chart:Entergy:/symbol=US@NT.1
PJM electricity - Media://Chart:PJM:/symbol=US@QJ.1
.................................................................
BridgeNews
Send comments to gennews@bridge.com

[B] FERC order seen having little effect on US generator profits

June 20, 2001

By Christine Cordner
San Francisco, June 19 (BridgeNews) - A U.S. Federal Energy Regulatory
Commission order to impose a "soft" price cap on U.S. West wholesale power
prices will likely have little significant effect on producer profits from
electricity sales while the order is in effect over the next year, industry
analysts said Tuesday. Some analysts cautioned that some producers without
long-term contracts could be negatively affected by the order.

*                    *                  *

"FERC's decision to expand the soft price cap throughout the western grid is
not very painful for generators," Barry Abramson, UBS Warburg analyst, said
in a research note. "The expanded soft price cap will have little impact on
the earnings of the wholesale generating companies. By definition, every
other power plant is more efficient than the least efficient power plant, and
thus every other power plant should be able to make a good profit selling at
the soft price cap.
"Furthermore, on most days, most of the power that is produced is sold at
prices below the soft price cap, so the soft-price cap has little impact on
the overall earnings of the wholesale generators in the region," Abramson
said.
FERC on Monday unanimously voted 5-to-0 to expand wholesale price caps to the
10 western states comprising the Western Systems Coordinating Council. FERC
also expanded the price caps on wholesale power to 24 hours per day, seven
days per week, from limits only during supply emergencies when reserve
margins in California fall below 7%.
Under the order, wholesale power prices will be limited to 85% of the price
in effect during the final hour of the most recent emergency, when California
is not in a supply emergency. The proxy price will be based on the costs for
the least efficient power plant used to generate electricity on that day as
well as the price for natural gas.
Generators, investor-owned utilities and independent power producers,
however, can receive more than the proxy price if they can justify the higher
generation costs. The plan also allows a 10% surcharge on all wholesale power
sales in California in order to account for credit risk.
In a research note, JP Morgan analysts Jim Von Riesemann and Anatol Feygin
said that earnings for generating companies "should remain relatively intact
and valuations look attractive," especially for AES, Mirant and NRG.
Robert Winters, a Bear Stearns analyst, said, "The near-term actions by the
FERC (and the focus on Monday's meeting), the heightened political rhetoric
and the weakening in gas and power prices across much of the U.S. over the
past month has led to the weakness in the shares of the wholesale energy
companies...We believe very attractive buying opportunities are being created
within certain areas of the wholesale energy sectors where companies are now
trading at discounts to their projected earnings growth range."
Winters said there were buying opportunities with Williams, "which continues
to be our top pick in the wholesale energy space," and with Enron Corp.
But Abramson noted that the order does not allow producers "to mark up the r
price of spot power for resale above the soft price cap," which could affect
some profit margins.
"The FERC plan should make it challenging for some to repeat the growth of
the last couple of quarters in the West, particularly those that without
long-term contracts. It appears that the plan would likely dampen volatility,
although price caps can have unexpected consequences," said Merrill Lynch
analyst Steven Fleishman.
"On a relative basis, we believe companies that have locked up much of their
capacity under long-term contracts and have efficient baseload power are best
positioned under the new FERC plan," Fleishman said in a note. He said
Calpine, Dynegy, NRG Energy and Williams stand to benefit the most from this
scenario.
"Companies that could be challenged are those with less long-term contracts,
that are more dependent on inefficient peaking plants, and that could be
affected by less volatility in the West," Fleishman said. "The big question
is how well the marketers positioned their books ahead of this changed
environment." He said Reliant Resources since it appears to have the least
contracted in the West for 2002.
The plan, which will be in effect from Wednesday to Sept. 30, 2002, follows
pleas from California Gov. Gray Davis to control wholesale prices, which he
said cost the state roughly $50 billion this year.
The state's largest utility Pacific Gas & Electric declared bankruptcy
earlier this year, citing losses from high wholesale prices. End

SCE Unveils Rotating Blackout Web Site and Public Notification Plan

June 20, 2001

ROSEMEAD, Calif., June 19 /PRNewswire/ via NewsEdge Corporation -
Southern California Edison (SCE) today unveiled its enhanced Web site and
public notification process to help guide the public through possible
rotating power blackouts when ordered by the California Independent System
Operator (Cal-ISO).
"We have been able to increase significantly the amount of outage information
available to our customers, because we want to empower them with critical
information to prepare for and safely cope through power blackouts," said Pam
Bass, SCE's senior vice president of customer service. "We recognize that the
more information customers have before and during rotating outages, the
better equipped they will be to address the concerns and safety of their
families and employees."
Bass said customers have indicated they want to know four basic things when
rotating blackouts occur: the location, the duration, whether it affects
them, and what they should and should not do to safely get through the
outages. SCE offers several information resources that address these concerns
-- through toll-free phone lines, through news media updates, and now through
an expanded, user-friendly rotating outage Web site.
All of these sources will tell customers that the outages rotate among
electrical circuits across SCE's vast service area for about one hour, as
directed by Cal-ISO. They will also list the likely affected customer groups
and communities, and even provide geographic maps outlining the specific
neighborhoods. Customers will also be able to access practical tips on how to
prepare and function safely through outages.
Customers can find out the group their home or business is assigned to by
identifying their alphanumeric Rotating Outage Group Number, which now
appears directly under the customer's name and address in the top left corner
of the bill's front page. When Cal-ISO predicts possible rotating outages,
SCE will immediately announce which groups may be affected through its outage
hotline -- (800) 611-1911 -- its Web site -- www.sce.com -- and through the
news media.
When outages are forecasted or actually begin, customers can determine if
their group is part of the current outage or likely to be included in the
next round, since SCE generally interrupts groups in numerical order, with
some exceptions. For example, customers can now hear on the morning news
whether Cal-ISO is predicting outages for the day. By calling the hotline or
checking www.sce.com, they can learn which groups would likely be interrupted
if circumstances turn out as predicted. If their group number is on the list
of groups likely to be interrupted, the customer could take steps to prepare
for the likelihood of rotating blackouts affecting their home or business
that particular day.
It should be noted that group numbers may change without advance notice for
operational reasons or when state regulators revise their policy regarding
customers exempted from blackouts. SCE will notify customers of such changes
as quickly as practical.
Visitors to SCE's customer Web site, www.sce.com, will find the following
helpful enhancements:
-- The site displays outage group numbers and corresponding communities
affected during recent, current, and predicted rotating outage
incidents.
-- When customers click on the name of a community affected by an outage,
they are taken to a detailed street map of the affected circuit.
-- The Web site offers general outage information and links, including
outage preparation and safety tips, grid status information from Cal-
ISO, frequently asked questions about rotating outages, and
conservation tips.
-- A dynamic home-page pop-up window will change messages depending on
state power conditions. For example, during a Stage 2 Emergency,
customers will be directed to information about potential outages.
During a Stage 3 Emergency in which rotating outages are underway, the
box will provide a hotlink to group numbers and communities currently
affected and likely to be affected should outages likely continue.
For customers who don't have Internet access, SCE provides essentially the
same Web site information through an automated outage phone line, (800)
611-1911. This service makes it possible to obtain outage information
immediately without waiting. Among major features:
-- Customers can call at any time to learn the Rotating Outage Group
Number assigned to their home or business.
-- When customers experience a power blackout, they can call to determine
whether they are part of a rotating outage incident or if their
circuit has been affected by a routine interruption such as a car or
construction accident.
-- During rotating blackouts, customers can learn if their circuit is
currently affected or may be affected in the coming hours and which
portions of specific communities may be affected.
-- When customers call, they should have their account number and group
number handy. However, if customers call during a rotating outage
incident and do not know their group number, they will be able to
obtain information by entering their zip code.
SCE's media relations office has developed strategic communications
partnerships with radio and television stations that provide frequent live
updates to the public, including information about circuit groups affected or
likely to be affected by outages.
It should be further noted that while SCE is committed to providing as much
advance public notification about pending rotating blackouts, it can only do
so as it receives timely notification from Cal-ISO.
SOURCE Southern California Edison
CONTACT: Corporate Communications of Southern California Edison,
626-302-2255, www.edisonnews.com
Web site: http://www.sce.com (EIX)

Edison CEO/ Ruling Hasn't Helped

June 20, 2001

By LESLIE GORNSTEIN
AP Business Writer
LOS ANGELES (AP) via NewsEdge Corporation -
A federal ruling this week limiting wholesale energy prices in 10 Western
states hasn't been enough to pull Southern California Edison any further from
the brink of bankruptcy, Edison International chief John E. Bryson said
Tuesday.
The state's second-largest utility is no further from or closer to bankruptcy
now than it was ``two weeks, four weeks, six weeks ago,'' Bryson told a press
conference before a speech to Town Hall Los Angeles, a public policy forum.
Bryson is chairman, president and chief executive officer of Edison
International, parent of subsidiary Southern California Edison, which serves
4.2 million customers.
Bryson said, however, that he senses a warming among state legislators to a
proposed bailout deal between his company and the state.
That deal would supply billions of dollars to Edison in exchange for years of
cheap power and possibly the utility's power lines.
``Interest has at least intensified in Sacramento on the part of legislators
to take steps _ debate continues exactly what steps _ to have Edison healthy
and to take the state out of the power business and so on,'' Bryson said.
Such lawmaker approval is required for the deal to survive. Key lawmakers
surrounding the deal were not immediately available for comment.
In his Town Hall address, Bryson used the forum as a kind of open plea to
state legislators, listing what he called a series of widespread myths that
might be keeping leaders from acting.
``The first myth is that somehow Southern California Edison is seeking a
bailout from taxpayers,'' Bryson said. ``Only the reverse is true.''
Instead, Bryson said, it was Edison who bailed out California by keeping the
lights on even when the utility's power costs far exceeded its revenues.
Secondly, Bryson said, Edison and its investors are not profiting from the
power crisis, and SoCal Edison's parent did not act improperly by collecting
money from the utility earlier this year.
That money was later given to shareholders, a move that outraged consumer
groups.
Bryson also warned that a SoCal Edison bankruptcy would severely hurt
California's economy by scaring away new businesses and investment capital.
``Inaction would deeply hurt the state of California and all of us,'' he
said.

Editorial Desk; Section A
At Last, Action on California
?
06/20/2001
The New York Times
Page 22, Column 1
c. 2001 New York Times Company
After months of dithering, the Federal Energy Regulatory Commission took some
potentially meaningful steps on Monday to contain the wholesale price of
electricity in California and elsewhere in the Western United States. Anxious
not to be seen as caving in to public pressure or abandoning its fidelity to
the free market, the White House described the new policy as ''consistent
with where the president has been all along.'' Gov. Gray Davis of California
, for his part, said the policy did not go far enough, and of course only
time will tell whether it does. But to many others, including Senator Dianne
Feinstein of California , the move amounted to the first significant federal
intervention in the California wholesale market since the crisis began last
year. Ms. Feinstein withdrew her own price-cap bill pending the outcome of
the new plan.
Under the new arrangement, approved unanimously by a reshuffled five-member
Regulatory Commission, price limits will be based on the cost of producing
electricity at the least efficient generator. The formula covers the sale of
electricity for immediate delivery -- the so-called ''spot market'' that
supplies about 20 percent of California 's needs and that California turns to
when it is desperately trying to keep the lights on. The companies will be
allowed to charge higher prices during peak periods, but not the huge sums
they command today.
In addition, the constraints will apply throughout 10 other Western states,
presumably eliminating any incentive for generators to withhold power from
the California market in order to obtain a higher price elsewhere. The
controls are to expire in September of next year, which should relieve some
of the administration's earlier fears that constraints of any kind would
discourage investment in new and badly needed sources of supply.
The benefits will not immediately be felt by California consumers. Both
individuals and businesses have recently been hit by rate increases belatedly
imposed by the state's Public Utilities Commission at Mr. Davis's request.
But the new plan should ultimately benefit taxpayers by lessening the impact
of higher energy costs on the state government, which has been buying power
on behalf of the state's two largest utilities, both essentially insolvent.
Recent estimates have suggested that California , which paid $7 billion for
electricity two years ago, could pay as much as $50 billion this year.
Until quite recently the president and his energy czar, Dick Cheney, had
seemed almost indifferent to California 's needs. But Republican members of
Congress from California and other Western states have been growing
increasingly restive as they contemplate the potential political fallout in
the midterm elections of 2002. In addition, the two newest members of the
regulatory commission, both Bush appointees, have expressed sympathy for
California 's plight. Whatever the reason, the administration appears to have
seen the light, even though it is reluctant to admit it.

National Desk; Section A
Regulators' Order Could Bring Broad California Power Accord
By LAURA M. HOLSON with JEFF GERTH
?
06/20/2001
The New York Times
Page 14, Column 3
c. 2001 New York Times Company
LOS ANGELES, June 19 -- An order by federal regulators that power generators
enter settlement talks with the State of California could open the door to a
sweeping compromise of the financial issues in the state's power crisis,
energy industry analysts and executives said today.
But the question that remains -- and it is a vital one, they said -- is
whether the Federal Energy Regulatory Commission has the wherewithal to force
the warring parties to hammer out an understanding that, at its heart, is as
much about politics as about money.
The commission on Monday gave California regulators and power generators
until July 9 to come up with a plan for settling accounts between the
generators and California 's struggling utilities. The power companies are
owed billions, but the state has accused them of price-gouging. If the
parties cannot reach some agreement, an administrative judge will step in and
recommend a settlement to the commission instead.
Asked at a Senate hearing in Washington today to clarify what he hoped to
accomplish as a result of the two weeks of settlement talks, the commission's
chairman, Curtis L. Hebert Jr., was noncommittal. The parties, he explained,
need two things for the talks to succeed: a deadline and uncertainty.
Senator Dianne Feinstein, Democrat of California , expressed skepticism about
the undertaking. Ms. Feinstein said at the hearing, held by the Senate Energy
and Natural Resources Committee, that she was concerned that the commission
had laid out ''no rules'' for the talks.
''Very little, if any, money has changed hands as a result of prior
settlement conferences,'' she said.
Many industry executives and state officials have not yet seen the
commission's order, and they were scrambling today to figure out exactly what
they were being asked to do.
''Without seeing what exactly is in the order, who knows?'' said Sean
Gallagher, a staff lawyer for California 's Public Utilities Commission.
''But we wouldn't turn our noses up at participating in negotiations.''
Gary Ackerman, executive director of the Western Power Trading Forum, a
coalition of energy traders and electricity generators, noted that the
federal regulators' timetable ''has a very short fuse.'' And the fact that
the state's biggest utility, the Pacific Gas and Electric Company, has filed
for bankruptcy will complicate efforts to reach a comprehensive agreement, he
added.
''I don't hold high hopes that a settlement would work out,'' Mr. Ackerman
said, ''but I commend the FERC for taking a stab.''
Moreover, the parties to the settlement talks may lack an element vital to
successful negotiations: trust.
Several California entities, including the Public Utilities Commission, are
investigating whether generators took advantage of consumers by charging
excessive prices for power. The Independent System Operator, which runs the
state's power grid, released a study in March concluding that Californians
might have been overcharged for electricity by more than $6 billion. One
state government negotiator said the California attorney general's office
could file a suit against the power generators in the next few weeks.
And as state officials, including Gov. Gray Davis, continue to hurl attacks
at the generators, calling them pirates and profiteers, the companies and
California utilities are blaming legislators, saying they failed to address
the power crisis quickly enough.
In March, Duke Energy, one of the companies the state has accused of
profiteering, offered to negotiate a broad settlement, but Governor Davis
ruled out calling off the state's inquiries as part of any agreement.
The outlines of Duke's proposal included a compromise on the money owed by
California utilities, in exchange for the dropping of private lawsuits,
California 's complaints to federal regulators and the state investigations.
Duke would have admitted no wrongdoing.
In formal proceedings, the power generators to date have vigorously fought
discounting the debts they are owed by California .
The Federal Energy Regulatory Commission has ordered generators to refund
nearly $130 million in what it judged to be overcharges. Today one of the
commissioners, William L. Massey, said 80 percent of that money had not been
collected.

A Section
Davis Finds Hope in Calif. Power Crunch
Rene Sanchez and Peter Behr
?
06/20/2001
The Washington Post
FINAL
Page A06
Copyright 2001, The Washington Post Co. All Rights Reserved
LOS ANGELES, June 19 -- Sinking in the polls, under attack by a new
Republican advertising campaign and still struggling to avert a summer of
blackouts, California Gov. Gray Davis (D) nevertheless seems heartened about
the latest developments in the power crisis that has engulfed his state and
threatened his political career.
On his first trip to Washington in months, Davis will detail California 's
plight Wednesday in testimony to a Senate committee newly led by sympathetic
Democrats -- one important reason for his optimism.
But he has others: Conservation is taking hold in the state, and prices for
power on the daily spot market are dropping. California has managed to avoid
rolling blackouts so far this month, in part because it has been spared a
heat wave.
Federal regulators, under pressure even from Republican lawmakers, decided
Monday to impose more controls on prices that energy suppliers can charge
California . Two new power plants are scheduled to begin producing
electricity in weeks. California also has recently secured more than a dozen
deals for power over the next decade, a move Davis contends will stabilize
the volatile wholesale market for energy.
In short, Davis and his aides say their concerted political strategy and
efforts to ease the crisis are beginning to pay off.
"The bottom line is that we're stabilizing prices and assuring the power will
be there without additional rate increases," said Steve Maviglio, a spokesman
for the governor. But he added: "We're not ready to say the war is over. It's
still going to be a tight summer."
Whether any or all of those steps will keep the lights on in California this
summer, or help solve an array of other financial problems the crisis has
caused, is hardly clear.
In fact, California 's power shortfall could produce 113 hours of rotating
outages this summer, according to a U.S. Department of Energy study scheduled
to be released Wednesday.
Since California 's two largest utilities fell into financial ruin this year,
forcing the state to spend nearly $5 billion to buy power directly and
saddling residents with huge new rate increases, the support that Davis once
had from a majority of voters has vanished. Recent polls suggest that he
could have trouble winning a second term.
Consumer advocates here are besieging him, saying that the $43 billion in
long-term power deals that Davis has signed could lock residents into paying
artificially high utility rates for years. Some contend that all he has
gained from Washington is political cover.
"The Bush administration has created this toothless price cap mechanism that
will be used as political protection but certainly not consumer protection,"
said Doug Heller, a director of the Foundation for Taxpayer and Consumer
Rights.
Davis has stuck mostly to the same political script. He is demanding more
federal help for California -- on Monday he called the Federal Energy
Regulatory Commission's decision merely "a step in the right direction" --
and he is denouncing out-of-state energy suppliers and their Republican
allies.
Today, Republicans launched a $1.5 million advertising offensive that blames
Davis for the state's energy crunch. The spots, running on English and
Spanish-language media, describe the crisis as "Grayouts from Gray Davis."
Scott Reed, the GOP strategist who runs the American Taxpayers Alliance,
which funded the ad campaign, said his group wants to counter the governor's
spin. "The blame game has to end," said Reed.
But Davis's aides say the ads are a sign that Republicans sense California 's
energy predicament could deepen GOP political troubles in the state.
Privately, some Republican lawmakers pushing for more federal assistance say
they are worried that in midterm congressional elections next fall the GOP
could lose House seats in California that it needs to hold a majority.
Today's hearing will bring both Davis and his adversaries on the Federal
Energy Regulatory Commission before the Senate's Governmental Affairs
Committee, chaired by Sen. Joseph I. Lieberman (D-Conn.).
Instead of a committee debate on California 's electricity prices, the focus
of the session may be shifting toward the billions of dollars of alleged
overcharges by energy suppliers.
Under growing pressure from both parties in Congress, FERC's commissioners
responded Monday with far more extensive price controls than they had been
willing to consider previously. They extended April price controls that had
applied only to times of power emergencies to all hours of the day, through
September 2002. And they expanded the controls to cover 10 other western
states.
California Sens. Dianne Feinstein and Barbara Boxer, both Democrats, said
FERC's action was a positive step and agreed to delay efforts to direct the
commission to clamp down on California 's energy prices. "We're willing to
give them a chance to see if it works," Boxer told reporters.
Now, Davis will press his demands that FERC recover some $8 billion in
alleged overcharges by wholesale power suppliers since the crisis began -- a
far larger amount than the $124.5 million in refunds that FERC has so far
assessed.
Whether there is even a chance of a peace process is unclear. Just last week,
California Attorney General Bill Lockyer announced plans to convene a
criminal grand jury to investigate whether power generators illegally
conspired to drive up electricity and natural gas prices.
The governor could face other new problems. Several of California 's major
independent power generators said the price controls and state lawsuits
against the generators made it more difficult to justify expanding operations
in California , a warning echoed today by Energy Secretary Spencer Abraham.
But heading into the summer, California 's power prices are much lower than
they were a month or two ago, with daily or "spot" power prices averaging $78
per megawatt hour in June, compared to $372 in April.
Both Davis and the FERC commissioners are taking credit. S. David Freeman,
Davis's energy adviser, said that the long-term power contracts the state has
signed, the new power plants and favorable weather have tamed prices.
FERC Chairman Curt Hebert Jr. said Monday that the limited price restraints
that the commission imposed on wholesale electricity sales in April have been
a key reason for the price decline.
Sanchez reported from Los Angeles and Behr from Washington. Staff writers
Mike Allen and Juliet Eilperin contributed to this report from Washington.

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National Desk; Section A
The Lesson of When to Give Aid to Free Markets
By DAVID E. SANGER
?
06/20/2001
The New York Times
Page 14, Column 3
c. 2001 New York Times Company
WASHINGTON, June 19 -- Three weeks ago George W. Bush addressed a sympathetic
audience of business executives at the Century Plaza Hotel in Los Angeles and
declared that his administration ''will not take any action that makes
California 's problems worse, and that's why I oppose price caps'' on
electricity .
As he spoke, the Democratic governor of California , Gray Davis, sat
impassively on the dais, preparing to meet Mr. Bush and then denounce him for
failing to protect California consumers from an electricity market gone wild.
Today, the White House halfheartedly welcomed action by federal regulators to
impose throughout the West a system that looks and smells a lot like price
caps -- though the White House said it was something different.
''This is not a price control,'' Ari Fleischer, the White House spokesman,
said. ''This is a market-based mitigation plan that now will extend to 11
Western states.''
In fact, it bore some resemblance to a proposal made by 10 leading economists
who urged a middle ground between fixed prices and a deregulated electricity
market. Mr. Davis used their proposal to support his position in favor of
limited price restraints when Mr. Bush visited California .
The White House shift from outright opposition to price controls to its more
nuanced position today exemplifies how Mr. Bush has tempered his embrace of
completely unfettered markets in recent weeks. He didn't have much choice.
As the threat of blackouts loomed, demands for action rose from officials of
both parties and from consumers in the West. It was almost possible to hear
sighs of relief at the White House today that the Federal Energy Regulatory
Commission -- an independent body in the Energy Department -- had moved to
turn down the political heat.
In fact, while some House Democrats are still pressing for firmer caps on
prices, Senators Dianne Feinstein, Democrat of California , and Gordon H.
Smith, Republican of Oregon, withdrew a bill that would have placed strict
price controls on electricity sold in Western markets.
Senator Feinstein said the White House could call yesterday's regulatory
action ''mitigation'' or anything else it pleased.
''A rose is a rose by any other name,'' she said today.
And a free market is not always free. Two weeks ago the administration said
it would rescue steel companies and steelworkers who have long complained
about unfair competition from South Korea, Taiwan, China, Brazil, Germany,
Russia and Ukraine. The White House defended the action by saying it was the
only way for the industry to adjust to a new competitive environment.
Last month, with no major announcements at the White House, the Bush
administration voted for International Monetary Fund aid to two countries,
Turkey and Argentina, that (like California ) had made some economically
disastrous political decisions.
In each case, Mr. Bush's economic orthodoxies were tempered by political
realities.
The California crisis was one thing when it involved a Democratic governor in
a state Mr. Bush lost by a million votes; it was another, one of his aides
conceded today, when congressional Republicans from around the West were
warning Mr. Bush that blackouts and sky-high prices could blow up in his
first year in office.
''We heard from a lot of members of Congress who feared that Republicans
would be tarred with worsening the problem, even though it happened on Gray
Davis's watch,'' the political aide said. ''The president took that on
board.''
Similarly, the steel decision was partly about enforcing laws against
''dumping'' foreign products in the market -- and partly about Mr. Bush's
desire to convince labor unions not to block his trade agenda. Like
Californians coping with higher energy prices, the steelworkers need time to
adjust to a new world, the administration said.
''Open markets improve the lives of people by increasing opportunity, choice
and economic freedom,'' Robert B. Zoellick, Mr. Bush's trade representative,
said in an interview today. ''But compassionate conservatism also recognizes
the reality that the effects of rapid change fall harder on some communities
and industries,'' which, he said, need ''vital breathing space to adapt to
change.''
While Mr. Bush expressed deep reservations about I.M.F. bailouts during the
presidential campaign, the situation seemed a bit more complicated once he
got to Washington. The State and Defense Departments feared that if Turkey
were engulfed in economic chaos, and blamed the United States for failing to
come to its aid, its leaders might be less inclined to let American fighter
jets use its territory to mount missions over Iraq.
So given the choice between letting the Turkish people pay a high price for
political mistakes -- Californians take note -- and weakening American
pressure on Saddam Hussein, Mr. Bush decided that economic niceties were less
important than political consistency. Mr. Bush chose the Pentagon over the
Treasury.
Administration officials said these actions did not represent a retreat from
let-the-markets-prevail orthodoxy.
Lawrence B. Lindsey, Mr. Bush's chief economic adviser, said in an interview
today that he opposed price caps at the beginning of the California crisis
and that he opposed them now. But he would not criticize the federal
commission for ''mitigating'' price spikes in the market.
''What they are trying to do is achieve two incompatible missions --
preserving what is called 'just and reasonable pricing' and assuring an
adaquate supply of electricity ,'' Mr. Lindsey said. Yet the reality, he
added, is that new supplies of electricity will not become available for a
year or more. ''FERC is doing its best to square that circle in the face of
the fundamental problem, which is inadequate supply,'' he said.
That is the kind of argument that keeps economists happily arguing for hours.
It is not likely to be the kind of argument Mr. Bush himself is likely to
engage in for long. As one of his political advisers said the other day,
''Don't think about this purely in terms of megawatts. We need to produce
more electricity , but we also need to produce some more seats in the
House.''