Please see the following articles:

Sac Bee, Wed, 6/13:  FERC weighs wider energy price controls

Sac Bee, Wed, 6/13: FERC weighs wider energy price controls

Sac Bee, Wed, 6/13: Dan Walters: Repaying huge power debts still looms
as a high political hurdle

Sac Bee, Wed, 6/13: Burton accuses Davis of veto talk

Sac Bee, Wed, 6/13: PG&E trustee rips execs' bonus plan

SD Union, Wed, 6/13: Congress presses regulators to lower electricity prices
in West

SD Union, Wed, 6/13: Cheney: No help from administration on power prices

SD Union, Wed, 6/13: Governor plans to release details of long-term power
contracts

LA Times, Wed, 6/13: Power Deals Exceed Prices on Spot Market

LA Times, Wed, 6/13: Federal Panel May Extend Price Limits

LA Times, Wed, 6/13: Energy Execs Gain Millions in Stock Sales   (Ken Lay,
Jeff Skilling mentioned)

LA Times, Wed, 6/13: Edison Reaches Accord with Alternative Generators

LA Times, Wed, 6/13: California-Only Sales Rule Fought by Plant

SF Chron, Wed, 6/13: Power kingpins rake in millions in stock deals
Capital gains enriched 76 insiders, records show         (Enron mentioned)

SF Chron, Wed, 6/13: Grand jury to look at energy suppliers
Inquiry into possible price manipulation

SF Chron, Wed, 6/13: Santa Rita solar array starts making electricity
Jail's system will make 500 kilowatts

SF Chron, Wed, 6/13: 'Dig-it-out-burn-it-up' methods won't work

SF Chron, Wed, 6/13:  California governor to release details of state's power
purchases

SF Chron, Wed, 6/13: Developments in California's energy crisis

SF Chron, Wed, 6/13: Energy Report

SF Chron, Wed, 6/13:  Edison reaches deal with small generators

SF Chron, Wed, 6/13:  Governor set to reveal terms of power deals
Court must decide confidentiality issue

SF Chron, Wed, 6/13: Senate to probe Western energy problems

Mercury News, Wed, 6/13: Expanded power price caps studied

Mercury News, Wed, 6/13: Electricity, ethanol...maybe there is a plot against
us  (Editorial)

Mercury News, Wed, 6/13: Well, Texas does hate California   (Commentary)

OC Register, Wed, 6/13: FERC may expand cap

Individual.com (AP), Wed, 6/13: Lower Electric Rates in West Sought

Energy Insight, Wed, 6/13: Power Crisis puts Bonneville on political hot seat

Wash. Post, Wed, 6/13: No Energy Price Caps, Cheney Tells Calif.; Hill's
Democrats Warn of 'Disaster'

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 FERC weighs wider energy price controls
By David Whitney
Bee Washington Bureau
(Published June 13, 2001)
WASHINGTON -- The Federal Energy Regulatory Commission next week is expected
to extend an existing price-control plan effective only during California
power emergencies to all 13 Western states and around the clock,
congressional sources said Tuesday.
FERC scheduled an unusual Monday meeting to discuss electricity pricing in
California, a sign that the panel will expand its efforts to rein in high
wholesale rates. The commission is now up to full strength with the seating
of two new Bush administration nominees.
Vice President Dick Cheney, who met for nearly an hour with California
lawmakers Tuesday, told them the White House, while still strongly opposed to
price controls, would be closely watching the meeting.
"We'll see what happens next Monday," Rep. David Dreier, chairman of the
California Republican delegation, quoted Cheney as saying.
Other members who attended gave similar reports of Cheney's remarks,
indicating that the vice president is hoping that whatever the independent
panel does will ratchet down the political heat the White House has been
feeling from Western lawmakers because of high wholesale rates.
Commission press aides were not saying what the nature of Monday's agenda
would be, other than that it would arise out of the same case in which the
panel agreed in April to set a benchmark price for wholesale power sold on
the spot markets during emergencies.
That order has been widely criticized because it applies only in California
during periods of near or imminent blackouts and sets the spot-market rate
for all spot-market suppliers at the cost of production for the most costly,
least-efficient plant selling into the grid. During such emergencies,
spot-market sales can account for nearly a third of power deliveries.
Since the commission's order took effect late last month, wholesale prices
have plummeted even though they've been triggered only twice by power
emergency declarations. Other factors, including conservation success and
lower natural gas prices, also have contributed to that drop.
According to a price chart cited by the vice president, spot-market prices a
day ahead of delivery that were $400 a megawatt hour May 22 had dropped to
less than $50 by June 6, which is close to the going rate before the
electricity crisis erupted a year ago.
The idea of broadening the April order to apply throughout the West and
around the clock was first proposed by Rep. Doug Ose, R-Sacramento, chairman
of the House Government Reform Committee's energy panel. Rep. Billy Tauzin,
R-La., chairman of the House Energy and Commerce Committee, urged the
commission to adopt Ose's idea in a letter Tuesday.
Ose, citing the periodical Electric Utility Week, said that on the two
occasions that the commission order was invoked, California's power rates
fell by almost two-thirds to between $108 and $135 a megawatt hour -- proof
that it was working to bring prices down.
Broadening that order is certain to further dampen rates, but Democrats are
solid in the belief that it won't help enough and raises other concerns.
"It would be a step in the right direction," said Sen. Barbara Boxer. But she
said it also would reward the most inefficient, dirty plants by basing
spot-market rates on their cost of production.
Gov. Gray Davis and several West Coast lawmakers, most of them Democrats, are
calling for the commission to re-regulate wholesale rates by basing them on
production costs plant by plant, with a fixed profit margin, for 18 months or
so while California builds its way out of the power crisis.
The commission's meeting Monday comes just as that plea is finding a
receptive audience in the new Democrat-controlled Senate.
Sen. Joe Lieberman, D-Conn., chairman of the Governmental Affairs Committee,
has scheduled a hearing for June 20 at which Davis will be the lead witness
in an inquiry into whether federal regulators are meeting their
responsibilities under the Federal Power Act to assure just and reasonable
rates.
There have been changes in FERC, too, that may have played an even stronger
force behind the Monday meeting. When the April order was issued, the
five-member commission was operating with just three seated members. The vote
was 2-1, with Commissioner William Massey the lone vote against it. Massey
said it wouldn't help California, adding that he thought skyrocketing prices
throughout the West warranted stronger price controls.
Since then, two new commissioners have joined the panel. Patrick Wood III,
chairman of the Texas Public Utility Commission who is widely thought to be
President Bush's choice to take over as FERC chairman, and Pennsylvania
Utility Commissioner Nora Mead Brownell will attend their first meeting
today.
At their confirmation hearing in April, both Wood and Brownell refused to
rule out price controls.
Davis' top energy adviser, S. David Freeman, called Wood a "good guy," adding
that he is "encouraged" that the reconstituted commission was taking up the
California rate case again.
While wholesale prices are trending down now, Freeman said they likely would
soar anew during a prolonged hot spell, and he is powerless to do anything
about that.
"We are in desperate need of help from FERC," he said. "This is the most
massive failure of regulation in the history of electricity regulation. ...
We feel we are in a war for the economic vitality of the state."

The Bee's David Whitney can be reached at (202) 383-0004 or
dwhitney@mcclatchydc.com.

FERC weighs wider energy price controls
By David Whitney
Bee Washington Bureau
(Published June 13, 2001)
WASHINGTON -- The Federal Energy Regulatory Commission next week is expected
to extend an existing price-control plan effective only during California
power emergencies to all 13 Western states and around the clock,
congressional sources said Tuesday.
FERC scheduled an unusual Monday meeting to discuss electricity pricing in
California, a sign that the panel will expand its efforts to rein in high
wholesale rates. The commission is now up to full strength with the seating
of two new Bush administration nominees.
Vice President Dick Cheney, who met for nearly an hour with California
lawmakers Tuesday, told them the White House, while still strongly opposed to
price controls, would be closely watching the meeting.
"We'll see what happens next Monday," Rep. David Dreier, chairman of the
California Republican delegation, quoted Cheney as saying.
Other members who attended gave similar reports of Cheney's remarks,
indicating that the vice president is hoping that whatever the independent
panel does will ratchet down the political heat the White House has been
feeling from Western lawmakers because of high wholesale rates.
Commission press aides were not saying what the nature of Monday's agenda
would be, other than that it would arise out of the same case in which the
panel agreed in April to set a benchmark price for wholesale power sold on
the spot markets during emergencies.
That order has been widely criticized because it applies only in California
during periods of near or imminent blackouts and sets the spot-market rate
for all spot-market suppliers at the cost of production for the most costly,
least-efficient plant selling into the grid. During such emergencies,
spot-market sales can account for nearly a third of power deliveries.
Since the commission's order took effect late last month, wholesale prices
have plummeted even though they've been triggered only twice by power
emergency declarations. Other factors, including conservation success and
lower natural gas prices, also have contributed to that drop.
According to a price chart cited by the vice president, spot-market prices a
day ahead of delivery that were $400 a megawatt hour May 22 had dropped to
less than $50 by June 6, which is close to the going rate before the
electricity crisis erupted a year ago.
The idea of broadening the April order to apply throughout the West and
around the clock was first proposed by Rep. Doug Ose, R-Sacramento, chairman
of the House Government Reform Committee's energy panel. Rep. Billy Tauzin,
R-La., chairman of the House Energy and Commerce Committee, urged the
commission to adopt Ose's idea in a letter Tuesday.
Ose, citing the periodical Electric Utility Week, said that on the two
occasions that the commission order was invoked, California's power rates
fell by almost two-thirds to between $108 and $135 a megawatt hour -- proof
that it was working to bring prices down.
Broadening that order is certain to further dampen rates, but Democrats are
solid in the belief that it won't help enough and raises other concerns.
"It would be a step in the right direction," said Sen. Barbara Boxer. But she
said it also would reward the most inefficient, dirty plants by basing
spot-market rates on their cost of production.
Gov. Gray Davis and several West Coast lawmakers, most of them Democrats, are
calling for the commission to re-regulate wholesale rates by basing them on
production costs plant by plant, with a fixed profit margin, for 18 months or
so while California builds its way out of the power crisis.
The commission's meeting Monday comes just as that plea is finding a
receptive audience in the new Democrat-controlled Senate.
Sen. Joe Lieberman, D-Conn., chairman of the Governmental Affairs Committee,
has scheduled a hearing for June 20 at which Davis will be the lead witness
in an inquiry into whether federal regulators are meeting their
responsibilities under the Federal Power Act to assure just and reasonable
rates.
There have been changes in FERC, too, that may have played an even stronger
force behind the Monday meeting. When the April order was issued, the
five-member commission was operating with just three seated members. The vote
was 2-1, with Commissioner William Massey the lone vote against it. Massey
said it wouldn't help California, adding that he thought skyrocketing prices
throughout the West warranted stronger price controls.
Since then, two new commissioners have joined the panel. Patrick Wood III,
chairman of the Texas Public Utility Commission who is widely thought to be
President Bush's choice to take over as FERC chairman, and Pennsylvania
Utility Commissioner Nora Mead Brownell will attend their first meeting
today.
At their confirmation hearing in April, both Wood and Brownell refused to
rule out price controls.
Davis' top energy adviser, S. David Freeman, called Wood a "good guy," adding
that he is "encouraged" that the reconstituted commission was taking up the
California rate case again.
While wholesale prices are trending down now, Freeman said they likely would
soar anew during a prolonged hot spell, and he is powerless to do anything
about that.
"We are in desperate need of help from FERC," he said. "This is the most
massive failure of regulation in the history of electricity regulation. ...
We feel we are in a war for the economic vitality of the state."

The Bee's David Whitney can be reached at (202) 383-0004 or
dwhitney@mcclatchydc.com.

Dan Walters: Repaying huge power debts still looms as a high political hurdle

(Published June 13, 2001)
Gov. Gray Davis has been running around California lately proclaiming that
California is "turning the corner" on the energy crisis, explicitly citing
sharply lower wholesale prices for electricity and, implicitly, his improved
standing in polls.
Events will reveal whether Davis' June hubris was justified. Despite the
recent drop in spot power prices, however, many aspects of the energy crisis
remain unresolved, and chief among them is liquidating the $20 billion-plus
in debts that utilities and the state have accumulated for power purchases.
A $13.4 billion bond issue that is supposed to reimburse the state's general
fund for more than $8 billion advanced for power purchases and then finance
future electricity buys has been hung up by demands of potential bond
underwriters for more assurances about repayment. The bonds may not be sold
until August, if ever. And by then, nearly the entire bond issue may have to
flow to the state's general fund, leaving little to finance future power
buys.
And then there are the $14 billion or so in debts that the state's two big
utilities, Pacific Gas and Electric and Southern California Edison, incurred
for power purchases before their credit was cut off in January. PG&E already
has declared bankruptcy, and Edison was on the verge when Davis hurriedly
signed a "memorandum of understanding" (MOU) on a rescue scheme, the
centerpieces being state purchase of Edison's share of the intercity power
grid, plus a plan for ratepayers to pay off the utility's debts.
The Edison scheme has been denounced as a "bailout" by consumer activists and
faces certain legislative rejection, despite a multimillion-dollar lobbying
and public relations drive by the utility. And it's sparked a complex set of
private maneuvers in and around the Capitol that are fraying the already cool
relations between Davis and the Legislature's most powerful leader, Senate
President Pro Tem John Burton.
Davis called a dozen senators into his office Monday to press approval of the
Edison MOU with minimal changes. Burton, who didn't attend, says the governor
threatened legislators with rejection of their bills or budget appropriations
if they didn't play ball, and promised retaliation if Davis uses strong-arm
tactics for Edison.
"On an issue like this, they (legislators) ought to be able to vote their
consciences," Burton told reporters, denouncing the Edison deal as a
"flat-ass bailout."
Davis spokesman Steve Maviglio rejected Burton's account: "The governor's too
smart to do any of that."
As the public squabbling heats up, so is the private search for a compromise
that Edison, consumerists and other principal players can accept -- without
much confidence that it can be found. A dizzying array of MOU alternatives is
being floated, including an effort by Burton and Assembly Speaker Bob
Hertzberg to persuade Edison creditors to write off part of the debt, and for
big industrial and power consumers to shoulder the rest in return for
recapturing the authority to make power supply deals outside the utility
grid.
In effect, the plan would create two power systems, one with regulated rates
for individual and small business customers and unregulated "direct access"
for big users. Former Assemblyman Phil Isenberg, a lobbyist whose firm
includes energy generators, is acting as a mediator on behalf of Hertzberg.
Sources close to the negotiations say the big users won't entertain the deal
until they know how much power the state has been buying, and at what prices.
Davis has insisted on keeping that data secret, and has been sued by the news
media and others to force release, but on Tuesday announced that he will
agree to opening the supply contracts to inspection.
The chances of an Edison deal coming together this summer are no better than
50-50 -- about the same odds of the state's completing its bond sale. And
those uncertainties are compounded by great fears that California still faces
the prospect of widespread and prolonged power blackouts this summer. "I
don't think it's over," Burton said Tuesday in a jab at Davis.

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

Burton accuses Davis of veto talk
By Kevin Yamamura
Bee Capitol Bureau
(Published June 13, 2001)
State Senate leader John Burton charged Tuesday that Gov. Gray Davis
threatened lawmakers earlier this week in an attempt to gain support for a
struggling deal with Southern California Edison.
While answering questions on the Edison deal, Burton alleged that Davis
suggested he would veto non-energy legislation if Senate Democrats did not
back a deal he struck with Edison in April.
Davis aides denied the charge, as did some lawmakers, but the episode
suggested that support for the governor's plan remains distant.
Davis met Monday with 13 senators as part of an ongoing lobbying effort for
the Edison deal. Under Davis' tentative agreement, the state would pay the
utility $2.76 billion for its transmission lines and dedicate a portion of
electricity rates to help pay off its debts. The deal requires legislative
approval.
Burton said he was not invited to the Monday meeting. His claims were based
on reports from colleagues, he said.
The Senate leader said the governor told senators that their past support for
his proposals "didn't mean anything if they voted against this."
"If that turns out to be the case," Burton said, "I've been around long
enough to know how to play that game with the executive branch as well."
"He's too smart to do that," said Davis spokesman Steve Maviglio, referring
to alleged threats. "I think he expressed his strong support for the
legislation, but he's too smart to do that."
Three senators who attended the meeting with Davis disagreed with Burton's
characterization. One declined comment; others did not return telephone calls
on the subject.
"I heard no threats in anything (Davis) said," said Sen. Sheila Kuehl,
D-Santa Monica. "He said, 'Look, I want my bill to go up for a vote.' And we
said, 'As it stands, we're not sure how much support it has.' "
Two months after the Edison deal was first unveiled, most lawmakers have
rejected it as written. Leaders in both houses are discussing various
alternatives to the governor's plan, which is contained in legislation by
Sen. Richard Polanco, D-Los Angeles.
"As it is before us, it is nothing more than a bailout for the utilities,"
Burton said.
He reiterated Tuesday that he wants to see generators and creditors take a 30
percent cut in the debt they are owed for energy purchases. He is supportive
of a plan that would shift costs to big energy consumers and protect
residents.
Burton also unveiled three new energy proposals Tuesday. One would require
the California Energy Commission to provide backup power for high-priority
traffic signals. Another would prevent a 10 percent rate increase scheduled
to take effect next year. The third is a resolution that would support the
governor in seizing power plants.
"We're going to show him that there is support in the Senate for seizing
these power plants from these generators who, in fact, have been ripping us
off," Burton said.
Discussions on the governor's Edison proposal could begin as soon as next
week. Three Senate committees -- judiciary, energy and natural resources --
are likely to take up the bill.
Maviglio said that the governor remains open to changes to the deal -- a
compromise Davis will have to make given that few lawmakers are willing to
support the existing plan.
"I don't think there's a lot of support for (the deal) as it is, in every
aspect now," Kuehl said. "But I would say that among my colleagues, there is
support for purchasing some assets in exchange for enabling Edison to come
back to health."

The Bee's Kevin Yamamura can be reached at (916) 326-5542 or
kyamamura@sacbee.com.

PG&E trustee rips execs' bonus plan
By Claire Cooper
Bee Legal Affairs Writer
(Published June 13, 2001)
SAN FRANCISCO -- The U.S. bankruptcy trustee has blasted a proposal by
Pacific Gas and Electric Co.'s top managers to pay themselves millions of
dollars for sticking with the utility as it navigates a course through its
financial chaos.
The utility asked U.S. Bankruptcy Judge Dennis Montali May 25 for permission
to pay $17.5 million to 223 members of its "leadership team." The official
committee of PG&E creditors has expressed support for the plan, which has
drawn criticism from consumer groups.
In filing a formal statement of opposition on Monday, trustee Linda Ekstrom
Stanley, who serves as the court's administrator, pointed out that the plan
would benefit only the top 1 percent of the PG&E work force, and give 20 top
managers more than $5 million.
That focus, said Stanley, "suggests those employees with the most to gain are
the active proponents" of the plan.
Bonuses aren't needed to keep top managers on the job because the utility is
in no danger of folding and because the managers aren't likely to walk away
from their pay and retirement packages, Stanley said.
If PG&E wants to hand out incentives, Stanley suggested that it consider
giving stock in its parent company, PG&E Corp.
Stanley made a distinction between PG&E's bonus plan and those of other
debtors in bankruptcy that have rewarded loyal employees, such as America
West Airlines. In 1994, America West was given bankruptcy court permission to
reward rank and file employees who had stayed with the airline through wage
cuts and other misfortunes not experienced by PG&E managers, she said.
Montali has set a hearing on the matter for Monday.

The Bee's Claire Cooper can be reached at (415) 551-7701 or
ccooper@sacbee.com.

Congress presses regulators to lower electricity prices in West

By H. Josef Hebert
ASSOCIATED PRESS
June 12, 2001
WASHINGTON ) Federal regulators came under growing congressional pressure
Tuesday to act further to lower the price of electricity in the West and stem
alleged abuses by power producers.
Democrats, who just became the Senate's majority party, planned hearings on
Western electricity prices including a look Wednesday into the Federal Energy
Regulatory Commission's handling of the power crisis.
The FERC, which regulates wholesale electricity transactions and natural gas
transport, has stepped up its activities in recent weeks and plans a special
meeting next Monday on California's power markets. Regulators are expected to
decide at that meeting whether to take additional steps to rein in prices.
Meanwhile, political support has been growing on Capitol Hill, even among
some Republicans, for legislation to force FERC to impose temporary price
caps on Western power sales.
In recent days, wholesale electricity prices have dropped significantly in
California and the Northwest, but the threats still loom of a price rebound
and, in California, power blackouts.
The Bush administration remains strongly opposed to even limited price
controls that interfere in the free market.
Vice President Dick Cheney, in a meeting Tuesday with more than three dozen
Republican and Democratic lawmakers from California, said the administration
remains opposed "to any type of price control legislation," according to
lawmakers present.
But Sen. Jeff Bingaman, D-N.M., who became chairman of the Energy and Natural
Resources Committee when Democrats assumed the Senate majority, warned FERC
to take additional action or face legislation demanding price caps.
"I hope that FERC will act more aggressively," Bingaman said during an energy
forum, "and we will not have to have legislation."
But he said he was prepared to move a bill out of his committee before the
July 4 recess, similar to one offered by Sens. Dianne Feinstein, D-Calif.,
and Gordon Smith, R-Ore., that would require FERC to impose electricity price
controls based on cost of production and a reasonable profit.
At the same time, the Senate Governmental Affairs Committee, chaired by Sen.
Joe Lieberman, D-Conn., planned to hear Wednesday from several energy
economists about FERC's handling of wholesale power markets in the West. Most
of the witnesses, including Cornell economist Alfred Kahn, an advocate of
electricity deregulation, have urged additional price controls under current
circumstances.
While most Republicans, following the White House lead, remain opposed to
legislating price caps, there have been growing fears among GOP House members
about potential political fallout over high Western electricity prices.
In a letter to FERC Chairman Curtis Hebert on Tuesday, Rep. Billy Tauzin,
R-La., chairman of the Energy and Commerce Committee, and 14 other GOP
lawmakers urged FERC to be more aggressive in pursing allegations of price
abuse and to expand the limited price mitigation program it approved in
April.
That order by FERC reins in wholesale electricity prices when California's
electricity reserves fall below 7.5 percent, triggering an emergency. It
limits prices to those charges for power from the most inefficient power
plants.
California Gov. Gray Davis has called the FERC limits inadequate and said
they've had little impact on prices. Tauzin, however, cited evidence that
FERC's order already has dampened electricity prices, which recently have
fell significantly.
The letter to FERC calls for the same mitigation to be broadened to include
all power transaction, not only those during emergencies, and for the limits
to be expanded to include other parts of the Western power grid.
Rep. Joe Barton, R-Texas, chairman of a key Energy and Commerce subcommittee,
was among those who signed the letter, but he said he opposes broader price
controls such as those favored by most congressional Democrats.
"There have been no instances where price caps have worked," insisted Barton
at an energy forum sponsored by The Atlantic Monthly. The recent easing of
electricity prices shows "the market has begun to work," he said.
House Minority leader Richard Gephardt, D-Mo., said at a news conference that
price caps pegged to the cost of producing power are needed "to restore
reliable and affordable" electricity supplies.
"Price controls are catastrophic," retorted Majority Leader Dick Armey,
R-Texas. "If you want blackouts in California, have price controls. He and
other Republicans say price controls inhibit electricity supplies.
??

On the Net: Federal Energy Regulatory Commission: www.ferc.gov/
Senate Governmental Affairs Committee witness list:
www.senate.gov/(tilde)gov)affairs/061301witness)list.htm

Cheney: No help from administration on power prices

By Mark Sherman
ASSOCIATED PRESS
June 12, 2001
WASHINGTON ) Vice President Dick Cheney told Californians in Congress Tuesday
not to expect energy price controls from the Bush administration
The reaction of Democrats ranged from disappointment to anger.
"We just got blown off by the vice president," said Rep. Maxine Waters, D-Los
Angeles, as she left the private meeting with Cheney at the Capitol.
The hourlong session between Cheney and more than 40 of the state's 52 House
members and two senators amounted to little more than a reiteration of
previously expressed positions.
Democrats generally support price caps, while Republicans fear that limits
could worsen the power shortage.
Cheney was not immediately available after the meeting.
"Price caps add... not a single kilowatt to the electrical grid in
California," said his spokeswoman, Juleanna Glover Weiss, describing the vice
president's message to the delegation. "In fact, they could do just the
opposite."
The partisan nature of the gathering and its aftermath was inescapable.
"You'd think the president only thinks he's president of the states that
voted for him," said Rep. Henry Waxman, D-Los Angeles.
Rep. Anna Eshoo, D-Palo Alto, said at one point Cheney told her that she
'"was being very rude'" by interrupting him.
Rep. Ellen Tauscher, D-Walnut Creek, said Cheney defended the record prices
charged by power suppliers as the workings of the free market.
"In truth, it's a freak market," Tauscher said as she made an early exit.
Several Democrats claimed Cheney agreed to the meeting only because
California Republicans have been feeling increased political pressure to act
to ease the energy crisis.
Weiss said scheduling problems precluded a get-together before Tuesday.

Governor plans to release details of long-term power contracts

By Alexa Haussler
ASSOCIATED PRESS
June 12, 2001
SACRAMENTO ) After fighting off demands for information for months, Gov. Gray
Davis plans to release this week the much-sought details of 38 long-term
contracts between the state and power generators, aides said Tuesday.
Davis now believes, senior adviser Nancy McFadden said, it's better to
release the information than keep it secret.
Republican lawmakers and several news organizations, including The Associated
Press, sued Davis in March, saying his refusal to release the contracts'
details violates the California Public Records Act.
Still, Davis refused, saying that revealing the details would put the state
at a competitive disadvantage in other contract talks.
The state has bought power since January for customers of three cash-strapped
utilities. Much of that has been on the expensive spot market, although the
state has more long-term contracts in recent weeks.
Davis aides also said details will be released this week about the state's
spot market power buys in January.
Raymond Hart, Department of Water Resources deputy director, wrote power
generators Monday saying the department will ask a judge Wednesday to throw
out a confidentiality provision in the contracts.
While revealing the details still might pose some problems in negotiations,
"those impacts are far more limited than they might have been had the
contracts been released even two weeks ago," Hart wrote.
Oklahoma-based Williams Energy, one of the generators with a state contract,
opposes the release of the contract details, a spokeswoman said.
"Information contained in those is proprietary information that allows us to
be competitive and to bid competitively," said spokeswoman Paula
Hall-Collins.
Senate leader John Burton, D-San Francisco, said lawmakers need to see the
details of the contracts before they could approve the governor's plan to
rescue Southern California Edison, or any alternate plan.
"Until we see those contracts, and know exactly what's in them, we can't make
a determination," Burton said. "There was an argument that I think was valid
that the governor made at beginning of the contracts. ... We're totally
beyond that now."
Burton said Tuesday he'll introduce three energy-related measures in the
Legislature ) including one that would repeal a 10 percent rate hike
scheduled to take effect next year.
The 1996 electricity deregulation law included an automatic 10 percent rate
reduction until March 2002. Burton's bill would remove that out from state
law, but the Public Utilities Commission could still raise rates if
commissioners felt it was needed.
Burton is also authoring a bill to provide backup battery power for traffic
signals in some intersections to keep the lights on during blackouts.
Burton's third measure is a resolution that voices support for Davis to
commandeer power plants under his emergency powers authority.
"The governor talks about it," Burton said. "We're going to show him that
there is support in the Senate for seizing these power plants from these
generators who have been ripping us off."

Power Deals Exceed Prices on Spot Market
Crisis: State has agreed to long-term pacts at rates far higher than
currently available. Defenders say prices are falling because the deals take
pressure off market.

By ROBERT J. LOPEZ and RICH CONNELL, Times Staff Writers

?????California officials have agreed to purchase power for years to come at
prices higher than those now being paid in the daily spot market, according
to confidential government records.
?????The 38 long-term contracts, totaling nearly $43 billion, could saddle
consumers with unnecessarily high utility rates for years if recently
declining prices represent a trend in the volatile electricity market.
?????Gov. Gray Davis in recent days has largely credited these contracts with
breaking the fever of the energy crisis. But the cooling prices--and fresh
details of the contracts--raise concerns that the 18 energy companies may
have gotten the better end of the deals.
?????Perhaps adding to the downward pressure on prices, senior officials of
the Federal Energy Regulatory Commission said Tuesday that the agency is
considering new ways to curb California electricity prices this summer.
?????Among other things, the commission might extend its current wholesale
price limits--now in effect only during power emergencies--to 24 hours a day,
seven days a week.
?????The contract records obtained by The Times show that the state is
committed to buying power at prices up to $154 a megawatt-hour for peak
electricity and more than $95 for energy that includes times of day when
demand is lowest.
?????By contrast, with a recent tumble in wholesale power prices, the state
purchased peak daytime electricity at less than $100 an hour and less than
$20 at night when demand trails off. On Tuesday, prices for last-minute peak
power in California were under $58 a megawatt-hour, according a Bloomberg
news service survey.
?????In some contracts, the state may pay more or less in the years ahead,
depending on the price of natural gas. Under terms negotiated by the Davis
administration, one company receives $80 million to $90 million a year simply
to be ready to produce, even if no electricity is sold.
?????The good news surrounding current market prices could change rapidly
this summer as temperatures climb and use of air conditioning surges.
?????Nonetheless, experts say, the recent prices could be an omen of the
future, when as many as 15 new power plants come online, adding thousands of
megawatts to the California grid.
?????"The theme here is the governor embarked on a long-term strategy for a
short-term crisis," said Peter Navarro, an economist at UC Irvine, who
reviewed some of the contract terms at the request of The Times. "They pretty
much got this exactly wrong."
?????State officials, including Davis, say they are proud of the hard-fought
concessions they won from the power merchants, who have reaped immense
profits from the state's failed deregulation scheme.
?????They say the benefits of the power contracts, while less predictable in
the long term, have already helped alter the marketplace. Perhaps most
important, they say, the contracts have freed the state from a nearly total
reliance on last-minute purchases in the costly spot market.
?????Officials say the contracts have locked up nearly half the state's peak
power needs this summer. The remainder will come from short-term contracts,
last-minute purchases and reduced demand from conservation programs. "This
was all a well thought-through plan of action," said Davis energy advisor S.
David Freeman, former head of the Los Angeles Department of Water and Power.
"The war ain't over. But we have landed on enemy territory and we are rolling
them back."
?????Freeman seemed less confident, however, when asked whether the state may
end up being stuck with high-priced contracts. "We hardly know the present,"
he said, "we certainly don't know the future."
?????Ray Hart, deputy director of the Department of Water Resources, said the
state is absolutely not overpaying for power under the contracts his agency
is helping to negotiate. He acknowledged that the average price the state is
paying under the contracts is higher than current market prices.
?????And that is the way it should be, he said, because the state has
dampened the volatility of the spot market by reducing last-minute purchases.
?????"If we didn't have contracts," Hart said, "we'd be buying 100% on the
spot market . . . spending $300-plus [a megawatt-hour] for energy."
?????Many of the contract details remain shrouded in mystery, making it
difficult to gauge the true extent of the state's financial commitment.

?????News Organizations Seek Disclosure of Deals
?????The Times and other news organizations have sued the state to release
the contracts and provide details on the state's daily power purchases, now
totaling more than $7 billion. The Davis administration previously refused to
release the information, saying that it would undercut the state's efforts to
secure additional long-term contracts.
?????But on Tuesday the governor announced that he intended to release the
contracts as early as today "with only very minor redactions."
?????The about-face came after state Atty. Gen. Bill Lockyer said publicly
that the contracts should no longer be kept secret and preceded by a day a
hearing before a San Diego Superior Court judge on the case brought by the
news organizations.
?????The administration sent letters to the 18 power producers and marketers
that have the contracts with the state notifying them of the hearing.
?????In a letter to one firm, the administration said the San Diego hearing
"may be the only such opportunity for your firm to indicate whether it has
any objection to the public disclosure of the contract."
?????More than one firm is likely to object.
?????"We have always maintained that there's information in the contracts
that's proprietary that allows us to operate competitively," said Williams
Companies spokeswoman Paula Hall-Collins.
?????Most of the contracts have been released under confidentiality
agreements to federal regulators, state Controller Kathleen Connell and a
congressional committee probing the power crisis.
?????One congressman who has studied the contracts, Doug Ose (R-Sacramento),
criticized the governor for locking the state into "high rates for years to
come."
?????"This sort of short-term fix," Ose said, "has squandered our [state
budget] surplus and hampers the state treasury for the foreseeable future."
?????The records obtained The Times show that the contracts vary widely in
cost and complexity.
?????For example, in a series of agreements for power in Southern California,
the state has agreed to pay Dynegy Inc. some rates fixed at a $119 a
megawatt-hour for peak power beginning next year, more than double the price
of electricity on the spot market Tuesday.
?????Under a separate deal for the same three-year period, the Houston-based
company has an entirely different rate structure that could minimize its risk
of losses. The state will pay $21.65 a megawatt-hour, in addition to covering
fuel and other production costs that could rise or fall dramatically.
?????Hart, of the state water agency, argues that California consumers could
benefit should natural gas prices fall.
?????A pair of contracts with Constellation Energy Group illustrates the
horse trading.
?????In one two-year deal, the Baltimore-based company will receive $154 a
megawatt-hour for peak power, the highest price in the records reviewed by
The Times. The state also agreed to take a larger amount of power around the
clock. That deal, at $58 a megawatt-hour, extends over eight years beginning
in 2003.
?????Freeman, who helped broker many of the deals, said the state had to sign
long-term contracts to lock in electricity needed this year and next--a
necessary "quid pro quo."
?????Freeman said critics do not recognize the difficult negotiating position
the state faced earlier this year.
?????Some energy insiders say the state hurt itself by waiting too long to
begin those negotiations, when prices had soared and its largest utilities
were buried in debt.
?????Last summer, Houston-based Enron and several other firms offered to sell
power to California's utilities for just five years at about $50 a
megawatt-hour, according to Mark Palmer, an Enron spokesman. "Now you've got
the state committed to 10 years of buying power at what appears to be
significantly over market [prices]," he said.
?????Freeman blamed the Public Utilities Commission for balking at long-term
contracts for fear that ratepayers would be stuck with overpriced energy if
prices fell.
---
?????Times staff writers Doug Smith in Los Angeles, Nancy Vogel and Dan
Morain in Sacramento and Ricardo Alonso-Zaldivar in Washington contributed to
this story.

Copyright 2001 Los Angeles Times

Federal Panel May Extend Price Limits
Utilities: Regulatory commission weighs expanding the plan beyond emergencies
and throughout the West.

By RICARDO ALONSO-ZALDIVAR, Times Staff Writer

?????WASHINGTON--The Federal Energy Regulatory Commission, responding to
pressure from lawmakers, state officials and consumers, is considering a
significant expansion of its plan to limit California electricity prices this
summer, senior agency officials said Tuesday.
?????Commissioners and staff members are engaged in intense negotiations in
advance of a key meeting Monday to finalize an emergency plan for California
and the West.
?????According to several commission officials, the options being discussed
include:
?????* Extending FERC's current price limits--now in effect only during power
emergencies in California--to 24 hours a day, seven days a week. The limits,
intended to prevent price spikes, were invoked during two emergencies last
month and resulted in immediate cuts in the price of wholesale electricity.
FERC is also considering applying such limits throughout the West.
?????* Requiring power generators in the entire Western region to sell
available electricity to California or into their local power grids during
emergencies, reducing the threat of blackouts.
?????* Establishing a regional framework for large power users to sell
electricity back into the grid during peak usage times. Some companies that
have long-term power contracts at low rates may be able to make money by
scaling back their operations and selling electricity.
?????* Tightening rules on what energy marketers--firms that buy and resell
power contracts much like stockbrokers trade shares--can charge for their
electricity.
?????* Expanding an order issued last year that authorized refunds for
excessive markups during the most extreme power emergencies. That refund
order would now apply to excessive prices during all power emergencies.
?????The measures under consideration stop short of the price caps being
sought by Gov. Gray Davis and California Democrats. But they may go far
enough to provide an acceptable compromise.
?????"The whole thing is in flux, but it is moving toward a much more
effective price mitigation plan, not only for California but for the West,"
said an agency official.
?????Strong political pressure from Senate Democrats and House Republicans
appears to have galvanized FERC into taking a more decisive role. "We're sort
of the last to get it," the official said.
?????FERC has been bitterly criticized by Davis for abandoning California.
FERC Chairman Curtis L. Hebert Jr. has responded by citing dozens of modest
FERC actions to assist the state.
?????But Hebert has resisted Davis' central demand that FERC use its legal
authority to order a temporary return to fixed electricity rates. Such fixed
rates, based on the cost of producing power plus an allowance for profit,
were standard before deregulation.
?????"The politics of the situation have changed significantly, and
commissioners are not immune to politics," said another senior agency
official. "The message from Capitol Hill has gotten stronger with a
Democratic Senate. Even the Bush administration is saying we should make sure
there is no price gouging."
?????FERC members have been summoned to testify before the Senate
Governmental Affairs Committee chaired by Sen. Joseph I. Lieberman (D-Conn.)
a week from today. Meanwhile, Sen. Jeff Bingaman (D-N.M.), the new Senate
Energy Committee chairman, has told FERC he will move legislation to cap
electricity rates in the West unless it acts soon.
?????Agency officials said commissioners do not want to face Lieberman next
week empty-handed.
?????House Republicans have also been prodding the agency. On Tuesday, Energy
Committee Chairman W.J. "Billy" Tauzin (R-La.) wrote Hebert to urge
Western-wide, round-the-clock price limits.
?????"We strongly urge the commission to implement a comprehensive plan to
mitigate wholesale prices and aggressively monitor wholesale sales of
electric energy . . . within the entire Western Systems Coordinating
Council," wrote Tauzin, referring to the Western power grid.
?????FERC officials said a strong effort is underway to achieve a consensus
on the five-member commission, lately riven by ideology but now bolstered by
two new pragmatic commissioners who favor active oversight of industry.
?????Commissioner William Massey, who for months has been a lonely dissenter,
is continuing to press for the traditional price caps sought by Davis,
officials said. Once marginalized, Massey apparently is now being actively
wooed by the other members.
?????S. David Freeman, an energy advisor to Gov. Davis, said Tuesday that
expanding FERC's current price limits would be a positive step. But he added
that the governor continues to advocate a return to traditional, fixed rates.
?????"Any strengthening of the [FERC] plan is in the public interest,"
Freeman told reporters at a Washington news conference.
?????FERC's price limits are not keyed to a particular dollar amount but are
flexible.
?????When a power emergency is called by the state, FERC's plan limits the
price that generators can charge to what it costs to produce power at the
least efficient plant running at that time. (The costs of all the plants are
determined beforehand by California's grid operator based on data filed by
the generators.)
?????Another requirement of the FERC plan forces generators using the
California grid to sell any power they have available during emergency
conditions.
?????When the price limits were tested in two emergencies late last month,
prices came down quickly. But power sellers complained that the limits were
too strict. And by the second emergency, there was evidence that some sellers
had started finding ways around the limits.

Copyright 2001 Los Angeles Times

Energy Execs Gain Millions in Stock Sales
Power: Some say they have profited from the state's crisis. Others say the
practice is standard.

By JERRY HIRSCH, Times Staff Writer

?????Top executives and directors at many of the large power companies that
California officials accuse of profiteering from the energy crisis have
collected tens and even hundreds of millions of dollars through stock sales.
?????Beginning early last year, these executives exercised options and sold
stock for huge gains at two, three and even 10 times the level of prior
years, according to a study by The Times of trading data supplied by First
Call/Thomson Financial and federal regulatory filings.

Executives' Stock Deals

Click to see full graphic.

?????Most of the energy companies would not discuss specific trades by
executives, but said that granting stock options is a standard practice used
to compensate top managers and other key players.
?????In selling in the last year, the executives have demonstrated a knack
for timing the transactions near the top of the market, a logical strategy,
executive-pay experts said. Indeed, many of these companies' shares have
fallen since the bulk of the stock sales.
?????But critics say it is the energy crisis in California and the West that
has driven up corporate profits at these companies--including AES Corp. of
Virginia, Duke Energy Corp. of North Carolina and Houston-based energy
concerns Enron Corp. and El Paso Corp. The crisis created a bull market for
publicly traded power companies--and made the shares held by the executives
especially lucrative.
?????Enron Chairman Kenneth L. Lay netted $123 million in option transactions
last year, according to a filing with the Securities and Exchange Commission.
That was nearly three times his gains the previous year and nearly 10 times
what he made in 1998.
?????Lay has made additional gains this year. He has cashed in options and
sold shares to net nearly $23 million since November, while holding on to
50,000 additional shares with a market value of $2.5 million, according to
First Call/Thomson Financial data.
?????Meanwhile, Jeffrey K. Skilling, Enron's chief executive, netted more
than $62 million last year in options gains.
?????Other executives are exercising options for huge gains but then holding
on to the shares. Roger W. Sant, chairman of AES, bought 436,500 shares in
the Arlington, Va.-based company Oct. 26, paying $1.62 a share and producing
a paper gain of more than $21.5 million at the time of the transaction.
?????But some also cashed out large holdings acquired over years. For
example, Robert Hemphill Jr., a longtime AES executive who now serves on its
board of directors, has sold $50 million of the company's stock in the last
13 months.
?????David Arledge, a director of El Paso Corp. and former executive at a
company acquired by the Houston natural gas firm, has sold nearly $27 million
in stock since Nov. 1.
?????Cashing in when an industry is hot is typical of corporate executives in
the U.S., said Graef Crystal, a Las Vegas-based expert on executive
compensation. But when an individual's transactions approach or cross the
hundred-million-dollar level, he said, the gains become unusual.
?????California officeholders and policymakers expressed outrage but not
surprise at the transactions.
?????"It is part of a pattern of smart trading by these guys," said state
Sen. Debra Bowen (D-Marina del Rey), who chairs the Senate Energy, Utilities
and Communications Committee. "The mentality is to get everything that you
can and then ride out the bust.
?????"I think they are figuring that by this time next year the party will be
over and they will be left sitting in a room with plastic cups half-filled
with stale beer," Bowen said.
?????Said Loretta Lynch, president of the California Public Utilities
Commission: "It stands to reason that if the companies are making exorbitant
profits, then the individuals who run the companies are also making
exorbitant profits."

?????Government Agencies Investigating Firms
?????Indeed, the stock sales have taken place against a backdrop of acrimony
between state officials and the power companies.
?????Last month, Lynch told The Times that state investigators have uncovered
evidence that a "cartel" of power companies shut down plants for unnecessary
maintenance to create shortages and thus increase prices and profits. Lynch
did not name the companies.
?????State and federal agencies are investigating the actions of several of
the big energy companies, seeking to verify charges that they have conspired
to boost prices by limiting construction of power plants, in one case, or by
limiting the amount of natural gas available in the power-hungry California
market.
?????Executives at firms not accused of price gouging also have cashed in.
?????Ann B. Curtis, chief financial officer of Calpine Corp., a San
Jose-based power plant builder and generator, has netted more than $10
million in option transactions in the last year. That compares with a total
of $5 million in the four previous years.
?????Some analysts say the transactions are to be expected, considering the
changing nature of the power industry.
?????"Unlike at the old-line utilities where insiders rarely sell, we've
grown accustomed to insider sales at the diversified power producers," said
Paul Elliott, a First Call/Thomson Financial analyst. "I'm not convinced that
these sales raise any red flags at this point."
?????Although no one is saying that any of the stock trades were illegal,
critics link the value of the transactions to the profits streaming out of
California.
?????"The generators have no shame," said Steve Maviglio, a spokesman for
California Gov. Gray Davis. "It speaks to how there has been a massive
transfer of wealth from California and the West to Texas and the Southeast."
?????In reporting record financial results for the first quarter of this
year, Enron said it posted a 281% increase in revenue to $50.1 billion and a
20% increase in net income to $406 million.
?????The company did not break out numbers for its California business but
did note that it sold nearly twice as much electricity in North America
compared with a year earlier, and that sales of natural gas had risen by a
third.
?????Lay, the Enron chairman, "has given himself very generous stock options
over the years," compensation expert Crystal said.
?????"You might think of him as a farmer who has planted thousands of acres
of stock options. Now he is harvesting a bumper crop. What he is harvesting
is the hard-earned paychecks of California workers and taxpayers."
?????Mark Palmer, an Enron spokesman, declined to talk about executives'
stock trading activity.
?????"All Enron employees are shareholders. How they decide to use that as a
form of compensation is completely up to them," Palmer said. "Mr. Lay is not
going to talk about his compensation."
?????A spokesman for AES also declined to talk about stock sales by its
employees.
?????Other companies were more willing to discuss such sales.
?????"Many of these people have a lot of stock, and this [is] an opportunity
to diversify their personal portfolios at an opportune time when Duke's stock
is up," said Terry Francisco, a spokesman for Duke Energy.
?????Francisco said many of the sellers at Duke continue to hold large
amounts of the company's stock. That also holds true for executives of the
other firms.
?????Calpine Chief Executive Peter Cartwright, for example, sold nearly $20
million in his company's shares since May 2000, when wholesale electricity
prices started rising and the state's energy crisis took root. His remaining
holdings have a market value of more than $400 million, according to SEC
filings.

?????'Getting Out While the Getting Is Good'?
?????El Paso spokeswoman Norma Dunn noted that Arledge, one of the largest
sellers, was CEO of Coastal Corp., a company acquired by El Paso, and chose
to sell some of his holdings after the merger.
?????One factor in the heavy sales of energy company shares is that
executives at these companies may be reading the changing marketplace and
seeing increased political pressure to rein in energy prices, analysts said.
?????"They may feel that this power game is not going to go on forever, so
they are getting out while the getting is good," said David Moreland, a
benefits consultant with CMG Consulting Inc. in San Jose.
?????Much of the executives' gains stem from the common practice of granting
low-priced options to management. At Calpine, for example, both Curtis and
Cartwright gained millions of dollars selling shares purchased from the
company at just 7 cents and $1.07 a share and then sold for more than $40 a
share.
?????Companies grant these options as an incentive for management to increase
the investment value of shareholders. They provide for giant payoffs without
the company having to fork out cash.
?????Yet there is a cost to the company, analyst Crystal said. The deals
increase the number of shares outstanding, incrementally diminishing the
holdings of other investors.
?????When the option tab hits tens of millions of dollars or more, the
company is in essence handing the money to executives rather than using it to
expand the company, Crystal said.
?????"This is not the tooth fairy," he said.

Copyright 2001 Los Angeles Times

Edison Reaches Accord With Alternative Generators

By NANCY RIVERA BROOKS and TIM REITERMAN, Times Staff Writers

?????Southern California Edison reached an agreement Tuesday to stabilize
prices and pay part of its debts to alternative power producers, an important
source of electricity that could help California avoid blackouts this summer.
?????The deal, reached with key representatives of the power producers, calls
for an end to litigation by those small companies that produce power from
alternative sources such as wind, solar, geothermal, biomass and at gas-fired
cogeneration facilities.
?????Edison owes those generators millions of dollars for electricity, and 33
lawsuits have been filed against the Rosemead utility to recover debts,
attach assets and get out of the contracts. The small generators have been
viewed as some of Edison's most dangerous creditors because they would be
more likely than large financial institutions to force Edison into Bankruptcy
Court.
?????"We hope this agreement will help bring stability back to this segment
of California's energy market," said Brian Bennett, Edison vice president of
external affairs.
?????About 700 of the small producers generate more than one-fourth of the
state's electricity. Rolling blackouts in March were caused in part by the
alternative generators, many of which cut production because they weren't
being paid by Edison and Pacific Gas & Electric.
?????The PUC ordered the utilities to begin paying the generators in late
March, and most are again producing power.
?????Edison did not release details of the agreement, which it filed with the
California Public Utilities Commission late Tuesday, other than to say that
it deals with payment to the producers, pricing of power purchased from the
generators and settlement of litigation.
?????"I hear it's a good deal," said Joe Ronan, chairman of the Independent
Energy Producers Assn., which has been involved in the negotiations.
?????Ronan, a Calpine vice president, said he learned the deal calls for a
multiyear contract that would pay generators $53.70 per megawatt-hour. Even
though the prices are lower than historic highs of $200 or more for
alternative energy, Ronan said the multiyear deals will bring much needed
stability.
?????Gas-fired plants, he said, would be protected from volatility in the
natural gas market because the price they receive will go up if a wholesale
price index does.
?????The PUC is scheduled to consider a proposal for resolving the issue
today at a special meeting.
?????An earlier proposal called for Edison and PG&E to make payments of 15%
of the amount due to the small energy providers that demonstrate a need for
the money to keep operating.
?????The PUC recently deferred taking action on the order because the
commission wanted to make sure that its order was in line with a court ruling
in PG&E's bankruptcy case and to provide added time for negotiations
conducted by the governor's office to succeed, President Loretta Lynch said.
?????The alternative producers have been meeting recently with the utilities
and Davis energy czar David Freeman in hopes of resolving their differences
over past payments. But Davis spokesman Roger Salazar said late Tuesday that
he was unaware of the settlement and noted that Freeman was in Washington on
Tuesday.
?????"I don't know if they have done something on their own," he said.
?????PUC Commissioner Carl Wood, a key player in the controversy, said he
heard an agreement had been reached but had not yet received the details.
?????"I hope this will settle [the issue], and we can get everyone back
online," he said. "We can put this piece of the [energy crisis] puzzle in the
box."
?????Wood said most of the alternative energy providers are operating but it
is not clear that all are operating at full capacity, which will be needed
this summer.
?????PG&E spokesman Jon Tremayne said that the utility, which serves Northern
and Central California, is not part of the settlement.
?????PG&E, he said, had been paying energy providers about 15 cents on the
dollar as the utility plunged toward bankruptcy. He said the company, which
still owes hundreds of millions to the alternative generators, was continuing
to talk with them. "All of ours are online, except for those down for
maintenance," he said.
?????About two dozen alternative energy providers have filed motions in
PG&E's Chapter 11 bankruptcy case in San Francisco, generally seeking back
payments and to be released from their contracts so they can sell power at
higher prices on the open market.
?????The bankruptcy judge in the case recently ordered PG&E to pay at least
20% of its past debt over the next four months to several of the energy
producers and said the order would serve as a template for resolving the
disputes with the other ones. He declined to release the cogenerating plants
and other producers from their contracts with the utility.

Copyright 2001 Los Angeles Times

California-Only Sales Rule Fought by Plant

By CHRISTINE HANLEY, Times Staff Writer

?????A month after winning final approval to restart two idle generators in
Huntington Beach, AES Corp. is fighting a requirement that it sell all the
electricity from the units within California, arguing that such a condition
violates interstate commerce laws.
?????AES also asks that the California-only restriction be withdrawn because
it obstructs the company's continuing efforts to forge a contract with the
state Department of Water Resources, the agency brokering power deals.
?????"AES believes that this condition was and is based upon errors of law
and fact," the power giant said in a petition filed Monday with the
California Energy Commission.
?????AES spokesman Aaron Thomas said Tuesday that the two sides are very
close to a deal and that the petition is only a precaution should
negotiations fail.
?????"It's only if we can't get the agreement over the goal line," he said
without elaborating on the sticking points.
?????The sales condition, unprecedented in the state, was considered a deal
maker as state officials sought a balance between California's energy needs
and concerns of community activists and officials in Huntington Beach.
?????Local leaders expressed disappointment but not surprise that AES would
try to find a way out of selling the power only to the state.
?????"They want to make as much money as they can," City Councilwoman Debbie
Cook said. "We wish they would become part of our community rather than
fighting us."
?????Negotiations between AES and the state agency began in March and
intensified after the Energy Commission, in granting a fast-track
construction permit May 11, limited operation of the two units to 10 years
and ruled that their combined 450 megawatts must be sold within California.
The 40-year-old units, to reopen in August, will generate 10% of the 5,000
megawatts the state hopes to bring into service this summer to avert an
electricity shortage.

Copyright 2001 Los Angeles Times

Power kingpins rake in millions in stock deals
Capital gains enriched 76 insiders, records show
Scott Winokur, Christian Berthelsen, Chronicle Staff Writers
Wednesday, June 13, 2001
,2001 San Francisco Chronicle
URL: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2001/06/13/MN115119.DTL
As California's energy problems spiraled out of control over the past year,
76 top power-com_pany officials reaped a staggering $298.34 million in
capital gains on stock deals, a Chronicle review of public records shows.
Among the big winners were 19 officials at Enron Corp. of Houston, which is
headed by Kenneth Lay, an unofficial energy adviser to the Bush
administration.
Enron insiders netted $127.33 million, according to the analysis, which
reviewed records of securities transactions between May 2000, when the
state's energy crisis began, and the end of April 2001. Lay, the company
chairman, got more than a fifth of his firm's total capital gain, $27.19
million.
As defined by federal law, an insider is an officer or director of a publicly
held company or a person or entity that owns at least 10 percent of a
particular class of its shares. Insider trades are not illegal.
Loretta Lynch, chairwoman of the state Public Utilities Commission, said she
deplored the personal windfalls found in The Chronicle analysis because she
believed the profits behind them "come on the backs of California families
and businesses."
She said the analysis made it clear that officials had been handsomely
rewarded "for executing a strategy that allows them to game our rules," a
reference to state regulators' contention that power companies engage in
illegal market manipulation. The companies deny the allegation.
Besides Enron, firms whose executives and directors profited from insider
trading include:
-- The AES Corp. of Arlington, Va., where 23 insiders netted $88.17 million
between June 2000 and April 2001;
-- The Calpine Corp. of San Jose, where four insiders netted $46.39 million
between May 2000 and early March 2001;
-- Dynegy Inc., of Houston, where 13 insiders netted $21.38 million between
May 2000 and April 2001.
Other companies in the California energy market with insiders who fared well
were:
The Duke Energy Corp. of Charlotte, N.C., where nine netted $7.81 million
between May 2000 and February 2001; The Williams Companies Inc., of Tulsa,
Okla., where six netted $5.36 million between mid-June 2000 and March 2001;
and Reliant Energy Inc., of Houston, whose president, Joe Bob Perkins, and
chief financial officer, Mary Ricciardello, netted $1.9 million on April 5,
18 and 19.
In all, The Chronicle analysis focused on executives and directors of power
companies selling more than 40 percent of the electricity consumed in
California. The insiders averaged $4 million each in capital gains.
"This puts a human face on the extent to which Californians have been
robbed," said San Diego consumer activist Michael Shames. "We have the
makings of a new breed of megawatt mogul becoming wealthy at California's
expense."
Nettie Hoge, who heads The Utility Reform Network, a San Francisco-based
watchdog group, said she was "astounded" by what she considered the lack of
"shame, circumspection and conscience."
"Put this against homeless who say energy costs put them over the edge and we
have a very stark picture," Hoge said.
The insider trades were documented by the Securities and Exchange Commission
and posted electronically by private financial information gatherers. All
involved the exercise of options allowing the companies' officers and
directors to buy stock in their own firms at huge discounts, pennies per
share in some cases. If an option is exercised but the shares acquired
through it are not sold, the gain commonly is considered to be an unrealized
"paper gain." The $298.34 million collected by the insiders includes both
paper gains and actual cash gains, which are collectively considered capital
gains.
Gary Ackerman, head of the Menlo Park-based Western Power Trading Forum,
whose membership includes the companies in The Chronicle analysis, staunchly
defended the insider activity, noting that the energy firms make money in
other ways than selling electricity in California.
In any case, Ackerman said, the insider activity was "allowable" under law,
and nothing about it was "wrong or immoral."
However, Ackerman acknowledged, the numbers could be an embarrassment.
"I'm sure they wouldn't want it out, nor would anybody at this time, when
people are so upset and so angry about the way things are going in
California, " Ackerman said.
Calpine spokesman Bill Highlander said the industry and its leaders had
nothing to defend.
"It's all public information. The purpose of American business is to make
money," Highlander said. "For those companies that take risk and are
successful, the people who run it and work for it should share in that
success.
I don't think you'd find it different in any other industry."
Aaron Thomas, a spokesman for AES, said there was "no connection" between his
company's record in California and its executives' decisions to exercise
their stock options.
Terry Francisco, a spokesman for Duke, said company policy prohibited him
from discussing the exercise of options by specific individuals. But he said
such insider trades would be smart moves for executives whose overall
compensation is tied closely to the company's stock price -- particularly
when that price has appreciated 50 percent in a single year, as Duke's has.
Enron spokesmen did not return calls.
The one exception among the eight power companies in The Chronicle analysis
was the Mirant Corp. of Atlanta, which has a major presence in the Bay Area.
Ten Mirant insiders lost nearly $14,000 in transactions on March 28 and on
the last two trading days in April, the 27th and 30th.
SOARING ENERGY PRICES
At the same time the energy companies' officers and directors were exercising
options, the prices their companies charged California utilities soared,
bankrupting the giant Pacific Gas and Electric Co., threatening to sink
Southern California Edison and prompting state regulators to lift a longtime
cap on electric rates paid by consumers.
The price of a megawatt hour of electricity -- enough to power 1,000 homes
simultaneously for an hour -- rose 289 percent in 2000 over 1999 in
California's markets where power is purchased a day-ahead or an hour-ahead.
It went from an average of $28.34 to $110.51. In December alone, average
prices rose twelvefold, from $31.88 to $425.59.
Prices in the real-time spot market run by the California Independent System
Operator were much higher. Duke has acknowledged charging nearly $3,900 per
megawatt hour for power sold earlier this year, and Reliant Energy charges
reached $1,900 at one point.
The ISO on June 8 increased to half a dozen the number of power companies it
has formally accused of market manipulation in a complaint before the Federal
Energy Regulatory Commission. The ISO estimates that the six firms -- all
those in The Chronicle analysis except Calpine and Enron -- overcharged the
state $6.7 billion.
While the companies decline to say how much of their success is attributable
to California, a review of their data shows that they have moved far afield
from their home states to unregulated markets, such as California's.
As they have done this, their fortunes have improved -- in some cases over a
period of time coinciding with the steady deepening of the state's crisis.
NEARLY $10 MILLION IN 6 DAYS
The Chronicle analysis showed that windfalls were widespread:
-- Between Feb. 22 and 27, Peter Cartwright, Calpine's chief executive
officer, exercised his right to buy 215,000 shares at prices ranging from
seven cents to $1.07 per share, for a total outlay of $179,800. During
exactly the same period, Cartwright sold 215,000 shares at prices ranging
from $42.34 to $46.40. The sales brought Cartwright $9.64 million -- a gain
of $9.46 million.
A week later, Cartwright netted $2.36 million on a two-day turnaround,
cashing in on options that had cost him seven cents each.
He had been similarly active in late 2000, turning three deals in September,
November and December on options priced at seven cents and 13 cents. Net
capital gain: $9.76 million.
Cartwright wasn't the only Calpine insider to do well. Others include chief
financial officer Ann B. Curtis and directors Susan Schwab and George
Stathakis. In 10 transactions between November and March, Curtis, Schwab and
Stathakis exercised more than 200,000 options at prices ranging from seven
cents to $2.57 each. Net capital gain: $15.06 million.
-- AES co-founder and chairman of the board Roger W. Sant, a former federal
energy official, exercised his option rights on 693,396 shares on Oct. 26 and
Nov. 30, at $1.62 per option, for a total outlay of $1,121,568. On Nov. 30,
AES stock closed at $51.875 per share on the New York Stock Exchange. Sant's
capital gain by the end of business on that date was $34.85 million.
AES senior vice president Roger Naill and vice president Paul Stinson have
been active insiders, too. Naill exercised 92,700 options between Aug. 3 and
Aug. 8 at $1.62 per option. He sold the identical number of shares during the
same period for prices ranging from $51.94 to $56.50. Naill's net realized
capital gain: $4.8 million.
Eight days after Naill's last trade, Stinson exercised 36,800 options for
$5.13 each. He sold 36,800 shares the same day at $55.88, for a total of
$2.06 million. Net realized capital gain: $1.8 million.
-- Louis Dorey, president of Dynegy's Energy Marketing and Origination unit,
bought 26,000 options and sold 26,000 shares between April 18 and 24, for a
net capital gain of $1.2 million. Robert Doty Jr., senior vice president and
chief financial officer of Dynegy, exercised 68,715 options on Oct. 4 and
sold 40,000 shares the same day. Net gain: $1.94 million.
-- Keith E. Bailey, chairman, president and chief executive officer of
Williams, exercised 150,030 options on June 28 of last year, for a total
outlay of $3.53 million. The same number of shares were worth $6 million at
the close of trading that day.
-- In separate transactions on Nov. 1-3, Richard Priory and Richard Osborne
of Duke Energy, the company's chief executive and chief financial officers,
netted $1 million each. On Feb. 21, Duke's group president of energy
services, Harvey Padewer netted $2.98 million exercising nearly 300,000
options and then selling an identical amount of stock.

E-mail Scott Winokur at swinokur@sfchronicle.com and Christian Berthelsen at
cberthelsen@sfchronicle.com.
Big gains
   Companies with largest insider capital gains during energy crisis:
   Headquarters                            Number
                                             of         Total
   Company                     city       insiders capital gains
   Enron Corp.                 Houston        19  $127.33 million
   AES Corp.                   Arlington, Va. 23    88.17 million
   Calpine Corp.               San Jose        4    46.39 million
   Dynegy Inc.                 Houston        13    21.38 million
   Duke Energy Corp.           Charlotte, N.C. 9     7.81 million
   The Williams Companies Inc. Tulsa, Okla.    6     5.36 million
   Reliant Energy Inc.         Houston         2     1.9 million

Top individual gainers in options exercises and insider trades
   1   Roger W. Sant
   Chairman, AES Corp.
   $34.85 million
   2   Kenneth Lay
   Chairman, Enron Corp.
   $27.19 million
   3   Peter Cartwright
   Chief executive, Calpine Corp.
   $21.58 million
.
Chronicle Graphic

,2001 San Francisco Chronicle ? Page?A - 1

Grand jury to look at energy suppliers
Inquiry into possible price manipulation
Greg Lucas, Sacramento Bureau Chief
Wednesday, June 13, 2001
,2001 San Francisco Chronicle
URL: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2001/06/13/MN109452.DTL
Sacramento -- California Attorney General Bill Lockyer said yesterday he will
convene a criminal grand jury to investigate whether power generators
illegally manipulated energy prices.
Lockyer said the investigation will look into whether generators worked
together -- directly or indirectly -- to drive up electricity and natural gas
prices by withholding energy, shutting down plants or exploiting the bidding
process. The investigation will begin shortly after July 1, when a new 19-
member Sacramento County grand jury is seated.
"This doesn't indicate we've reached a conclusion. It's a process to get at
the truth," Lockyer said in an interview with The Chronicle. "This is the
beginning of the criminal focus."
Since August, Lockyer has been investigating whether generators manipulated
the market or used unfair business practices or if their executives engaged
in criminal behavior.
Generators deny any manipulation of the market. They say their electricity
prices simply reflect a lack of supply, plant breakdowns and the high cost of
natural gas, which fuels most power plants.
Lockyer would not say whether he has evidence of market manipulation but
indicated that the grand jury will be an investigative tool.
"The purpose of the effort is to make sure no stone is left unturned in our
investigation of electrical and natural gas businesses," Lockyer said.
Working with Lockyer, the PUC will be checking into whether generators timed
maintenance and shutdowns to drive up prices -- a charge generators
repeatedly deny.
"We've had the Public Utilities Commission visit our facilities 65 times.
They were here today for the second time in a couple of days. They've yet to
prove manipulation or withholding because we have not manipulated and we have
not withheld," said Pat Dorinson, a spokesman for Mirant, which operates two
power plants in the Bay Area.
"If they have hard evidence to the contrary, they should bring it forward,"
Dorinson said.
Tom Williams, a spokesman for Duke Energy, laughed when he was told of the
grand jury convening.
He said the North Carolina-based company had been running its plants hard, at
the state's request, and charging "below the clearinghouse price" this year
and last year.
"Those are two fundamental things, both on price and supply, that will be a
fundamental component of anything we present" to an investigation, Williams
said.
Gov. Gray Davis talked by telephone with Lockyer Monday about the status of
his investigation.
Steve Maviglio, Davis' press secretary, said in a statement: "There is a
growing body of evidence that may give the attorney general the opportunity
to proceed with criminal as well as civil actions."
Lockyer said he did not know how long the grand jury would investigate the
issue.
It takes 12 of the grand jury's 19 members to return an indictment. Each
grand jury serves for a year.
Lockyer's investigation is not related to one by the Senate Select Committee
to Investigate Price Manipulation in the Wholesale Energy Market. It has
subpoenaed documents from the state's biggest generators.
"I don't know about criminal activity. I wouldn't put it in those terms,"
said state Sen. Joe Dunn, D-Santa Ana, chairman of the Senate investigative
committee. "Has there been market power exercised in a collusive fashion? The
answer is there is activity that is suspicious at first blush."
E-mail Greg Lucas at glucas@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?A - 1

Santa Rita solar array starts making electricity
Jail's system will make 500 kilowatts
Benjamin Pimentel, Chronicle Staff Writer
Wednesday, June 13, 2001
,2001 San Francisco Chronicle
URL: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2001/06/13/MN119107.DTL

Alameda County's main jail has begun drawing juice from the sun as workers
lay out what will be the largest array of rooftop solar panels anywhere in
the Western Hemisphere.
When the giant project is finished next month, Santa Rita County Jail in
Dublin will resemble a power plant, with one-third of its buildings covered
with nearly 5,000 panels with photovoltaic cells -- generating enough energy
to power 500 homes.
"We're producing clean, reliable power," Matt Muniz, Alameda County's energy
program manager, said at a news briefing yesterday. "The real importance of
this is reducing energy costs for the county."
The jail project highlights the growing popularity of solar energy,
particularly in sunny California in the middle of a power crisis, said Daniel
Shugar, an executive at PowerLight Corp. of Berkeley, which is installing the
array.
Another big solar project is planned at the Neutrogena Corp.'s facility in
Los Angeles, and last week PowerLight started up a huge rooftop system at the
Tompkins County Public Library in Ithaca, N.Y., said company spokeswoman
Susan DeVico.
At Santa Rita, the first batch of about 4,700, 4-foot by 4-foot panels were
switched on at the 113-acre jail last week, and they generate about 65
kilowatts of power, Muniz said.
The system will produce about 500 kilowatts, Muniz said, saving the county
about $300,000 a year in energy costs. It will also help the jail deal with
the expected rolling blackouts in the coming hot months. Santa Rita is not
exempt from blackouts.
Aki Nakao, director of the county's general services agency, said the sun-
kissed community of Dublin was perfect for the $4.4 million project, which is
being funded with the help of state grants.
"We're in the sunny side of the county," he said. "So it made sense."
Muniz said that of all county facilities, the jail also had the largest roof
and is the largest user of electricity.
Shugar said the solar array will generate the most power during hours when
the need is greatest.
"In Alameda County, you are blessed with a phenomenal solar resource," he
said. "It's not just energy, but very high value energy. It's produced at a
time of greatest need."
High costs once prevented the widespread use of solar energy, but new
technology has paved the way for cheaper and more efficient systems that tap
the sun as a main source of power, he added.
The world's largest rooftop system is in Germany, Shugar said. In the United
States, PowerLight also built some of the largest roof-mounted solar power
systems anywhere, including one at a commercial building in Fountain Valley
(Orange County) that produces about 400 kilowatts of power, he said.
In the Bay Area, the largest rooftop solar energy array can be found at the
company's own manufacturing plant in Berkeley, Shugar said.
Less than 1 percent of electricity generated in California came from solar
sources in 1999, the latest year tabulated by the California Energy
Commission.
The vast bulk of that, more than 95 percent, came from solar thermal
installations in deserts that heat a liquid core connected to steam
generation.
Still, photovoltaic production worldwide has jumped dramatically in recent
years, led by Japan, the United States and Europe.
E-mail Benjamin Pimentel at bpimentel@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?A - 17

'Dig-it-out-burn-it-up' methods won't work
Elizabeth Jones, Dan Jacobson
Wednesday, June 13, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/06/13/E
D168204.DTL
WE ARE FACING a tough summer here in California. With rolling blackouts and
higher electric rates, everyone agrees that we need an energy plan.
But just what kind of plan is the question.
The oil and gas industries, who have much to gain by the energy crisis, are
pushing plans to increase energy supply via the same old "dig-it-out-burn-it-
up" methods that are dirty, dangerous and won't deliver secure, affordable
energy supply to the public.
Unfortunately, our politicians may be listening.
Last month, President Bush released his energy plan that calls for building
more than 1,000 power plants; drilling on public lands; rolling back
clean-air standards; increasing taxpayer subsidies for coal and nuclear power
and reducing investments in efficiency and renewable energy.
Gov. Gray Davis and the state Energy Commission have already repealed
California's clean-air laws during Stage 3 energy emergencies, allowed gas-
fired plants to surpass clean-air quotas as long as they sell the energy to
the state, and approved 13 new fossil-fuel fired power plants. The governor
also supports building more than 13 more power plants, 28 "emergency" plants
and allowing diesel generators to run during Stage 3 alerts.
The oil and gas industries claim that we can drill for oil, burn fossil fuels
and generate nuclear energy in ways that don't harm the environment.
But look at the facts:
-- Although natural gas burns cleaner than oil or coal, fossil fuels are
dirty no matter what, emitting pollutants that create soot and smog, which
could aggravate asthma and other serious health effects. Already 600,000
children in the state have asthma -- more fossil-fuel pollution could make
this problem worse.
-- Oil drilling has permanently altered the once-pristine area around Prudhoe
Bay, Alaska. British Petroleum (BP) is responsible for the second- largest
oil spill in California history and, since 1995, has paid $47 million in
fines for pollution violations.
-- Despite safety claims, no safe way exists to deal with nuclear waste from
nuclear power plants.
-- Additionally, experts estimate that U.S. oil and natural gas supplies will
run out in 30 to 50 years.
One might get the impression that we have no choice but to "dig it out and
burn it up" to meet our energy needs.
But is the dirty, old fossil-fuel path really the only solution to the energy
crisis?
Absolutely not.
With abundant sunshine, windswept plains and plenty of geothermal heat,
California is a perfect place to use renewable energy.
The Energy Commission estimates that more than 50 percent of California's
energy needs could be met through solar, wind and geothermal energy. The U.S.
Department of Energy reports that 65 percent of the United States' energy
needs could be met from tougher auto standards, conservation and renewable
energy sources.
For example, by making sport utility vehicles comply with current passenger
car fuel-efficiency standards, we could save as much oil found in the Arctic
National Wildlife Refuge.
The state Energy Commission estimates that we currently generate less than
half of the possible geothermal power in California. The U.S. Department of
Energy estimates that we could generate twice as much electricity as we
produce now from wind power.
Renewable energy systems can be built much more quickly than fossil-fuel
plants -- a few weeks for rooftop solar, six months to two years for wind and
one to three years for geothermal.
The public could get vast energy savings with more focus on energy
efficiency. Two conservation measures that were signed by Davis this spring
-- if implemented well -- will save enough energy to eliminate "emergency"
diesel generators and still power roughly 2 million homes.
This spring, the governor signed an $850 million energy conservation package
that included rebates for consumers who buy energy-efficient appliances and
programs to distribute energy-efficient lightbulbs.
Unfortunately, it is now mid-June and little has been done to implement these
programs on a large scale, despite the program's energy-saving potential.
If we were serious about harnessing the potential of replacing 1 million
standard lightbulbs with compact fluorescent bulbs, for example, we could
have done any one of a number of things, including calling out the National
Guard to distribute them within a week's time. Ten percent of California's
energy is currently powered by renewable sources. Now, it is time to improve
on that. State Sen. Byron Sher, D-Palo Alto, is sponsoring SB531, which would
require that by 2010, 20 percent of California's energy come from renewable
resources, such as wind and solar power.
Davis should endorse Sher's bill and incorporate its elements into his energy
plan for California.
By doing this, he will send a strong message that he supports solutions to
the energy crisis that protect the public health and meet our energy needs.
Elizabeth Jones and Dan Jacobson work for CalPIRG, a nonprofit public
interest group. For more on energy saving programs, go to www.CALPIRG.org.
,2001 San Francisco Chronicle ? Page?A - 23

California governor to release details of state's power purchases
ALEXA HAUSSLER, Associated Press Writer
Wednesday, June 13, 2001
,2001 Associated Press
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2001/06/13/nation
al0729EDT0525.DTL
(06-13) 04:29 PDT (AP) --
With BC-Power-Gas Plants
SACRAMENTO, Calif. (AP) -- Gov. Gray Davis is close to releasing details of
38 long-term contracts between the state and power generators, a move that
would end a lengthy battle over whether the agreements should remain
confidential.
Davis for months had refused to release information on the contracts, but his
aides said Tuesday the disclosure was expected this week.
The Los Angeles Times reported Wednesday that confidential government records
show state officials agreed to contracts at prices higher than those now
being paid in the daily spot market.
The contracts, which total nearly $43 billion, could burden consumers with
relatively high utility rates if the recent trend toward lower electricity
and natural gas prices continues.
Records obtained by the Times show the state is committed to buying power at
prices up to $154 a megawatt-hour during peak demand periods and more than
$95 for power at times when demand is low. In comparison, the state recently
purchased peak power for less than $100 an hour and less than $20 an hour at
night when demand dropped.
The recent purchases reflect a drop in wholesale prices, which could rise
again this summer when temperatures climb and air conditioning use surges.
"The theme here is the governor embarked on a long-term strategy for a
short-term crisis," Peter Navarro, an economist at University of California
Irvine, told the Times. "They pretty much got this exactly wrong."
State officials defended the long-term contracts, crediting the agreements
with altering the marketplace. The contracts also have freed the state from
its nearly total reliance on the volatile spot market.
"This was all a well thought-through plan of action," said Davis energy
adviser S. David Freeman, former head of the Los Angeles Department of Water
and Power. "The war ain't over. But we have landed on enemy territory and we
are rolling them back."
Republican lawmakers and several news organizations, including The Associated
Press, sued Davis in March, saying his refusal to release the contracts'
details violated the California Public Records Act.
Still, Davis refused, saying that revealing the details would put the state
at a competitive disadvantage in other contract talks.
Oklahoma-based Williams Energy, one of the generators with a state contract,
opposes the release of the contract details.
"Information contained in those is proprietary information that allows us to
be competitive and to bid competitively," said spokeswoman Paula
Hall-Collins.
Raymond Hart, Department of Water Resources deputy director, wrote power
generators Monday saying the department would ask a judge Wednesday to throw
out a confidentiality provision in the contracts.
Meanwhile, the Times also reported Wednesday that executives and board
directors from power companies gained millions of dollars through stock sales
last year.
State officials accuse them of profiteering from the energy crisis, but some
executives netted upwards of $123 million in option transactions in 2000,
according to a filing with the Securities and Exchange Commission. Stock
prices for energy companies enjoyed robust growth last year.
,2001 Associated Press ?

Developments in California's energy crisis
The Associated Press
Wednesday, June 13, 2001
,2001 Associated Press
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2001/06/13/state0
944EDT0151.DTL
(06-13) 06:57 PDT (AP) --
Developments in California's energy crisis:
WEDNESDAY:
* No power alerts Wednesday as power reserves stay above 7 percent.
TUESDAY:
* Gov. Gray Davis says he will release the much-sought details of 38
long-term contracts between the state and power generators. Republican
lawmakers and several news organizations, including The Associated Press,
filed lawsuits in March saying Davis' refusal to release details of the
state's electricity purchases violates the California Public Records Act.
Davis has refused to release the contracts, saying that would put the state
at a competitive disadvantage in other contract talks. He now plans to ask a
judge to release the state from confidentiality agreements with generators so
he can make the details public this week.
* The governor's office says there is "a growing body of evidence that may
give the attorney general the opportunity to proceed with criminal as well as
civil action." The statement comes after Attorney General Bill Lockyer briefs
the governor on the investigations into alleged price manipulation by
generators.
* Southern California Edison has reached an agreement with small power
generators that could ease the bankruptcy threat the utility is facing and
ensure Californians a critical source of power through the summer. The
California Public Utilities Commission is expected to approve the plan
Wednesday, requiring Edison to make partial back payments to renewable energy
power generators, many of which have sued the utility and curtailed power
production. The plan would raise the rates being paid to generators that use
natural gas and offer a stable rate for five years to generators using wind,
solar, geothermal or other renewable sources.
* California paid a slight interest premium on a $1 billion bond sale
Tuesday, reflecting its ongoing energy crisis and the resulting drain on the
state's treasury. But the rate was better than some analysts had expected,
perhaps foreshadowing a favorable reception for the $12.5 billion in bonds
the state intends to issue later this year. Those bonds will repay the
treasury for money California is using to buy electricity on behalf of three
cash-strapped utilities.
* A federal bankruptcy judge in San Francisco agrees to grant two energy
wholesalers "safe harbor" from potential conflict of interest accusations
while they continue trading PG&E stock. Representatives of Enron Corp. and
Dynegy Inc. sit on the 11-member creditors committee that plays a large role
in how PG&E's assets get divided up. Opponents of the order were concerned
company officials might unfairly use information gleaned from that committee
to affect trading. Morgan Guaranty, Merrill Lynch and Bank of America also
were granted the "safe harbor" protection.
* Shares of Edison International rose 20 cents to close at $11.20. PG&E Corp.
closed at $12, up 50 cents. Sempra Energy, the parent company of San Diego
Gas and Electric Co., closed at $27.20, up 48 cents.
* Senate Leader John Burton, D-San Francisco, is introducing three
energy-related measures, including a bill that would repeal a 10 percent rate
hike scheduled to take effect next year. The 1996 electricity deregulation
law included an automatic 10 percent rate reduction until March 2002.
Burton's bill would remove that from state law, but the Public Utilities
Commission could still raise rates if commissioners felt it was needed.
Burton is also writing a bill to provide backup battery power for traffic
signals in some intersections to keep the lights on during blackouts. His
third measure is a resolution that voices support for Davis to commandeer
power plants under his emergency powers authority.
* Taco Bell Corp. fielded so many complaints about its energy surcharge that
it scrubbed the fees after just two days. The fast food chain on Friday
started adding between 10 cents and 15 cents to customer tabs at selected
Southern California restaurants to offset power cost increases.
* No power alerts Tuesday as power reserves stay above 7 percent.
WHAT'S NEXT:
* Davis asks a San Diego Superior Court judge Wednesday to release the state
from its confidentiality agreement with generators so the governor can
release details of its long-term contracts. The same judge is also scheduled
to hear arguments from Assembly Republicans and several news organizations,
including The Associated Press, that are seeking the release of the
contracts.
* PUC is expected to act Wednesday on Southern California Edison's agreement
with small power generators that could ease the bankruptcy threat the utility
is facing and ensure Californians a critical source of power through the
summer.
* Davis' representatives continue negotiating with Sempra, the parent company
of San Diego Gas and Electric Co., to buy the utility's transmission lines.
* The Senate Governmental Affairs Committee, chaired by U.S. Sen. Joseph
Lieberman, D-Conn., holds hearings Thursday and June 20 on the power crisis.
THE PROBLEM:
High demand, high wholesale energy costs, transmission glitches and a tight
supply worsened by scarce hydroelectric power in the Northwest and
maintenance at aging California power plants are all factors in California's
electricity crisis.
Southern California Edison and Pacific Gas and Electric say they've lost
nearly $14 billion since June to high wholesale prices the state's
electricity deregulation law bars them from passing on to consumers. PG&E,
saying it hasn't received the help it needs from regulators or state
lawmakers, filed for federal bankruptcy protection April 6.
Electricity and natural gas suppliers, scared off by the companies' poor
credit ratings, are refusing to sell to them, leading the state in January to
start buying power for the utilities' nearly 9 million residential and
business customers. The state is also buying power for a third investor-owned
utility, San Diego Gas & Electric, which is in better financial shape than
much larger Edison and PG&E but also struggling with high wholesale power
costs.
The Public Utilities Commission has approved average rate increases of 37
percent for the heaviest residential customers and 38 percent for commercial
customers, and hikes of up to 49 percent for industrial customers and 15
percent or 20 percent for agricultural customers to help finance the state's
multibillion-dollar power buys.
,2001 Associated Press ?

ENERGY REPORT
Chronicle Staff and News Services
Wednesday, June 13, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/06/13/M
N226095.DTL
Burton bills on stoplights, price hike Senate President Pro Tem John Burton,
D-San Francisco, introduced two energy bills. One would pay for back-up
batteries at key intersections so they could continue operating in a
blackout; the other would order the Public Utilities Commission not to
automatically raise rates 10 percent next March, as part of the original
deregulation law approved in 1996.
Burton also introduced a resolution saying the state Senate supports Gov.
Gray Davis seizing energy plants under his emergency powers authority. Davis
has threatened in the past to do so but now says such action could cost the
state expensive legal fees. The resolution is unlikely to sway the Democratic
governor.
Alternative generators,
Edison reach accord
Southern California Edison Co. said it reached an agreement with alternative
power generators that could give California a critical source of energy this
summer and ease the bankruptcy threat the utility is facing. The utility
agreed to make partial back payments to the generators, many of which have
sued the utility and curtailed power production. The California Public
Utilities Commission is expected to approve the plan today.
Hearings set on plan
to bail out Edison
The state Senate scheduled a series of hearings, beginning next week, on the
governor's deal to bail out Southern California Edison.
Judge allows trading
by PG&E's creditors
Stipulating that the companies involved must set up procedures to guard
against misuse of confidential information, U.S. Bankruptcy Judge Dennis
Montali yesterday allowed members of PG&E's creditors' committee to trade in
the utility's securities without risking their debt claims. Montali also said
he would probably allow a larger group of committee members, including Enron
Corp. and Dynergy, to make energy deals that could have an impact on PG&E.
The city of San Francisco, which has sued Enron, Dynergy and other energy
dealers, claims the trading would invite conflicts of interest.
,2001 San Francisco Chronicle ? Page?A - 16

Edison reaches deal with small generators
GARY GENTILE, AP Business Writer
Wednesday, June 13, 2001
,2001 Associated Press
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2001/06/13/state1
954EDT0229.DTL
(06-13) 00:03 PDT LOS ANGELES (AP) --
Cleaner-burning sources of electricity that were often unavailable earlier
this year because of money problems would be secure under a proposal the
Public Utilities Commission is expected to discuss Wednesday.
If the commission endorses an agreement between Southern California Edison
and small power generators, it also could help the utility avoid bankruptcy.
The deal is meant to ensure that the small generators, or "qualifying
facilities," keep operating.
Several rolling blackouts in January were triggered, in part, by the
unavailability of power generated by the qualifying facilities, which were
strapped for cash because they hadn't been paid by Edison and Pacific Gas &
Electric Co. The small generators, many of which have sued the utility,
account for about one-third of the state's power supply.
The proposed PUC order would raise the rates being paid to generators that
use natural gas and offer a stable rate for five years to generators using
wind, solar, geothermal or other renewable sources.
The proposed order would also require Edison to pay at least 15 percent of
what it owes generators.
The PUC action is expected to reflect elements of the Edison agreement.
The deal removes the threat of legal action against the utility if full
payment for power bought since January is made within six months after the
PUC order becomes final.
"I think it's a good, balanced deal for both sides and the only issue will be
making sure the PUC will adopt the deal," said Jerry Bloom, a spokesman for
the California Co-generation Council, which represents many small, natural
gas-fired power generators.
Edison officials agreed.
"We hope this agreement will help bring stability back to this segment of
California's energy market," the company said in a statement.
The small generators are owed more than $1 billion by bankrupt Pacific Gas &
Electric and Edison.
In March, the PUC ordered the utilities to make payments to the qualifying
facilities for power delivered in April and beyond. Both utilities began
making those payments in mid-April.
According to the California Independent System Operator, which manages the
state's power grid, many small generators have come back online since the
beginning of May.
The ISO said the small generators account for about 5,800 megawatts of
potential power. At times earlier in the year, as much as 3,000 megawatts
have been unavailable to the state. Since May, that number has decreased to
about 400 megawatts, or what would normally be expected because of mechanical
problems or maintenance, according to the ISO.
One megawatt is enough to provide power to approximately 750 homes.
The agreement with Edison comes the same week the utility persuaded a state
judge to consolidate about a dozen lawsuits brought against the utility by
the qualifying facilities.
Once a trial judge has been appointed to hear the case, Edison intends to ask
that another 15 or 16 other lawsuits be added, according to Barbara Reeves,
Edison assistant general counsel. The cases remain on hold until then, she
said.
If the PUC acts Wednesday on the Edison deal, those cases could disappear.
Bloom said that if the PUC decision is not appealed, generators have agreed
to put their lawsuits on hold for 180 days.
"If they pay back what they owe us, the lawsuits would be dismissed and the
claims would be settled," Bloom said.
Those lawsuits have been a growing source of concern for Edison, which has
been trying to avoid filing for bankruptcy protection.
In March, a group of qualifying facilities were one day away from filing a
bankruptcy petition when a court allowed CalEnergy to end its contract with
Edison and sell power on the open market. The victory triggered similar suits
by other generators and attempts by several to attach Edison's assets.
In May, the City of Long Beach, which sold energy it produced from a trash
facility to Edison, won an attachment of Edison's bank account in the amount
of $4.9 million plus interest. The company is appealing the decision.
Edison is also hoping the sale of $1.2 billion in bonds issued by a newly
created holding company will keep creditors at bay.
The utility said Tuesday it will sell the bonds in a private placement. The
bonds will be issued by Mission Energy Holding Company, a new entity created
to shield Edison International from financial turmoil experienced by its
subsidiaries.
,2001 Associated Press ?

Governor set to reveal terms of power deals
Court must decide confidentiality issue
Lynda Gledhill, Chronicle Sacramento Bureau
Wednesday, June 13, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/06/13/M
N156901.DTL
Sacramento -- Gov. Gray Davis reversed course yesterday on the secrecy of
long-term energy contracts, saying he now wants to make public details of the
deals the state has signed with electricity generators.
Davis and his advisers said they have signed enough contracts that releasing
the information will not seriously jeopardize the state's bargaining
position. Administration officials, however, said the contracts contain
confidentiality clauses and they will ask a judge today to release the state
from those provisions.
Republican lawmakers and several media organizations, including The
Chronicle, have filed suit against Davis, demanding that the contracts be
made public.
"We now believe that the balance tips in favor of disclosure rather than
continuing to withhold the contracts," said Davis senior adviser Nancy
McFadden.
In San Francisco yesterday, Davis said he always intended to release the
information six months after the contracts were signed.
"Obviously, the market conditions are a little more favorable now," he said.
"On balance, we think it's the appropriate time to release the information."
Davis' request will be heard at a court hearing today in San Diego on the
suits filed by the media and GOP lawmakers against Davis.
But it is unclear whether the judge will go along with the administration's
request or how the Davis administration will be able to proceed if it is
denied.
Paula Hall-Collins, a spokeswoman for Williams Co., said the energy company
will monitor the court hearing.
"We maintain that the contracts contain proprietary information," she said.
Patrick Dorinson, a spokesman for Mirant, also expressed concern about what
information might be released.
"We think it is important for the people of California to have information on
revenue and capacity information, but we are sensitive to specific terms
being released that could be misused by our competitors in the marketplace,"
he said.
The state has been purchasing power since Jan. 17. While much of that has
been on the expensive spot market, state officials have also locked in 38
contracts for long-term deals.
However, no information on the terms of the contracts or how much the state
is committed to spend has been released.
Ray Hart, Department of Water Resources deputy director, sent letters to
power generators yesterday saying the department will ask a judge to throw
out the confidentiality provision in the contracts.
The letter states that there will be some redactions on information that is
considered proprietary.
McFadden said the move was not made because the state was concerned about
losing its lawsuits.
She said she expected the court to release the state from the confidentiality
agreement. The governor's office then would release the documents as early as
this week, she said.
Lawmakers also have been demanding the release of the information so that
they can proceed on a plan to keep Southern California Edison out of
bankruptcy.
If the judge refuses to release the state from the confidentiality clause,
the administration will negotiate with the generators individually to allow
the contracts to be made public, McFadden said.
But Terry Francke, general counsel with the California First Amendment
Coalition, said he would be surprised if a judge allowed the request.
"I don't believe the court would simply absolve a party from a contractual
agreement at a proceeding where the other party is not present," he said.
Francke also questioned whether the state had the right to sign contracts
containing a confidentiality clause.
"There is a very serious question as to whether the state of California can
legally in effect promise to ignore the Public Records Act," he said.
Roger Myers, an attorney for The Chronicle, said there is good case law in
the state supporting the releasing of the information.
"You can't enter into an agreement and convert public information into
confidential information," he said.
E-mail Lynda Gledhill at lgledhill@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?A - 15

Senate to probe Western energy problems
H. JOSEF HEBERT, Associated Press Writer
Wednesday, June 13, 2001
,2001 Associated Press
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2001/06/13/nation
al0415EDT0480.DTL
(06-13) 01:15 PDT WASHINGTON (AP) --
For the first time since gaining control of the Senate, congressional
Democrats are challenging the government's handling of the Western power
crisis as they step up pressure on regulators to take new steps to curb
alleged price gouging.
The Senate Governmental Affairs Committee was to question energy economists
at a hearing Wednesday as part of an investigation into whether a small group
of power producers and marketers may have manipulated the electricity markets
to make huge profits.
The committee's chairman, Sen. Joe Lieberman, D-Conn., said the panel also
plans to examine why the Federal Energy Regulatory Commission (FERC), which
has jurisdiction over wholesale electricity rates, has not moved more
aggressively to monitor California's electricity deregulation plan and the
wholesale power markets.
Meanwhile, congressional pressure is mounting -- from both Democrats and
Republicans -- on FERC to take additional steps aimed at reducing Western
electricity costs, especially in California. This year California has paid
nearly $50 billion for power, compared to $7 billion during all of 1999.
This week wholesale electricity prices on the spot market in California fell
to below $100 a megawatt-hour for the first time this year -- about a third
of what they have been in recent months -- and natural gas prices also eased.
But prices were still much higher than before the region's power problems
began and there was fear they would rebound if shortages occur.
A megawatt is enough to serve about 600 homes. Two years ago the average
price of power in California was $30 a megawatt-hour.
FERC, which regulates wholesale electricity transactions and natural gas
transport, has stepped up its activities in recent weeks and plans a special
meeting next Monday on California's power markets to decide what further
steps might be needed.
In a meeting Tuesday with more than three dozen Republican and Democratic
lawmakers from California, Vice President Dick Cheney said the administration
remains opposed "to any type of price control legislation," according to
those present.
But it also became clear that political support was growing in Congress for a
call for more aggressive actions by the five-member energy regulatory agency,
which is comprised of three Republicans and two Democrats.
Sen. Jeff Bingaman, D-N.M., who became chairman of the Energy and Natural
Resources Committee when Democrats assumed the Senate majority, warned that
price cap legislation would brought up for a Senate vote if FERC doesn't take
additional steps to ensure prices are just and reasonable.
"I hope that FERC will act more aggressively," Bingaman said during an energy
forum Tuesday, "and we will not have to have legislation." Still, he said, he
was prepared to move a bill out of his committee before the July 4 recess to
require FERC to impose electricity price caps based on cost of production and
a reasonable profit.
Republicans also have begun pressuring FERC amid growing fear among some
House GOP members about the potential political fallout in the 2002 elections
if high Western electricity costs are not contained.
In a letter to FERC Chairman Curtis Hebert on Tuesday, Rep. Billy Tauzin,
R-La., chairman of the Energy and Commerce Committee, and 14 other GOP
lawmakers urged FERC to expand the limited price mitigation program it
approved in April.
"The commission can and should do more to mitigate wholesale electricity
prices in Western markets," urged the GOP lawmakers, calling on FERC to
"ensure that rates ... are just and reasonable" throughout the 11 Western
states.
In April, FERC directed that wholesale electricity prices be limited in
California whenever power reserves fall below 7.5 percent, triggering an
emergency. California officials have called the limits, pegged to the cost of
producing power from the most inefficient plant, inadequate and full of
loopholes.
The letter to FERC calls for the same mitigation program to be broadened to
include all power transactions, not only those during emergencies, and for
the limits to be expanded to include other Western states.
On the Net:
Federal Energy Regulatory Commission: www.ferc.gov/
Senate Governmental Affairs Committee witness list:
www.senate.gov/~gov_affairs/061301witness_list.htm
,2001 Associated Press ?

Expanded power price caps studied
Posted at 10:54 p.m. PDT Tuesday, June 12, 2001
BY JOHN WOOLFOLK AND JIM PUZZANGHERA

Mercury News

Under mounting criticism to ease California's power woes, federal regulators
next week are expected to consider a major expansion of their limited price
controls, applying them around the clock and throughout the West.
The Federal Energy Regulatory Commission (FERC) will meet Monday to
reconsider its position on California, and an agency official confirmed that
the proposal to broaden the controls is on the table.
``The worm has turned politically,'' said the commission official, who spoke
on condition of anonymity, adding that ``we're moving toward 24-7 in
California'' and the Western region.
The proposal, supported by some Republican lawmakers, stops short of the
price cap that state Democratic leaders have been pushing for. State
officials were encouraged by the talks but remained skeptical.
``If they're finally for price relief, hallelujah,'' said Roger Salazar,
spokesman for Gov. Gray Davis. ``But the devil's in the details.''
Sen. Dianne Feinstein, D-Calif., who has sponsored legislation to force the
commission to enact temporary price caps based on production costs, also
expressed doubts about expanding existing measures.
``This sounds good on the face of it, and it may well be,'' Feinstein said.
``However, this situation is ripe for manipulation.''
The federal commission, charged with ensuring just and reasonable wholesale
power prices, has drawn widespread criticism from Western officials who say
it has fallen down on the job and allowed electricity prices to soar.
In April, the commission rejected pleas for a Western price cap and instead
approved limited ``mitigation measures'' for California that apply only
during power shortages.
Those measures, which took effect May 29, base prices on the production costs
of the least efficient, and therefore most expensive, power plant in
operation. Critics worry that this system still allows most generators to
profit excessively.
Political shift
Supporters say there's already evidence the measures are working, noting that
power prices in California have plummeted in recent weeks.
But critics say that the recent price drop is likely to prove temporary and
that the approved measures will encourage power sales out of state.
Since the April order, the political landscape has shifted. The commission's
Republican chairman, Curt Hebert, a free-market advocate who opposes price
caps, may lose his post to one of two new appointees to the panel who have
hinted at more flexibility.
In addition, Democrats, who generally favor price caps, have taken control of
the U.S. Senate, and support is building among Republicans for tougher
controls.
The idea of extending the commission's April order around the clock and
throughout the West has been floating around Washington for weeks. Rep. Doug
Ose, R-Woodland, introduced legislation May 23 to do that, but it was
dismissed by Gov. Gray Davis as ``inadequate.''
Nonetheless, Ose and 14 other Republicans, including House Energy and
Commerce Committee Chairman Billy Tauzin, R-La., wrote to FERC chairman Curt
Hebert on Tuesday urging him to expand the order.
``To ensure that prices are just and reasonable during the critical months
ahead, we believe the commission can and should do more to mitigate wholesale
electricity prices in western markets,'' the letter said.
Sen. Joseph Lieberman, D-Conn., the new chairman of the Senate Governmental
Affairs Committee, will hold a hearing next Wednesday on whether the
commission has fulfilled its legal responsibility to ensure just and
reasonable electricity rates. All five commissioners and Davis will testify.
David Freeman, Davis' chief energy adviser, said that an expansion of FERC's
April order would help but that more would still need to be done.
``Any strengthening of any plan is in the public interest,'' Freeman said.
``But it is not a substitute for what Gov. Davis is proposing.''
It was unclear Tuesday how far talks at the commission were progressing.
Commissioner Linda Key Breathitt said she had not had discussions with other
commissioners. She said she expected discussions to heat up this week as the
commission prepares for Monday's meeting.
But the Los Angeles Times on Tuesday quoted two unidentified commission
sources as saying expanded controls would be considered.
The commissioners' consideration of broader price controls comes as Vice
President Dick Cheney dismissed price cap pleas from congressional Democrats.
``He didn't give an inch,'' said Rep. Anna Eshoo, D-Palo Alto, a supporter of
price caps, after the hourlong meeting.
``If Californians are looking to this administration in the short term to be
any kind of partner with us, to stand with the California energy consumer, I
think today's meeting dashed that hope.''
Cheney listens
Cheney repeated the administration's argument that they would not produce
more power for the state and would only discourage producers from selling to
the region.
Tuesday's meeting was the first on this issue to include Democrats.
``The vice president listened to countless questions and suggestions, and he
did point out that the administration was not inclined toward price caps,''
said Cheney's spokeswoman, Juleanna Glover Weiss.
``But the vice president did encourage every member there to continue to come
up with any ideas that they'd like to run by the administration as we are
looking to help in any way we can.''
Feinstein said expanding existing measures may allow the administration to
help California without appearing to give in to demands for a ``cap.''
``Price mitigation appears to be a way to avoid using the words `price
cap,'?'' Feinstein said. ``Frankly, I don't care what they call it, as long
as they get the job done.''

Contact John Woolfolk at jwoolfolk@sjmercury.com or (408) 278-3410.

Electricity, ethanol . . . maybe there is a plot against us
Published Wednesday, June 13, 2001, in the San Jose Mercury News
YOU can't blame California for starting to feel a little paranoid.
Ask the Bush administration for help on electricity prices and you get a
lecture on the evils of intervention in free markets.
Ask for relief from federal rules that require unnecessary additives in
gasoline at extra cost, and you get ethanol force fed into your car's tank.
The Environmental Protection Agency on Tuesday denied California's request
for an exemption from a clean air rule that requires an oxygenate in
gasoline. The ruling means California either has to start putting ethanol in
gasoline, or it must revert to MTBE. It is phasing out MTBE by 2003 because
the additive spreads rapidly in ground and water when gasoline spills or
leaks.
The ethanol requirement will raise gasoline prices an estimated 6 cents a
gallon, assuming there is enough ethanol to avoid shortages that would drive
prices even higher.
For ethanol to displace MTBE in California would require production of an
additional 580 million gallons a year, a 25 percent increase in current
national output. The ethanol industry says it will be ready and able to meet
the demand. Let's hope so.
State environmental officials are adamant that neither ethanol nor MTBE is
necessary for so-called clean gasoline, and that ethanol would actually
create slightly more air pollution.
As so often is the case with ethanol, economics and science had to take a
back seat.
Most ethanol is distilled from corn, which means that in the Midwest it is
regarded with the same reverence as wine in the Napa Valley. Any federal
regulation that creates a huge market for ethanol, as the EPA ruling will do
in California, has a political bulldozer pushing it.
California could try to get Congress to grant the oxygenate waiver, but the
usual political calculus doesn't apply. This issue isn't partisan, it's
regional. Any end run around the Bush administration will smack up against
the new majority leader in the Senate, South Dakota Democrat Tom Daschle.
Daschle teamed with then-Sen. Bob Dole, a Kansas Republican, to write the
original rule. The whole California congressional delegration, on the other
hand, supported the waiver.
States in the Northeast had been delaying their own request for a waiver
while waiting to see what happened to California. They'll drop it now.
Winston Hickox, head of California's Environmental Protection Agency, said he
is not against ethanol, he's just against California's being required to use
it, since there are other ways to make clean gasoline.
California wasn't seeking permission to let the air get dirtier. No state
works harder for cleaner air than California. What California wanted was
flexibility. What it got was a lesson in politics.

Well, Texas does hate California
Published Wednesday, June 13, 2001, in the San Jose Mercury News
BY JAN JARBOE RUSSELL
IN THE current undeclared war between California and Texas, Californians have
good reason to fear President Bush and his many wealthy friends in the Texas
oil patch.
I read that Garry South, a strategist for California Gov. Gray Davis, had
savaged Bush for not taking meaningful steps to help resolve California's
alarming energy crisis. ``Texas ain't exactly Shangri-La,'' South said.
No one who lives in Texas, as I have for most of my life, would ever mistake
Texas for Shangri-La. Texans, however, do believe that California is
Shangri-La. And that's precisely the problem. Texans hate Shangri-La. That's
the subtext of the message that Bush and Vice President Dick Cheney have been
sending to California.
That deregulation scheme of yours? ``Harebrained,'' as a smirking Cheney
described it on CNN.
Think you guys in California can conserve your way out of your energy
problems? Read my lips, Bush II in effect told California when he unveiled
his national energy policy: Drill more wells. Build more power plants. Eat
less granola.
Want to know why else California has every reason to fear Texas? Here are
three:
First, our greatest fear in Texas is not earthquakes. Here, cheap oil
qualifies as a true natural disaster.
Historically, our livelihood in Texas has depended on whatever people could
take out of the ground -- this means oil, natural gas, sulfur and uranium.
This dependence has put Texas at significant odds with the rest of the
country.
Remember the last energy crisis when Jimmy Carter was president and the
entire East Coast feared the kinds of blackouts that California now fears?
There was so little compassion for our countrymen back then that all over
Texas, bumper stickers appeared that said: ``Freeze a Yankee in the Dark.''
The point is that when Bush says he's a compassionate conservative, you have
to keep in mind that in Midland -- Bush's hometown of choice -- compassion is
a relative term. It means that Bush II is too nice a guy to tell Californians
to ``Rot In the Sun,'' but he's not so compassionate that he would do
something truly useful -- such as limiting the price of electricity to
forestall summer blackouts.
Second, Californians should fear Bush and his merry band of Texans because in
Texas there is no concept whatsoever of the idea of ``public'' land, and very
little concept of the ``public good.''
When Texas entered the nation, it did so as a sovereign nation, not a state.
What that meant is that Texas got to keep title to all the land that wasn't
in private hands. The federal government got nothing. The state kept it all.
And the state sold most of it as quickly as it could to private owners who
put fences around it and built vast oil and ranching empires.
The federal government got almost none of Texas land. What the government has
acquired in modern times -- a national park here and there, a few military
bases -- it has paid good money for.
Despite Hollywood's best efforts to portray Texas as a mythic land of
romance, Texans have a very unromantic, realistic view of land. Land is to be
used for making money. Bring in the railroads. Plow the plains. Round up the
cattle, and -- above all -- drill for oil so that you don't have to stumble
around in the dark, like those fuzzy-headed people in California.
It's difficult to exaggerate just how much importance Texans place on private
ownership of property. Property owners in Texas can do damn near anything
they want on their own land. They can pump all of the water they want out of
public rivers that run in front of their land. They can -- and do -- shoot
people for trespassing.
In Texas there is an obligation to mind your own business -- and let everyone
else mind theirs. If your neighbor has an energy problem, the feeling is that
your neighbor -- not the federal government -- better find a way to solve it.
Finally, Californians should fear Texas because we sooooo envy you.
Who wouldn't envy a state that is synonymous with a dream, where imagination
is valued as much as realism, where people openly pursue pleasure, where
mountains run down to the sea, and the climate is sublime all-year-round?
Envy is the price you people in California pay for living in Shangri-La.

Jan Jarboe Russell is a San Antonio Express-News columnist.

FERC may expand cap
Senators say regulators are set to extend price controls throughout the West.
June 13, 2001
By DENA BUNIS
The Orange County Register
WASHINGTON Federal energy regulators are poised Monday to extend limited
price controls on the electricity market to 24 hours a day, seven days a week
throughout the Western states, California's senators said Tuesday.
If the Federal Energy Regulatory Commission does what Democratic Sens.
Barbara Boxer and Dianne Feinstein have heard it plans to do, it would
represent a further softening by FERC in the face of mounting political
pressure. FERC had adamantly opposed limits on a free electricity market
until April, when it approved its first limited controls.
Experts believe such a move could moderate wholesale prices, but to what
extent and what the effect could be on ratepayers is uncertain.
"It would be a step in the right direction," Boxer said Tuesday after she,
Feinstein and 40 California House members from both parties met with Vice
President Dick Cheney. "It still doesn't give us the kind of help with price
gouging that we need."
Cheney, who reiterated the administration's opposition to firm price caps,
told members who pressed him for a California-specific solution to watch what
FERC does at its meeting next Monday.
Two new FERC commissioners, recently appointed by President George W. Bush,
could be voting Monday. Energy watchers say their presence could turn FERC
into a more activist agency.
In April, FERC ordered a price-control plan based on a complicated formula of
what it costs generators to produce a kilowatt of electricity. But critics,
particularly FERC Commissioner Richard Massey, called it meaningless because
it only applied during shortages and did not extend beyond California.

Lower Electric Rates in West Sought

June 13, 2001

By H. JOSEF HEBERT
Associated Press Writer
WASHINGTON (AP) via NewsEdge Corporation -
Federal regulators came under growing congressional pressure Tuesday to act
further to lower the price of electricity in the West and stem alleged abuses
by power producers.
Democrats, who just became the Senate's majority party, planned hearings on
Western electricity prices including a look Wednesday into the Federal Energy
Regulatory Commission's handling of the power crisis.
The FERC, which regulates wholesale electricity transactions and natural gas
transport, has stepped up its activities in recent weeks and plans a special
meeting next Monday on California's power markets. Regulators are expected to
decide at that meeting whether to take additional steps to rein in prices.
Meanwhile, political support has been growing on Capitol Hill, even among
some Republicans, for legislation to force FERC to impose temporary price
caps on Western power sales.
In recent days, wholesale electricity prices have dropped significantly in
California and the Northwest, but the threats still loom of a price rebound
and, in California, power blackouts.
The Bush administration remains strongly opposed to even limited price
controls that interfere in the free market.
Vice President Dick Cheney, in a meeting Tuesday with more than three dozen
Republican and Democratic lawmakers from California, said the administration
remains opposed ``to any type of price control legislation,'' according to
lawmakers present.
But Sen. Jeff Bingaman, D-N.M., who became chairman of the Energy and Natural
Resources Committee when Democrats assumed the Senate majority, warned FERC
to take additional action or face legislation demanding price caps.
``I hope that FERC will act more aggressively,'' Bingaman said during an
energy forum, ``and we will not have to have legislation.''
But he said he was prepared to move a bill out of his committee before the
July 4 recess, similar to one offered by Sens. Dianne Feinstein, D-Calif.,
and Gordon Smith, R-Ore., that would require FERC to impose electricity price
controls based on cost of production and a reasonable profit.
At the same time, the Senate Governmental Affairs Committee, chaired by Sen.
Joe Lieberman, D-Conn., planned to hear Wednesday from several energy
economists about FERC's handling of wholesale power markets in the West. Most
of the witnesses, including Cornell economist Alfred Kahn, an advocate of
electricity deregulation, have urged additional price controls under current
circumstances.
While most Republicans, following the White House lead, remain opposed to
legislating price caps, there have been growing fears among GOP House members
about potential political fallout over high Western electricity prices.
In a letter to FERC Chairman Curtis Hebert on Tuesday, Rep. Billy Tauzin,
R-La., chairman of the Energy and Commerce Committee, and 14 other GOP
lawmakers urged FERC to be more aggressive in pursing allegations of price
abuse and to expand the limited price mitigation program it approved in
April.
That order by FERC reins in wholesale electricity prices when California's
electricity reserves fall below 7.5 percent, triggering an emergency. It
limits prices to those charges for power from the most inefficient power
plants.
California Gov. Gray Davis has called the FERC limits inadequate and said
they've had little impact on prices. Tauzin, however, cited evidence that
FERC's order already has dampened electricity prices, which recently have
fell significantly.
The letter to FERC calls for the same mitigation to be broadened to include
all power transaction, not only those during emergencies, and for the limits
to be expanded to include other parts of the Western power grid.
Rep. Joe Barton, R-Texas, chairman of a key Energy and Commerce subcommittee,
was among those who signed the letter, but he said he opposes broader price
controls such as those favored by most congressional Democrats.
``There have been no instances where price caps have worked,'' insisted
Barton at an energy forum sponsored by The Atlantic Monthly. The recent
easing of electricity prices shows ``the market has begun to work,'' he said.
House Minority leader Richard Gephardt, D-Mo., said at a news conference that
price caps pegged to the cost of producing power are needed ``to restore
reliable and affordable'' electricity supplies.
``Price controls are catastrophic,'' retorted Majority Leader Dick Armey,
R-Texas. ``If you want blackouts in California, have price controls. He and
other Republicans say price controls inhibit electricity supplies.
___= ?On the Net: Federal Energy Regulatory Commission: http://www.ferc.gov/ ?Senate Governmental Affairs Committee witness list: ?http://www.senate.gov/(tilde)gov_affairs/061301witness_list.htm ??????????????By Kathleen McFall?kmcfall@ftenergy.com?"BPA has a dirty little secret," says the announcer in a recent television ?advertisement blitz airing in Pacific Northwest markets. In a nutshell, the ?ads charge that because the Bonneville Power Administration (BPA) sold ?wholesale power outside the region while also contracting for more power than ?it generates, the agency is now forced to raise rates so high the aluminum ?industry cannot profitably operate.??It's no surprise the ads are financed by the aluminum industry. Nor is it ?surprising, BPA says, that the television spots present partial facts ?distorted to the advantage of these direct-service industries (DSI). ??"There is no legal requirement for BPA to sell power to the DSIs([rather] BPA ?is directed by statute to sell federal power to the greatest benefit of the ?widest number of people, with preference to publicly and cooperatively owned ?utilities," retorted BPA, putting its own spin on the situation. ??The fact that some aluminum companies resold their allocation of BPA's cheap ?power to the spot market at an astronomical rate this past summer, pocketing ?millions of dollars in profit for investors, has done little to provoke ?sympathy for the industry. On the other hand, the prospect of putting ?thousands of aluminum employees out of work pulls on local heartstrings. ???At the core of this war of words, however, is a much bigger issue, one that ?brings the region's low-cost hydropower into question. ??"Does the federal government have any business being in the electricity ?business in the 21st century?" asks a new report by the Northeast-Midwest ?Institute. "Is there some market distortion that requires federal ?intervention?" ??"As summer's rising temperatures increase the chances for blackouts(more eyes ?in Washington D.C. have turned to the Northwest's electric resource*the ?Columbia River hydropower system," said an editorial in The Oregonian, one of ?the major newspapers in the region. "They want the Bonneville Power ?Administration to start charging market rates for power." ??Coveting Northwest power?In accordance with its statutory mission, BPA sells its power at near-cost ?rates and gives preference to power providers in Oregon, Washington, Idaho, ?western Montana and small portions of Wyoming, Nevada, Utah, California and ?eastern Montana. According to the agency, half the power BPA sells goes to ?public utility districts, city light departments and rural electric ?cooperatives. About 15% of BPA's annual sales are to investor-owned utilities ?such as PacifiCorp, and another 25% are allocated to aluminum companies and a ?few other large industries. Once these obligations are met, surplus power can ?then be sold outside the agency's territory. ??BPA's current rate-increase controversy has its roots in the fact that the ?agency previously signed contracts to sell more power than it generates. ?Critics contend the agency engaged in overly optimistic power contracts, ?expecting a stable spot market and ample rainfall*neither of which occurred ?this year*leaving BPA unable to fulfill its contractual obligations. ??Consequently, the agency has suffered severe financial blows as it has been ?increasingly forced to buy power from the volatile spot market. To protect ?itself, BPA announced in April that without load reductions, it would be ?forced to raise wholesale rates by 200% to 300%. Last week, acting director ?Steven Wright announced that he believed the increase could be held to under ?100% due to buybacks, conservation and other aggressive attempts to reduce ?load, including a strategy that will idle the energy-intensive aluminum ?smelters to save about 1,000 average megawatts. ??This very public attempt to reduce its load has put the agency's pricing ?approach on the hot seat and has critics arguing there is no reason why BPA's ?prices should not be market-based. ??"When the federal government sells other property*everything from timber to ?used computers*it relies on the market and open auctions. That approach ?maximizes the value of the federal property to the benefit of all taxpayers," ?said the Northeast-Midwest report. ??Subsidy or geographic luck? ?BPA prices its power at the lowest it can while still recovering costs, ?including the costs of its environmental obligations, such as to endangered ?salmon in the Columbia River watershed. The Northeast-Midwest report claims ?that the differential between market wholesale prices and the agency's ?"at-cost" power rates provide a $16 billion to $34 billion benefit to the ?Pacific Northwest region. ??"BPA's low-cost power is distributed to multi-millionaires, aluminum ?companies and others who happen to live in the service territory of Northwest ?government-owned and cooperative utilities that 65 years ago were identified ?as having preference," charges the report. ???The central argument against federal agencies selling power at cost is based ?on the false premise that hydropower and the BPA are subsidized by U.S. ?taxpayers. ??Also overlooked by critics is the role the agency has come to play in the ?management of the Columbia River watershed. BPA fulfills environmental ?obligations, such as protection and enhancement of fish and wildlife, and ?provides leadership in conservation and renewables development. Equally ?significant, the Columbia River basin is located in the Pacific Northwest, ?and many argue that it is the region that should benefit first from its use, ?just as the Mississippi, for example, provides benefits for the region it ?flows through. ??"BPA and its practices persist and thrive only because few, even in the ?Northwest, are willing to invest the time and energy to understand the ?convoluted arrangement the agency and the Northwest congressional delegation ?have constructed over the years," says the report. ??But if the agency were to operate with a for-profit approach, argues BPA ?proponents, where would the profits go? If the money were used outside of the ?region, Northwest ratepayers would be subsidizing the rest of the country. If ?used inside the region, why not continue the situation as it is? ??BPA's cost-of-service pricing is a bedrock component of the region's economy ?and is unlikely to be given up without a fight. ??"The Northwest delegation must take this attack seriously and(should protect ?the region's natural resources and hydropower system," concludes The ?Oregonian.??????A Section ?No Energy Price Caps, Cheney Tells Calif.; Hill's Democrats Warn of 'Disaster'?Juliet Eilperin?? ?06/13/2001 ?The Washington Post ?FINAL ?Page A11 ?Copyright 2001, The Washington Post Co. All Rights Reserved ?Vice President Cheney reiterated the administration's opposition to placing ?limits on electricity prices in a meeting with 40 California lawmakers ?yesterday. ?The one-hour session marked the first time a senior White House official had ?met with Democratic and Republican members to discuss the state's energy ?crisis. But the Capitol Hill meeting grew testy at times, lawmakers said, and ?highlighted how the two parties remain sharply divided on how to provide ?relief to California consumers, who face big electricity price increases and ?the possibility of higher rates this summer. ?"This is a disaster of national proportions," said Rep. Sam Farr (D-Calif.) ?in a press conference after the meeting. "We're here, in a bipartisan ?fashion, to convince the administration not to just sit back and watch ?California burn." ?Much of the meeting focused on whether the White House should encourage the ?Federal Energy Regulatory Commission to impose price caps on California ?energy producers. Cheney said such a move would not ease the state's energy ?supply problem. ?"Price caps don't produce kilowatts -- he said it over and over again," ?recalled Rep. Maxine Waters (D-Calif.). ?Rep. Anna Eshoo (D-Calif.) -- said she drew a retort from the vice president ?when she offered, while he was speaking, that caps did not amount to price ?controls. "He said, 'You're being rude,' " said Eshoo, who said Cheney ?repeatedly looked at his watch during the meeting. ?Republicans who attended the meeting, by contrast, suggested the ?administration signaled that it was more open to providing regulatory relief ?to California . Rep. Darrell Issa (R-Calif.) said Cheney gave a short ?presentation in which he chronicled "a growing escalation of engagement by ?the administration." ?"Everyone is focused on this issue," said Rep. David Dreier (R-Calif.). ?Cheney spent most of the meeting listening to the 16 Republicans and 24 ?Democrats who attended the session, advising them to wait and see whether ?FERC officials will provide more help to the state during the commission's ?meeting next Monday. He also promised to keep in touch with a bipartisan ?working group composed of California lawmakers. ?"In the meeting, the vice president asked the California delegation to ?continue to think about potential solutions to the energy crisis," said ?Cheney spokeswoman Juleanna Glover Weiss. "The administration is eager to ?consider any new ideas and proposals." ??http://www.washingtonpost.com ?Contact: http://www.washingtonpost.com