Please see the following articles:  (* due to the large influx of pressclips,
I will be distributing two sets of articles today)

Contra Costa Times, Sat, March 24, 2001- "PG&E balking at Davis' plan"

Sac Bee, Sat, 3/24/2001 - "A lone voice for price caps: U.S. regulator fears
'a disaster'"

NY Times, March 24, 2001- "California's Choices All Look Painful"

The Bakersfield Californian, Filed: 03/24/2001- "Local generators win small
victory"

LA Times, Sat, March 24, 2001- "Hearings On Cost of Natural Gas
Skyrocketing prices affecting economy"

The Riverside Enterprise, Mon, 03/26/01 - "Enron drops power project
The move surprises critics and supporters of a Lake Elsinore hydroelectric
plant"

Orange County Register, March 24, 2001 - "Jobs at utilities appear safe --
for now"

San Jose Mercury News, Mon, March 26, 2001- "State power regulator proposes
40% rate increase"

Dow Jones Newswires, Monday 3/26 - "Calif State Treasurer: Electricity Rate
Hike Inevitable"

MICHAEL LIEDTKE, AP Business Writer, Monday, March 26, 2001- "Possible rate
hikes cheer California utility investors"

San Jose Mercury - "Duke says would take less for California power sales"
Posted at 11:55 a.m. PST Monday, March 26, 2001

New York Times, Mon, March 26, 2001 - "Power Woes Raise Questions Over
Control of Gas Pipelines"

Dow Jones Newswires, Sun, March 25, 2001 - "SoCal Edison To Pay QFs On
Going-Forward Basis"

San Jose Mercury News - "Legislative firebrand Burton plays hardball in
debate over power"
Posted at 9:53 p.m. PST Sunday, March 25, 2001

Orange County Register, March 25, 2001- "Web of power intrigue alleged"

Orange County Register, March 25, 2001 - "Studies show pitfalls in power
market"

Oakland Tribune, Sun, March 25, 2001 - "Headed toward 'disaster'
Analysts: California fails in bid to get handle on crisis"

Contra Costa Times, Sun, March 25, 2001- "Experts predict summer outages Some
say conserving not enough"

DowJones Newswires, Sat, 3/24/2001- "Calif To OK 20% Rate Hike For Utils Tue
- Commissioner"

Sacramento Bee - "Few share Davis' view on rate hike: Even aides predict big
power cost boost"
(Published March 25, 2001)

San Jose Mercury News - "Rising cost of purchasing electricity sparks alarm"
Posted at 11:00 p.m. PST Saturday, March 24, 2001

San Diego Union, March 25, 2001- "Bond may fall short, Davis aides fear
Governor holds out hope of keeping a lid on rates"

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Published Saturday, March 24, 2001
PG&E balking at Davis' plan
POWER CRISIS
The utility threatens to take legal action if it is forced to reimburse
alternative energy producers and the state
By Andrew LaMar
TIMES STAFF WRITER
SACRAMENTO -- Pacific Gas & Electric raised the threat of legal action Friday
if the Davis administration follows through with a plan that would force the
ailing utility to cough up money to alternative energy producers as well
repay the state for its power purchases.
The strident stance caught some state officials off guard and led one of Gov.
Gray Davis' advisers to label it "negotiating in the paper." The two sides
have squared off for more than a month to try to hammer out an agreement that
would rescue PG&E from its mounting debt.
The company's resistance to plans that emerged this week in proposed
legislation and a prospective order to be considered Tuesday by the Public
Utilities Commission further complicates a difficult situation that appears
to be growing more tense by the day.
"These actions approach the problem in a piecemeal and uncoordinated fashion
and would force us to pay out far more than we collect in rates, further
exacerbating an already precarious financial situation," said Gordon R.
Smith, president and chief executive of PG&E. "The numbers just don't work."
Company spokesman John Nelson said he could not specify which options the
utility might pursue.
And while Smith promised to continue to work with state officials on a
solution, he said: "We have a duty to our suppliers, lenders and shareholders
to protect the assets of the utility, and we must challenge any action by the
state to force us to pay out more than is collected in rates."
Creditors could petition to take Southern California Edison or PG&E into
bankruptcy at any moment, and some say their patience for a state solution is
wearing thin.
Lawmakers moved quickly this week to rescue the alternative generators, known
as qualifying facilities, after many shut down Monday and helped trigger two
days of rolling blackouts. The facilities range from geothermal operations
and wind turbines to natural gas-burning co-generation plants. They produce
about 30 percent of the state's energy needs this time of year.
The qualifying facilities quit running because they no longer had cash to pay
employees and buy goods to keep their plants operating. Southern California
Edison and PG&E have not paid the facilities for months, and they are owed
$1.5 billion.
A bill by Assemblyman Fred Keeley, D-Santa Cruz, sought to give the PUC
authority to order utility companies to pay the qualifying facilities in
advance. The measure also would direct utility companies to pay back the
Department of Water Resources, which has bought power for them since
mid-January, before paying back others.
The legislation passed the Senate but stalled in the Assembly, where
Republicans objected to the haste of the action, among other concerns. On
Friday, Assembly Speaker Bob Hertzberg, D-Van Nuys, said Democrats and
Republicans would work through the weekend to come up with a plan that could
win passage Monday.
Meanwhile, Smith said the approach contained in the legislation would make
PG&E's finances even worse. The company is collecting $400 million in bills
each month but owes $1.4 billion a month for energy purchases.
On Tuesday, Davis called PG&E's and Edison's practice of collecting bills
from their customers to pay the qualifying facilities and not forwarding the
money "immoral." On Friday, Davis spokesman Steve Maviglio said the governor
had nothing more to add.
Joseph Fichera, a member of the governor's team of advisers negotiating with
utility companies, said PG&E's refusal to fully pay qualifying facilities
leads the facilities to shut down, which in turn forces the state to find the
energy elsewhere.
"They are still collecting and not paying out the full amount," Fichera said.
"The consequences of that is that it increases the amount of power the state
has to buy on the spot market and creates a bigger problem for everybody."
Fichera said negotiations with Edison and PG&E would continue through the
weekend. He said there's nothing wrong with PG&E articulating its position,
but company officials have misjudged the plan and should keep in mind the PUC
will proceed on the qualifying facilities order in a way the company's
finances can work.
"They need to get the QFs online," Fichera said. "They need to see the bigger
picture that (having) the QFs offline is exacerbating a problem we call
summer."
Staff writer Mike Taugher contributed to this story.
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A lone voice for price caps: U.S. regulator fears 'a disaster'
By David Whitney
Bee Washington Bureau
(Published March 24, 2001)
WASHINGTON -- William Massey used to be a team player. Then the lights
started flickering in California.
Now, Massey is the dissenting voice of the Federal Energy Regulatory
Commission -- a preacher, an absolute convert to the idea that free markets
be damned because California is getting a raw deal.
Wholesale electricity prices are rocketing into the stratosphere. Gov. Gray
Davis, joined by the governors of Oregon and Washington, is screaming for
price controls. And yet Massey said his colleagues wouldn't do their job to
ensure "just and reasonable" prices and rein in price gougers.
"I fear a disaster is in the making," Massey told a House subcommittee this
week. He said that without price controls this summer, he fears the worst.
Massey isn't just pounding the table at congressional hearings. In recent
orders by the commission, he has been the lone naysayer, uttering in strong
terms the doom and gloom that will be thrust upon the state by an agency he
says is refusing to follow the Federal Power Act's mandate that it enforce
just and reasonable wholesale rates.
Two weeks ago, Massey condemned as insufficient the commission's order
finding that a dozen or so power producers may have overcharged California by
as much as $69 million for January power sales.
Massey called the commission action "facially arbitrary, capricious and an
abuse of discretion." Massey said his colleagues only focused on power sales
above $273 a megawatt-hour sold during Stage 3 alerts of imminent rolling
blackouts.
"There is no logic to this methodology other than limiting the universe of
potential refunds," Massey wrote.
Asked about this at the House hearing, Massey was even more pointed. When it
comes to ferreting out price gougers, Massey said the message is that "FERC
is going to be looking for the wallet under the lamp post with the lights
shining, and nowhere else."
These are welcome words to beleaguered state officials and utility executives
who are growing increasingly frustrated that neither the commission nor the
Bush administration seems to be heeding the concerns of California and the
West over the worsening power situation.
"Commissioner Massey has a very good understanding," said an appreciative
Sen. Dianne Feinstein, author of price-control legislation that Massey has
endorsed.
Joe Nipper, senior vice president of the American Public Power Association,
said the fact that Massey is alone in advocating firmer protection for
California and its consumers makes his role even more important.
"Thank God he is there to articulate that point of view because if he
weren't, you wouldn't hear it at all," Nipper said.
Massey concedes that his role as commission dissenter is new. In his eight
years on the commission, the former legal services lawyer and aide to retired
Arkansas Democratic Sen. Dale Bumpers has been known more as a team player.
Nominated by President Clinton for the post in 1993, Massey was fully behind
the notion that free and open markets were the way to go in the energy
business.
When California's electric deregulation package started rolling through the
agency in 1996, Massey was right there, urging it on, proclaiming the glories
of open competition.
"It's true that as the commission has marched toward competition in the open
markets, I've been there in a leadership role," Massey said during an
interview.
Several Midwest shortages during a 1998 heat wave were the first indications
that something was amiss. Massey said he was skeptical about the prevailing
view on the commission that the Midwest problem was the result of "the
confluence of a series of circumstances that were unlikely to recur, the
so-called perfect storm."
"I thought that was a naive statement," he said.
But Massey said this didn't shake his confidence in deregulation and
market-based competition so much as it caused him to doubt the commission's
ability to handle shifting circumstances.
"The commission's attitude was that we couldn't go wrong, that competition
would always be better than the old-fashioned regulatory market and
essentially that any old market structure would work," he said. "That is
simply not true."
Then came California.
"I just feel like our actions have been too little, too late all along," he
said. "As billions of dollars are changing hands, we were studying it. Then
we are investigating it," he said.
"But for me, competitive markets have to produce just and reasonable prices.
A dysfunctional market that produces outrageous prices is unlawful. And I
think my agency has not taken strong enough steps to save California and the
West from a wildly dysfunctional electricity market."
Massey was on the commission when it basically rubber-stamped the California
deregulation plan, the first in the nation. He said it arrived as a package,
much of it written into state law, and that the agency did not ask hard
questions such as how California could get the best price for consumers by
relying on day-ahead power purchases on the volatile spot market.
"Essentially we deferred to the market design that was handed to us," Massey
said. "We did say that it was a work in progress, and that we would be paying
attention to it.
But to assume the spot markets would usually produce the lowest prices now,
in retrospect, seems naive. We are now very critical of that market design
but we did approve it."
Now the commission, with only three of its five seats filled, is led by the
panel's only Republican, Curt Hebert, who is adamantly opposed to price
controls.
The panel's other Democrat, Linda Breathitt, is similarly disposed.
"I am the lone voice crying in the wilderness," Massey said.
But with the power crisis pushing up wholesale rates throughout the West,
Massey said this is not the time to be clinging to ideology.
"I do not think it is worth bringing down the economy of an entire region of
the country just for the theoretical purity," he said.
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March 24, 2001
California's Choices All Look Painful
By LAURA M. HOLSON
OS ANGELES, March 23 * California's energy crisis seems to get worse with
each passing day.
This week, Californians were once again plunged into darkness as warm weather
and a large number of shuttered power plants caused blackouts from Santa
Monica to San Francisco. In offices in and around Sacramento, frenzied
negotiators continue their months-long talks to design a settlement to keep
the nearly bankrupt utilities afloat and creditors at bay.
And despite a dizzying 190 bills introduced in the Legislature to address the
crisis, the bickering among politicians persists. Republican leaders have
called for the ouster of state utility officials, and California's controller
warned that the state's general fund was in danger of being frittered away
unless decisive action was taken.
Two months ago, Gov. Gray Davis promised a speedy end to the crisis. But all
the solutions proposed so far seem as fragile and tenuous as the grid itself.
Now a growing chorus of economists, business leaders and policy experts are
saying what most agree that Mr. Davis will not utter: the state cannot spend
its way out of this crisis, and politicians are delaying an inevitable,
albeit unpopular, end * raising retail electricity rates significantly. The
desire to satisfy all parties is costly and has caused confusion and
indecision.
"The solution to the policy problem is moving agonizingly slowly because
there are several powerful political groups that can block any piece of
legislation," said Laura D'Andrea Tyson, a former chief economic adviser in
the Clinton White House who is now the dean of the Haas School of Business at
the University of California at Berkeley. "California's politicians don't
seem to have enough power or conviction * I think it's power * to get these
groups to agree."
Further, said Steve Fleishman, a Merrill Lynch utility analyst in New York:
"The government officials keep trying to plug the holes in the dam when they
spout up. But there are too many things that need to be paid within the
current utility rate structure."
In an interview today, Governor Davis reiterated what he has said for months:
California's biggest problem is short supply * no major power plants have
been built in 10 years * and he has invoked his emergency power to put more
generation online quickly. He warned, too, that state negotiators were
proceeding with caution to avoid the kind of mistakes the architects of
deregulation made in the first place. "One of the reasons we are in trouble
today was because there was a rush to judgment," he said. "We are not going
to make that mistake again."
But for a brief moment recently, it looked as if the state had finally
marshaled its forces and was well on its way to presenting Californians with
a cohesive plan. The state treasurer's office hired bankers to help sell a
$10 billion bond issue, the largest of its kind, that would help pay for
power now and stabilize prices over time.
State negotiators hoping to avoid a taxpayer bailout announced a preliminary
agreement with Southern California Edison to buy its transmission lines for
about $2.76 billion. And Governor Davis proudly told reporters that his team
had negotiated a successful round of long-term power contracts that would
help keep California's lights on.
But almost every promising announcement has had a less-enticing twist.
Intense negotiations with the privately-owned utilities drag on week after
week. Southern California Edison has not finished a deal to sell its
transmission lines, a necessity if it is to begin paying bills owed since
November. "Progress has been made," said Bob Foster, Edison's chief
negotiator. But he warned, "I don't want to sound overly optimistic."
Pacific Gas and Electric, for its part, has not announced anything, even in
principle. John Nelson, a spokesman for the utility, did not return calls
seeking comment.
Regarding the long-term power contracts, a report released this week says
that the state has received commitments for less than half the 6,000
megawatts it hopes to secure for this summer. The power generators, too, can
opt out of their contracts for a variety of reasons, including a failure by
the state to sell bonds by July 1. Governor Davis said today that in most
cases, much of the energy the state wanted to buy for this summer was no
longer available. That shortfall could require the state to buy more than 15
percent of the energy it needs in the expensive spot market, nearly triple
the amount he once said he wanted.
Still, the issue that has caused the biggest controversy is who has first
rights to the money now being collected from ratepayers. (Pacific Gas and
Electric and Southern California Edison now have $4.4 billion in their
coffers.) State officials have said that according to the law drafted in
January to ensure the state could buy power on behalf of the utilities, the
Department of Water Resources should be paid first. The utilities are saying
they are first in line. Whatever the outcome, the law's ambiguity has been a
problem for the state treasurer, Philip Angelides, who said it has not only
cost him precious time, but could put the bond offering in jeopardy unless it
is clear how the revenues will be divided.
"The danger of this is if you let problems like this multiply, the situation
gets worse and worse," he said. California's Public Utilities Commission is
expected to rule on this issue. (Governor Davis said he expected the
commission to agree that the state should be paid first.)
But Mr. Angelides did not want to wait that long. Instead, he said, he and
his team approached legislators to write another law so he could proceed with
the state's $10 billion bond offering in May.
But even then, he contends, the bond offering is only a short-term fix at
best. "After the $10 billion is exhausted, we can't keep borrowing and
borrowing and borrowing," Mr. Angelides said. "The reality is our lack of
investment in power plants and inability to conserve are going to cost us
more."
Mr. Angelides has a point. But the governor's resistance to raising rates is
at best a negotiating tool. The governor has told some people that he is open
to raising rates, but only after the utilities make the concessions he wants,
people close to the negotiations with the utilities said. It is part of his
overall strategy, these people said * one that includes building more power
plants and conserving energy, both crucial in helping California minimize
disasters this year and next.
But that does little to solve the problem of the $13 billion in debts the
utilities have already incurred. And that provides little comfort to the
likes of Hal Dittmer, president and owner of the Wellhead Electric Company, a
small power generation company in Sacramento, who decided to close down his
three power plants in February because he had not been paid all the money
owed by Pacific Gas and Electric. No solution now being discussed, he said,
either in the legislature or with the utilities themselves, really addresses
his problem. And like many of the utilities' creditors, he is growing
impatient.
"The word I would use for what is going on in Sacramento is dithering," said
Jack Kyser, chief economist of the Los Angeles County Economic Development
Corporation, who has seen a swarm of recruiters from other states approach
Los Angeles businesses recently in an effort to woo them away. "I think what
they have to understand is that they are putting California's economic future
at risk."
Governor Davis, while sympathetic to his critics' frustrations, dismisses
them. "They are viewing the process from afar," he said. "From the
government's perspective, we are moving at warp speed."
But that may not be fast enough. Today, in Sacramento, the State Assembly
rejected a plan that would have allowed smaller power generators, which have
contracts directly with the utilities, to be paid. Unlike their larger
counterparts, companies like Mr. Dittmer's do not have their sales guaranteed
by the state and are themselves threatened by bankruptcy.
The utilities have been negotiating with the smaller generators for months,
but industry analysts say the two groups are bitter rivals and no agreement
is likely soon. And to make matters even more precarious, smaller generators
could be the likeliest to force the utilities into involuntary bankruptcy, in
part, because they want their money and have the least to lose.
"Politics is not just about keeping the lights on," Ms. Tyson said. "It's
about making sure that all parties are represented." And that is contrary to
the business world, she added, "where it's about getting the job done."
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Local generators win small victory
Filed: 03/24/2001
By VIC POLLARD, Californian Sacramento Bureau e-mail:
vpollard@bakersfield.com
SACRAMENTO -- With help from Kern County's three Assembly members, owners of
small natural gas-fired generating plants like those in Kern's oil fields won
a partial victory Friday in their campaign to get paid for the electricity
they sell to nearly bankrupt utilities.
Kern County lawmakers helped bury a bill that would have required the big
utilities to start paying the small generators -- but at a price below what
it costs them plants to operate.
The legislation is expected to be taken up in revised form Monday, and Kern's
lawmakers said they hope it will contain a better deal for the small
generators.
The action came at the end of a week of feverish activity sparked by rolling
blackouts that hit unexpectedly Monday and Tuesday. The blackouts were caused
partly by the shutdown of many small generating facilities because they have
not been paid for their electricity in months.
The crucial vote came late Thursday, when the Assembly's Republicans
unanimously opposed the low-price payment bill, depriving it of the
two-thirds vote needed for passage, in the face of heavy pressure from
Democratic legislative leaders. They wanted to push the bill through
Thursday, partly because most lawmakers were scheduled to leave Friday on an
annual lobbying trip to Washington, D.C.
No one felt the pressure more than Dean Florez of Shafter, the only Democrat
to vote against the measure.
"It was really tough," Florez said Friday.
Assemblymen Roy Ashburn of Bakersfield and Phil Wyman of Tehachapi were among
the Republicans voting against the measure.
Florez and Ashburn said the main reason they voted no was that the bill would
have locked in a price for the small generating facilities that would have
made it impossible for the natural-gas fired plants, and many others, to keep
operating.
"If they're losing money generating electricity, they're going to close
down," Ashburn said, adding to the state's shortage of electricity.
On Friday, after hours of closed-door meetings between Democratic and
Republican leaders and officials of Gov. Gray Davis' administration, Assembly
Speaker Robert Hertzberg announced that negotiations would continue and the
issue would come up again Monday.
The problem for local lawmakers was that the price established by the
governor's office, 7.9 cents per kilowatt hour for a five-year contract, is
anywhere from one-half to one-third of what it costs the gas-fired generators
to produce electricity because of the current high price of natural gas.
Under current law, the gas-fired generators are assured of a price for their
electricity that takes into account fluctuations in the price of natural gas.
Florez said the price being considered by the PUC would have made it
economical only for wind- and solar-powered generators.
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Enron drops power project
The move surprises critics and supporters of a Lake Elsinore hydroelectric
plant.
By Thomas Buckley
The Press-Enterprise
LAKE ELSINORE
Enron North America has pulled the plug on its plans for a hydroelectric
power plant in Lake Elsinore.
Friday's surprise move does not kill the proposal but dims the hopes of
supporters like the Elsinore Valley Municipal Water District for the $450
million project.
But opponents, worried about power lines and the potential adverse effect on
the environment, were overjoyed.
"That's fantastic," said Barbara Bowers, La Cresta resident and member of a
recently-empaneled project oversight citizen's committee. "(Enron officials)
have finally discovered what we knew all along: This was not a viable
project."
While speculation about why Enron backed away from the proposal centered on
the instability of both the lake and state-power market, company officials
said their decision was a matter of timing.
Enron spokeswoman Kathy Russeth said the timetable for both the hydro plant
and the 23 miles of power lines that would have been strung along the
Elsinore Mountains ridgeline was moving much slower than expected, prompting
the company to re-allocate its resources to other projects in the state.
"We need to pick up the pace with our power-plant development," Russeth said.
While the water district still holds a three-year preliminary federal permit
for a hydroelectric project and consultant Nevada Hydro has an agreement with
the water district, observers say chances are Enron's departure makes the
project impossible.
Nevada Hydro is expected to continue work on the project, Enron said, but no
one close to the project believes the water district and consulting firm can
pull it off alone. Attempts to contact Nevada Hydro officials were
unsuccessful.
"If a company like Enron is not going ahead with this, it is unlikely the
project will ever be built," said county Supervisor Bob Buster.
But not everyone is willing to throw in the towel on the idea that has been
in play for a decade, has been declared dead before.
Dropping the project entirely is "not an option," said water district board
President Kris Anderson.
"We've got the permit and we've got three years to get the license to build,"
Anderson said. "I would hate to see the district get out now."
Distict officials will met next week to decide how to proceed.
Wildomar Chamber of Commerce President and citizen's committee member John
Purpura agreed.
"It's a sad case and I hope EVMWD can find another company to step into
Enron's shoes," Purpura said.
In its latest incarnation, the pumped-storage proposal was born last summer
when Enron first showed an interest.
The water district was poised to cut its ties to Nevada Hydro, a consulting
firm long associated with trying to build project, when Enron said it might
be interested in pursuing the proposal.
In the following months, Enron, a multi-billion multi-national energy firm,
spent thousands on research and securing the preliminary federal permit for
the district.
People who lived near the lake where the power plant would go were irked by
what they saw as corporate heavy-handedness, while environmentalists and
forest residents became alarmed by power line and reservoir construction
plans.
The federal permit to pursue a final building license was secured in February
and the county-backed citizen's committee, after much controversy, had its
first meeting five days ago.
Backers have said the project would be a godsend to the lake, providing money
to buy water to keep it full and to help fund the upcoming $15 million lake
clean-up. Neither is likely to happen now, observers say.
"All the expectations they raised have been dashed," said Buster, who sits on
the joint-powers agency in charge of the lake clean-up project. "They owe the
community an explanation."
Environmentalist activist Gene Frick, who has fought the project for five
years and once promised to chain himself to an oak tree, was gleeful at
Enron's decision.
"I thank you," Frick said, "my associates thank you, and the oak trees thank
you."
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Jobs at utilities appear safe -- for now
PUC ruling offers some security at Edison and PG&E, but the threat of
bankruptcy hovers over many.
March 24, 2001
By CATRINE JOHANSSON
The Orange County Register
Safe for now, but for how long?
That's the question for thousands of employees at Southern California Edison
and Pacific Gas & Electric, which are near bankruptcy after paying billions
more for power over the past 10 months than they could charge customers.
The utilities hoped to save about $650 million by laying off some 3,000
employees, but a ruling last week by the state Public Utilities Commission
halted most of those plans.
Edison had planned to cut about 2,000 jobs during the course of a year. About
400 of them were cut in December, while the remaining 1,600 were to be cut
during 2001.
Shaun Rolow, a part-time Edison meter reader in Kern County, said he and his
co-workers feel their jobs are fairly safe, thanks to the PUC ruling, but
they worry about the future.
"Most guys are very relieved, but we also talk a lot about the danger of
Edison going bankrupt," he said. "We feel uneasy, but also try to joke about
it. Like when we get our paychecks, we joke about whether they'll be any
good."
The 400 employees let go in December were contract workers whose contracts
were up anyway, said Edison spokesman Steve Hansen. The PUC ruling does not
reinstate any of those workers. It does, however, prohibit further layoffs in
customer call centers, meter-reading departments, outage-response teams and
new-customer connection departments.
Exactly how many of the 1,600 other jobs are protected by the PUC ruling -
and how many are not - is unclear, as Edison officials haven't completed
their analysis of the ruling, Hansen said.
Of the 1,600, "less than 50" were laid off before last week's PUC ruling.
Whether any of those jobs will be reinstated remains to be decided.
Steven Carlton, a 20-year Edison employee who is an electricity foreman in
the Los Alamitos area, said a possible bankruptcy filing for the company is a
more immediate worry than layoffs.
"We know that there are too few people to do what we do as it is, so we
wouldn't get laid off, but we do wonder what's going to happen in the future
if the company goes bankrupt," Carlton said.
The PUC also rejected the utilities' plans to cut expenses by reading
electricity meters every other month and using estimated bills for the
interim months.
Bimonthly meter readings would, according to the PUC ruling, "create
inaccuracies in calculating baseline usage, and consumers will not be able to
see the results of their conservation efforts."
Although the PUC allowed the utilities to continue reducing overtime, Edison
has decided to pay for overtime work in some cases.
"We continue to restrict overtime, except in cases where the public or
employee safety are compromised," Hansen said. He would not elaborate on what
kinds of situations those would be, but acknowledged that the company had
changed a strict no-overtime policy that left residents of an apartment
complex in Fountain Valley without electricity for a weekend in January.
"If a community loses power, we'll send out people to fix it - even if it is
on the weekend," Hansen said.
The utilities can petition the PUC to change the ruling on layoffs, but
there's no word yet on whether they will do so.
"We don't know yet, but we do expect the utilities to appeal," said Pat
Lavin, business manager for Local 47 of the International Brotherhood of
Electrical Workers, which represents 4,100 Edison workers.
The IBEW is one of the unions in the Coalition of California Utility
Employees, which filed the grievance with the PUC that prompted the ruling.
Lavin said the unions watch the situation closely and are prepared to
challenge future layoff plans by the utilities - regardless of whether the
targeted employees are union members.
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State power regulator proposes 40% rate increase
Posted at 12:00 noon PST Monday, March 26, 2001
BY KAREN GAUDETTE

Associated Press Writer

SAN FRANCISCO (AP) -- California's top power regulator proposed a 40 percent
hike in electricity rates Monday, saying such an increase should encourage
customers to cut back on usage and conserve enough power to get through the
hot summer months.
Loretta Lynch, president of the Public Utilities Commission, said rates
should increase by an average of 3 cents per kilowatt hour. The current rate
averages 7.5 cents per kilowatt hour.
The higher rates could go into effect as early as Tuesday, when the PUC
meets. Lynch and two other members of the five-member PUC were appointed by
Gov. Gray Davis, and Lynch's proposal is expected to be approved by the
commission.
Lynch, who repeatedly refused to characterize the hike as a 40 percent
increase, said the increase was needed to avoid significant power problems
this summer.
``That number should be all that is needed going forward,'' she said at a
news conference, ``to keep utilities solvent and ensure that the treasurer of
the state can issue bonds.''
Lynch's proposal is at odds with that of administrative law judge Christine
Walwyn, who recently advised the PUC that rate increases were not necessary.
Any increase would be on top of the 9 percent to 15 percent rate increase the
PUC approved in January, and an additional 10 percent increase already
scheduled for next year.
Lynch also supports a ``tiered'' rate system that would charge residential
and businesses customers more if they're large users and fail to cut back. So
it should encourage conservation.
The governor repeatedly has said he is confident the state's power crisis can
be resolved without further rate hikes. But Davis aides have concluded that
rates must rise, given that wholesale power costs remain high. Several
lawmakers, including Assembly Speaker Bob Hertzberg, have said a rate
increase is inevitable.
Southern California Edison Co. and Pacific Gas & Electric Co. both have
pushed for further rate increases, and PG&E has said its current rates would
be insufficient to cover its bills and the state's.
Administration officials have been negotiating with PG&E, Edison and San
Diego Gas & Electric about purchasing the utilities' transmission lines to
give the companies cash to pay their bills.
PG&E and Edison say they've lost more than $13 billion since last summer due
to high wholesale electricity costs that California's 1996 deregulation law
prevents them from collecting from their customers.
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Calif State Treasurer: Electricity Rate Hike Inevitable

03/26/2001
Dow Jones Energy Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)

NEW YORK -(Dow Jones)- The State of California will have to raise electricity
rates for consumers to reflect the dramatic price rise seen in the wholesale
power market, State Treasurer Phil Angelides said Monday in an interview on
CNBC.
Angelides declined to specify how much rates would rise from current levels,
however, and he said that the state's two main investor-owned utilities might
possibly have to reorganize their financial situation through a bankruptcy
proceeding.
"It's hard to tell," what the percentage of the increase would be, Angelides
said, "but there's no mystery that rates are going up. We have to match the
price of power to what we pay for it to keep the lights on."
The rate increase would both curb demand and assure lenders that the state
will be able to repay the $10 billion in bonds it wants to issue to cover the
costs of purchasing power.
As for the utilities, "It's their job to reorganize themselves inside or
outside of a bankruptcy proceeding," Angelides said, adding that the
utilities' parent companies greatly benefitted from electric deregulation for
three years before suffering huge losses in 2000.
Since the state began buying power on behalf of its two near-bankrupt
utilities - PG&E Corp.'s (PCG) Pacific Gas & Electric Co. and Edison
International's (EIX) Southern California Edison - in January, it has spent
almost $3 billion covering the difference between the utilities' generated
power and their customers' electricity usage.
Angelides spoke from New York, where he is trying to convince Wall Street
bankers to help issue the $10 billion in bonds. The debt issue will provide
"breathing room to get to a long-term plan by September to balance market
prices and rates," he said. The money will also be used for "a very dramatic
conservation program."
"If we can get demand down 5% to 10%, we can get power prices down,"
Angelides said.
But the treasurer also said that the merchant power companies in the state
have acted unconscionably. Reducing demand, he said, will put the state in a
better position to get the producers to negotiate reasonable long-term prices
as part of a sustainable solution to the state's power and financial crisis.
"The first problem is a supply and demand imbalance. If we in California deny
that we're denying reality. But the other problem is that generators have
been charging unfair and unreasonably prices," said Angelides, who said
generators have to "take their foot off our throat and meet us half-way."
-By Mark Golden, Dow Jones Newswires; 201-938-4604; mark.golden@dowjones.com
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Possible rate hikes cheer California utility investors
MICHAEL LIEDTKE, AP Business Writer
Monday, March 26, 2001
,2001 Associated Press
(03-26) 11:46 PST SAN FRANCISCO (AP) -- The prospect of substantially higher
electricity rates in California drew rave reviews Monday on Wall Street as
investors snapped up the long-suffering stocks of the state's two largest
utilities.
With about two hours of trading left on the New York Stock Exchange, shares
in PG&E Corp. surged $3.80, or 36 percent, to $14.45 while Edison
International's stock gained $3.79, or 34 percent, to $14.99.
San Francisco-based PG&E and Rosemead-based Edison International own
utilities that have been flirting with bankruptcy for months as they paid for
soaring wholesale electricity costs that couldn't be passed on to customers
under the state's deregulation law.
After months of resistance to the idea, state political leaders and
regulators are poised to swallow a bitter pill and prescribe significant new
rate increases.
California's top power regulator proposed a 40 percent hike in electricity
rates Monday, saying such an increase should encourage customers to cut back
on usage and conserve enough power to get through the hot summer months.
Loretta Lynch, president of the Public Utilities Commission, said rates
should increase by an average of 3 cents per kilowatt hour. The current rate
averages 7.5 cents per kilowatt hour. The higher rates could go into effect
as early as Tuesday, when the PUC meets.
Gov. Gray Davis remains confident the state's power crisis can be resolved
without further rate hikes, an aide said Monday. But his high-level financial
aides warned legislative leaders Friday that consumers could feel significant
pain when all is said and done.
Although nothing has been completed, news of the likely rate increases leaked
out during the weekend and raised hopes on Wall Street that the darkest days
for the two utilities, Pacific Gas and Electric and Southern California
Edison, might be behind them.
The utilities' executives, backed by numerous industry analysts, have
contended for months that the state needed to approve hefty rate increases to
ease a power crisis that threatens to make rolling blackouts a routine event
this summer.
The higher rates are seen as a way to ease the financial burden of the
utilities, which say they have run up debts of more than $13 billion buying
wholesale electricity during the last 10 months. Analysts also reason higher
electricity bills will persuade more customers to reduce their usage and
reduce the frequency of blackouts this summer.
The likely rate increases weren't the only good news for utility shareholders
Monday.
Over the weekend, Southern California Edison said it will resume payments to
alternative energy providers known as ``qualifying facilities'' -- a move
expected to reduce the chances that the disgruntled generators will band
together and try to force the utility into bankruptcy.
In a Securities and Exchange Commission filing Monday, Pacific Gas and
Electric disclosed that it had received more breathing room from some of its
key creditors. The utility has defaulted on a $1 billion revolving credit
line, but the banks that made the loans have given the company until April 13
to work things out, the filing said.
PG&E also revealed that its electricity losses could result in a $4.1 billion
charge against its fourth-quarter earnings.
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Duke says would take less for California power sales
Posted at 11:55 a.m. PST Monday, March 26, 2001
NEW YORK, (Reuters) - Duke Energy Corp. said Monday it would take less money
for power it sold to California customers during January and February,
provided it receives guarantees it will get paid.
Responding to accusations by the Federal Energy Regulatory Commission (FERC)
that it overcharged its California customers by $17.8 million during power
shortages in January and February, Duke said in a statement that the prices
it charged were ''reasonable'' given the high risks that generators would not
be paid.
In a filing with FERC Friday, Duke President and Chief Executive Officer Jim
Donnell said, ``We could be willing to forgo collection of the credit
premiums for these months, provided we receive the FERC clearing price.''
California's Independent System Operator, which covers 75 percent of the
state's power grid, has accused generators of overcharging customers by $6.2
billion since May.
Houston-based Duke said that during the months of January and February its
bids included a credit premium to cover the ''substantial risk'' of
nonpayment. Duke said the credit premium and market condition were
responsible for its bids exceeding the FERC determined market clearing price.
FERC had set a $273 megawatt per hour cap on power sales to California during
the Stage 3 emergencies in January and February.
Shares of Duke were up $1.27, or more than 3 percent, to $39.15 in afternoon
trading on the New York Stock Exchange, compared to a 52-week high of
$45.2188 and low of $24.8750.
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March 26, 2001
Power Woes Raise Questions Over Control of Gas Pipelines
By RICHARD A. OPPEL Jr. and LOWELL BERGMAN
arly last year, the El Paso Natural Gas Company took bids from two dozen
companies for the right to ship enough natural gas through its pipeline from
Texas and New Mexico to meet one-sixth of the daily demand of energy-starved
California.
The winner: El Paso's sister company, the El Paso Merchant Energy Company,
which buys, sells and trades natural gas. The bidding was not close. El Paso
Merchant offered twice as much for the capacity as the other companies bid,
in total, for bits and pieces.
Why pay so much more? California officials, who are pressing a complaint
against El Paso at the Federal Energy Regulatory Commission, say the answer
is simple. The state contends that El Paso Merchant, with help from its
sister company, saw the transaction as a way to manipulate the price of
natural gas by using its control of pipeline capacity.
According to sealed documents obtained by The New York Times that are part of
filings in the federal case, executives at El Paso Merchant said internally
that the deal would give them "more control" of gas markets, including the
"ability to influence the physical market" to benefit the company's financial
positions.
El Paso executives called the accusations fanciful, and in a formal response
to California's complaint, said the state "grossly distorted" company
documents by quoting words and phrases out of context.
The dispute opens a window on an important debate about oversight of the
natural gas industry, which fuels a growing share of the nation's electric
power plants.
At issue is whether current safeguards do enough to prevent anticompetitive
abuses in the marketing and trading of natural gas, and whether federal
regulators adequately enforce existing rules. In particular, many industry
officials question whether regulated pipeline companies are able to favor
unregulated sister companies that trade natural gas and are free to maximize
profits.
More than 200,000 miles of interstate pipelines crisscross the country,
moving natural gas from Canada, the Southwest and other producing regions to
fuel factories, power utilities and heat houses.
Not long ago, many parts of the country had excess pipeline capacity. But
experts say that several regions, including California, New York and New
England, now face constraints as demand soars for gas to fuel power plants.
In California, state officials and utility executives said the documents in
the federal case, and El Paso's actions, were proof that the state's energy
crisis stemmed not just from an ill-conceived deregulation plan but from
price manipulation and profiteering.
"They are the market maker with this pipeline," said Loretta Lynch, the
president of the California Public Utilities Commission, which has struggled
to cope with skyrocketing power prices and supply shortages.
El Paso "sets the price in California," Ms. Lynch said, and what it did was
intentional. "It has affected the price," she said, "for everything related
to heat and electrical power prices in the state."
California's complaint to the federal agency contends that El Paso Merchant
"has hoarded capacity and refused to attractively price unused capacity" on
the pipeline. The state also charges that El Paso Natural Gas, the pipeline's
owner, has had no incentive to spur competition, by offering discounts to
other users, because the two companies are corporate siblings. The state said
that El Paso had violated federal natural gas statutes that prohibit
anticompetitive behavior.
The sealed filings in the El Paso case indicated that the company expected to
make money by widening the "basis spread" * the difference between what gas
can be bought for in producing basins of Texas and New Mexico, at one end of
the pipeline, and its price on delivery to Southern California.
As it turned out, spreads widened enormously over the last year as the price
of gas soared in California, adding to costs for wholesale electricity that
pushed the biggest utilities near bankruptcy. California utilities paid $6.2
billion above competitive prices for wholesale electricity over the last 10
months, state officials estimated. The utilities are not allowed to recoup
the costs from customers. While the cost of 1,000 cubic feet of gas typically
is less than $1 higher at the California end of the pipeline, spot prices in
the state rose to almost $50 more than the Texas- New Mexico price in
December.
To executives of the parent company, the El Paso Corporation, the accusations
of market manipulation are ludicrous.
High gas prices in California, El Paso executives said in interviews, are
easily explained by soaring demand, the poor credit standing of the state's
utilities and the failure of the utilities to retain pipeline capacity or
store enough gas for winter.
"The idea that anybody is holding back on California is really ridiculous,"
said Clark C. Smith, president of El Paso Merchant's operations in North
America.
Some El Paso customers, though, agreed with California officials. The Pacific
Gas & Electric Company, the San Francisco-based utility, condemned El Paso in
a filing with the federal agency after its lawyers reviewed the sealed
company documents.
"It is now very clear from the business records of El Paso Energy
Corporation," the utility said in the filing, "that the business strategy El
Paso Merchant was authorized at the highest corporate levels to pursue
involved manipulation of price spreads."
The agency has not ruled on California's complaint, which asks that the deal
between El Paso Natural Gas and El Paso Merchant be invalidated. Based on the
agency's history of policing energy providers lightly, many industry
observers predicted that the complaint would be dismissed, perhaps as soon as
the agency's public meeting on Wednesday.
Nonetheless, El Paso Merchant is feeling some pressure. The subsidiary said
recently that it planned to relinquish control of all but about 22 percent of
the capacity on the pipeline to California, rather than exercise an option
that would have allowed it to retain the entire capacity of 1.2 billion cubic
feet of gas a day.
Critics said they believed El Paso made the move in hopes of lessening the
chance of government action. El Paso executives deny that but do say that
their decision was influenced by the backlash over the arrangement.
Surrendering the pipeline capacity made for a "gut-wrenching" decision, Mr.
Smith said, but was "a first- class gesture" to California. El Paso Merchant
paid $38.5 million to control the pipeline capacity from March 1, 2000, until
May 31, 2001. While Mr. Clark said he did not know the return on that
investment, he acknowledged that it was lucrative.
"No doubt about it," Mr. Clark said, "we made good money."
The question of whether El Paso's conduct has driven gas prices higher is
expected to be scrutinized by legislators in Sacramento this week. The
company also faces several lawsuits, including one by the city of Los
Angeles, that accuse it of conspiring with other companies to prevent
pipeline projects that could have eased California's energy crisis. El Paso
denied the accusation.
With pipeline capacity and gas supplies tighter, concerns about
anticompetitive behavior have increased as price volatility has created
soaring profits for energy marketers and traders.
Dynegy Inc., a Houston-based energy trader, was once the target of complaints
to federal regulators that it had artificially raised prices by abusing
capacity that it controlled on El Paso's pipeline to California.
In a filing with regulators in January, Dynegy contended that pipeline
companies routinely favored affiliates. "Abuses abound because of financial
windfalls, difficulty of detection, lengthy investigations and increased
complexity of the market," the company said.
"There are some red flags right now," said William L. Massey, a member of the
Federal Energy Regulatory Commission since 1993. Mr. Massey said he was
troubled by the potential for abuses when pipeline companies own gas and
power marketing subsidiaries as well as electric plants fueled by natural
gas. El Paso is in all those businesses.
"What the commission ought to be serious about is: What are the forces at
work? Is it simply robust markets responding to true supply-and-demand
signals, or is it a market defined by market power and some measure of
affiliate abuse?" he said.
Many in the industry do not believe changes are needed.
"There are rules in place today that protect against affiliate abuse," said
Stanley Horton, chief executive for gas pipeline operations at the Enron
Corporation and chairman of the Interstate Natural Gas Association of
America, the industry's trade group, referring to the rules under which
California has brought its complaint about El Paso.
To its critics, El Paso epitomizes competitive concerns. It operates the
nation's largest network of interstate pipelines and owns one of the largest
reserves of natural gas. With its recent acquisition of the Coastal
Corporation, another large pipeline operator, El Paso has a market
capitalization of $32 billion.
At a conference at El Paso headquarters in Houston in February, analysts
heard executives predict net profits of $1.7 billion this year. El Paso's
much better known rival, Enron, with its headquarters a few blocks away, is
expected to earn about $1.4 billion.
El Paso Merchant provides the strongest growth. Two years ago, the unit's
profits, before interest payments and taxes, were $99 million; this year, it
is expected to have $700 million in North America alone. In its latest
quarterly report, El Paso attributed those profits, in part, to "commodity
market and trading margins" that were enhanced by "power price volatility,
particularly in the Western United States."
Critics contend that El Paso set out to exploit those conditions. According
to the sealed filings, on Feb. 14, 2000, the day before El Paso Merchant was
awarded the pipeline capacity, executives made a presentation to William A.
Wise, chief executive of the parent company, laying out the rationale for the
bid.
The presentation outlined what it termed "strategic advantages," including
"more control of total physical markets" and the "ability to influence the
physical market to the benefit of any financial/hedge position," according to
the sealed filings. The passages suggested that El Paso expected the deal to
give it sway over the market for trading actual volumes of gas and to support
financial transactions it had entered into with other parties to limit its
risk.
For every one-cent increase in the spread on gas prices, the presentation
said, El Paso Merchant stood to make an additional $2.4 million.
Under the heading "Challenges," according to the sealed filings, the
presentation stated that storage was needed "to help manipulate physical
spreads, adding to the overall transport/storage cost."
On April 14, according to the sealed filings, El Paso Merchant's president at
the time, Greg G. Jenkins, wrote a memorandum to Mr. Wise involving an update
for directors meeting later that month. The memorandum stated: "We will make
money two ways: 1) increase the load factor, 2) widen the basis spread."
The language appears to suggest that El Paso Merchant would profit by
increasing the gas flow in the pipeline * the load factor * while increasing
the difference between what gas could be bought for at one end and what it
could be sold for at the other end * the basis spread.
In an interview, Mr. Smith, the El Paso Merchant executive, said that the
unit's prices, and profits, on bulk gas sales in California were locked in
months in advance, so that the company could not benefit from rising prices
in the spot market.
Otherwise, Mr. Smith declined to provide any details about money made on the
pipeline deal or about financial terms of the transactions that locked in
prices ahead of time. In addition, Mr. Smith said that nearly all of El Paso
Merchant's pipeline capacity was used every day when prices spiked late last
year, with no capacity withheld to increase prices.
The company did not respond last week to a request to discuss information in
the sealed documents. But El Paso Merchant, in a filing with federal
regulators, said California's complaint had "misconstrued and incorrectly
interpreted" what it termed "snippets of data."
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SoCal Edison To Pay QFs On Going-Forward Basis

03/25/2001
Dow Jones News Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)

ROSEMEAD, Calif. -(Dow Jones)- Edison International's (EIX) Southern
California Edison unit said that, in anticipation of pending action by the
California Public Utilities Commission to restructure the way qualifying
facility generators, or QFs, will be paid, the utility will resume payments
to QFs on a going-forward basis.
In a press release Sunday, Southern California Edison said it has set aside
funds in a separate account and will make payments in advance of expected
April deliveries.
Payment processing would begin immediately after the CPUC approves on Tuesday
a proposed decision to restructure QF prices.
Advance payments will be based on the generators' historical production level
and the PUC's pricing order.
The company said it will be able to make payments only up to "an aggregate
amount that is available to us from rates actually received for QF payments."

Southern California Edison said that "in recognition of the state's need for
all the electricity it can get during these times, SCE is hereby instituting
a program to pay those QFs that continue to provide electricity to the
utility."
The company is "leaving it up to the discretion of the" PUC "as to how the
payment structure will be revamped and how we should allocate the payments to
QFs."
The PUC will likely approve a 20% rate increase for Southern California
Edison and PG&E Corp.'s (PCG) Pacific Gas & Electric on Tuesday, ending a
three-year-old retail rate freeze, two PUC commissioners told Dow Jones
Newswires on Saturday.
The increase also would let utilities start paying small independent power
producers on a forward basis for electricity sold directly to the utilities,
the commissioners said.
PG&E and SoCal Ed are now more than $13 billion in debt, have seen their
ratings downgraded to junk status by Wall Street credit agencies and have
defaulted on billions of dollars in dividend payments, power bills and bank
loans.
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Legislative firebrand Burton plays hardball in debate over power
Posted at 9:53 p.m. PST Sunday, March 25, 2001
BY HALLYE JORDAN

Mercury News Sacramento Bureau

SACRAMENTO -- It didn't take long for perpetually impatient John Burton to
size up the conference call as a waste of time.
Twenty minutes and four curses into the conversation, the president pro tem
of the state Senate announced to the utility company executives, outgoing
Clinton Cabinet members and top state officials that he was putting down the
phone -- to shave.
Five minutes later, he stashed his Gillette Mach 3 and returned to the phone.
As he suspected, ``I didn't miss a thing.''
Welcome to the world of John Lowell Burton, perhaps the state's most
powerful, colorful and combative legislator. That Burton has ascended to the
top rung of political power in California surprises many, and perhaps no one
more than Burton himself.
The 68-year-old product of old school San Francisco politics has a penchant
for profanity and a demeanor that ricochets from volatile to gruff to goofy.
He fought a well-publicized battle against cocaine addiction that threatened
to end not only his political career but his life. Burton not only survived,
he thrived -- a die-hard liberal somehow succeeding in an age of centrism.
He has prevailed in part by balancing the two sides of his political persona:
the idealistic progressive and the pragmatic deal-maker.
Idealistic though he may be, Burton has a healthy appetite for hard-ball
politics. He's been known to abandon longtime supporters in favor of economic
special interests when it was politically expedient. He has a knack for
fundraising that makes political reformers blanch. And he delights in
jousting with the state's moderate Democratic governor, Gray Davis.
In his fourth year as Senate president pro tem, the second most powerful post
in Sacramento, Burton is up to his gold wire-rims and gray-flecked eyebrows
in the debate over rolling blackouts and energy industry bailouts.
The crisis has proved vexing for the veteran pol. Consumer groups are among
his most ardent supporters. Yet Burton feels compelled to find a way to keep
the lights on -- even though that means helping the cash-strapped utilities
that consumer groups love to hate.
It hasn't been easy. On Thursday, he showed his frustration with the
utilities during a Senate debate: ``I hope they go bankrupt. Let them go
belly up. I don't care anymore.''
Earlier in the session, Burton introduced a bill that would set up a state
power authority to help finance construction of new power plants. Another
bill he pushed would authorize the state to purchase electricity lines from
its cash-strapped utilities for at least $7 billion.
The subject of ongoing negotiations between the utilities and Davis, the
transmission line deal is intended to give taxpayers a valuable asset while
helping utility companies stay on their feet. ``If you go broke,'' Burton
said, ``you sell your car or you hock your watch.''
Republicans see Burton's plan as yet another example of big government run
amok.
``He has that basic philosophy that says government wants to run
everything,'' said Assemblyman Tony Strickland, R-Camarillo.
Burton grew up on the outskirts of the Sunset district in San Francisco, the
youngest of three boys. His mother was a no-nonsense woman who, when her
husband refused to buy her a fur coat or a car, worked two jobs to purchase a
mink and a used blue Buick convertible.
His father was a doctor who practiced in poor neighborhoods and instilled in
his sons a gnawing need to help those less fortunate.
He is obviously his parents' child: The closets of his Potrero Hill home are
stuffed with suede jackets and tailored slacks that he regularly rotates into
the back seat of his car, where they are within easy reach in case he passes
a homeless shelter or some suffering soul on the street who looks his size.
``My whole thing is caring for people on the edge that nobody gives a
(expletive deleted) about,'' Burton said.
Subtle, he is not: During the height of the debate over welfare reform, he
chided his peers for slashing welfare benefits by introducing a bill that
would have made it a crime to be poor.
Burton believes his party has sold out the disenfranchised in its quest to
capture the moderate middle.
``Who stands for anything anymore?'' he sputters with an expletive. ``What's
wrong with making sure all kids have medical insurance?''
He seems to revel in his reputation as the only lawmaker willing to take on
the state's centrist governor. Their clashes are frequent, and Davis' staff
keeps a wary eye on Burton.
Last year, Davis proposed a scholarship program to reward high-achieving
students. Fearing the plan would siphon money from an existing program that
provides scholarships for poor students, Burton and a bipartisan group of
senators linked Davis' proposal to one expanding scholarships based on
financial need.
That meant both would become law if Davis signed either one. Burton said the
bill was the brainchild of all, but it bore his name for one reason: ``I
didn't want the governor to (expletive deleted) with it,'' he said. Davis
didn't.
Burton followed in the footsteps of his oldest brother, Phillip, a powerful,
legendary congressman who died in 1983.
John Burton spent 10 years in the Assembly and was elected to Congress in
1974. He served eight years before cocaine addiction forced him out of
politics and into a Scottsdale rehab clinic.
At some point, Burton said, he just got sick of doing drugs in any of the
dozens of anonymous Washington, D.C., hotel rooms he called home.
``Finally,'' he said, ``it seemed to make a lot more sense to get some
treatment than be dead, or have a breakdown, or be in jail.''
His drug days return only in occasional dreams in which the cocaine
inevitably gets stuck in a straw or spills on the carpet.
Today, Burton's lone addiction is caffeine -- he regularly downs at least
four cappuccinos in the morning, insisting on extra-firm foam. And he may
have three Diet Cokes, each with a slice of lemon, during dinner.
For six years after his drug rehabilitation, Burton lived in San Francisco,
staying straight, playing racquetball, sunning on the deck of his home with
its sweeping vista of the downtown skyline.
He indulged in movies and made good money as a corporate lawyer. He also
played the stock market, accumulating wealth he pegs at $1.5 million, but
that financial disclosure statements indicate ranges between $1.7 million and
$7.2 million.
From Gap Inc. to Wal-Mart, Burton's portfolio is impressive, if incongruous:
This self-styled voice of the common man owns stocks in huge pharmaceutical,
high-tech, communications and oil and gas companies.
But his stock holdings are no more surprising than the fact that attorney
Burton, the champion of consumer issues, was once on retainer for Pacific Gas
& Electric Co.
In 1988, politics came knocking again. Burton's old Assembly seat was open,
and his pal, then Assembly Speaker Willie Brown, desperately needed allies to
help squelch rebel Democrats who were challenging his control.
``No (expletive deleted) way,'' Burton replied three times before finally
relenting -- and winning.
Eight years later, he was elected to the Senate. Two years after that, his
colleagues chose him to serve in the state's highest legislative post, Senate
president pro tem.
While his personality and political instincts helped win him the spot,
another asset propelled Burton to victory: His ability to raise boatloads of
campaign cash.
He turns even chance encounters into potentially profitable conversations. In
early December, a friend who ran into Burton in a San Francisco restaurant
mentioned that he'd dropped off a Christmas gift at Burton's office. The
senator didn't skip a beat. ``Is it cash?'' he asked with a quick grin.
Even people who detest Burton's politics tend to like the man.
The Rev. Lou Sheldon of the Traditional Values Coalition said there isn't a
legislator he disagrees with more on hot-button topics such as gay rights and
abortion. Still, he can't help but enjoy sparring with Burton.
No `stuffed shirt'
``He's not a stuffed shirt,'' Sheldon said. ``He doesn't double-talk you.''
Twice divorced, Burton met his first wife in 1963 at a meeting in the home of
Vince Hallinan, the famed San Francisco civil rights lawyer. She was the
daughter of a labor leader who organized plantation workers and longshoremen
in Hawaii. Married for seven years, they had one daughter, Kimiko Burton, the
acting San Francisco public defender. He remarried in 1975, and divorced in
1981.
These days, as he makes his way through the Capitol, Burton often plays the
gracious flirt, chatting up female lobbyists and colleagues. The next moment,
he might be blowing up at someone, yelling four-letter words that echo down
the high-ceilinged corridors and force staffers to keep his office doors shut
so as not to offend touring school children.
State Sen. Sheila Kuehl, D-Los Angeles, once joked that Cal-Tech had
developed an ``FPM'' scale for the number of obscenities Burton spews per
minute. ``More than 50 FPMs,'' she said, ``and John is really, really mad.
Less than 10, check his breathing.''
Beneath the bluster is a shrewd politician who can grasp the high points of
the most complex subjects, instruct his staff to figure out the details and
seal the deal with his word. As one pundit put it, Burton is the guy who
can't read a map, but never gets lost.
Consider 1998, Burton's first year as Senate leader. Then-Gov. Pete Wilson
and the Republicans wanted to slash the state's hefty vehicle license tax as
a way to share California's $4.4 billion budget surplus. But Burton and the
Democrats wanted to earmark the money for the needy who had taken cuts during
the recession.
Burton's staff devised a plan to phase in the tax cuts over several years,
but only if the state was rolling in money. That protected revenues for the
Democrats' pet projects, while giving Wilson bragging rights to a huge tax
cut.
`Safe' seat for a liberal
Being a larger-than-life liberal in the nation's most liberal city provides a
sense of security that few other politicians enjoy. Burton hasn't faced a
serious political challenge since the 1960s, and occupying a ``safe'' seat
allows him to carry controversial, special-interest bills -- even when they
tick off his core supporters.
Burton paid scant attention when environmentalists opposed his efforts to
make it easier to fill in the San Francisco Bay for runway expansions at San
Francisco International Airport. He shrugged off criticism about a bill he is
carrying that would benefit a large campaign donor who owns an out-of-state
gambling facility. And he alienated campaign finance reform advocates by
pushing a campaign contribution and spending limits initiative that they said
was too permissive.
Consumer groups chafed at one of Burton's first legislative responses to the
energy crisis: using $400 million of taxpayer money to buy electricity for
the cash-strapped utilities. Still, they turn to Burton.
``Every morning when I get up, for the last two months, I say a little prayer
for John Burton,'' said consumer activist Harvey Rosenfield. ``If there is
going to be one hero in this four-year deregulation debacle, it's going to be
John Burton.''
Those who watched Burton pull back from the brink of self-destruction and
stage his political comeback have seen him work magic before. They hope he
has one trick left to solve the energy mess. Burton says the crisis is the
most daunting political problem he has faced in his long career.
``I don't think I have the power or the ability to put the toothpaste back in
the tube,'' Burton said with a shrug. ``But we're working on it.''
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Web of power intrigue alleged
Many say generators shared data on the Internet to exploit the market.
March 25, 2001
By KIMBERLY KINDY
The Orange County Register
Power producers selling electricity to California's fledgling deregulated
market shared confidential data that allowed them to watch one another's
every move - giving them leverage to drive up prices and helping to launch
the state last spring into its energy crisis, records and interviews show.
The information provided a picture of the state's electricity grid in motion:
The amount of electricity being generated, price bids for electricity, the
location of units down for repairs, schedules of electricity delivery over
transmission lines, and the location of transmission bottlenecks.
It was all done over the World Wide Web.
Most of the Web sites have been shut down, amid allegations that the
information was used to "game," or manipulate, the electric market and gouge
Californians out of billions of dollars while bringing the state's largest
utilities to the brink of bankruptcy and prompting rolling blackouts.
At least one site remains, and negotiations to resurrect another
controversial site are under way, frustrating consumer groups and antitrust
lawyers who contend the power producers have found new means to collude,
using state-of-the-art computer technology.
"Openness and willingness to share information was turned against us and used
to manipulate the market rather than to bolster the market," said consumer
advocate Michael Shames of the Utility Consumers Action Network.
"It's a lesson that is going to cost billions of dollars."
The data sharing began as a way to ensure the smooth operation of the state's
electrical grid, by giving timely information to all the people in the
market: power producers, utilities, those operating the grid.
In recent weeks, federal and state regulators have accused the power
companies of charging too much and manipulating the market.
The Federal Energy Regulatory Commission ordered 13 power generators to
justify their prices or pay nearly $70 million in refunds.
It also accused two producers with Orange County operations of creating
scarcity and gouging by as much as $10.8 million.
Last week, the California Independent System Operator, which manages three-
quarters of the state's electricity grid, filed a complaint with federal
officials alleging that 21 power producers overcharged the state by $6.8
billion since May 2000.
Power producers have routinely called the investigations "witch hunts" and
believe they will conclude with officials seeing that normal market
conditions - not market manipulation - led to the high prices. They say the
data from Web sites were used to help manage their work and design trading
strategies -- all legally.
"It's no different from putting together a weather forecast," said Randy
Hickok, man aging director of California assets for Duke Energy Corp.
"You use the information to determine your trading strategy."
Live data feeds on output, transmission
A review of a dozen studies and investigations into California's electricity
market, coupled with interviews with more than 20 economists, antitrust
experts, Web site designers, power merchants and utility officials reveals a
key flaw in the market: It hinged on instant communications over the
Internet.
By the summer of 1999, three main Web sites were online and being used by the
power producers.
One was operated by the Western Systems Coordinating Council - which includes
power merchants from 17 Western states and parts of Canada and Mexico. The
council oversees the smooth flow of power around the West. This private site
went offline in October 2000. It provided live data that showed the most
detailed information available on generation and transmission of electricity.
The site might be revived. The council has paid for a new software package to
get direct feeds from power producers, and talks are under way.
Another private, now-defunct Web site, which was run by the exchange that
until January organized California's hourly energy auctions, provided live
data showing energy up for auction, bidding prices, and when the bids were
accepted.
Still another site - The Open Access Same-Time Information System, or OASIS,
provides data for the day- ahead market that shows how much capacity is
available on transmission lines so generators can figure out what paths to
use to deliver electricity.
The OASIS site still provides data about bottlenecks that can affect prices.
However, this has caused less concern because it can't be acted on
immediately. It's only used for bids for the next day's market, and by then
congestion could be cleared. The Web sites offered rows of numbers in charts
and tables. The power traders downloaded the data into computer programs that
spit out maps of the electricity grid that were updated every few seconds.
Traders could view the maps as they bought and sold energy off the
trading-room floors - expansive rooms loaded with computers, scrolling
tickers and huge televisions tuned to the Weather Channel.
The California Power Exchange, which held the energy auction, in April 1998
identified five merchants that were dominating the market. They were Williams
Cos., Dynegy Inc., Reliant Energy Inc., Sempra Energy and Duke.
The question at the heart of a series of state and federal inquiries is
whether the power producers conspired or colluded to fix prices at inflated
rates, or whether market conditions prompted them to mirror one another's
bidding strategies.
Price-fixing is illegal, a violation of federal and state antitrust laws,
which were established to ensure that fair competition drives the price for
goods and services.
No smoke-filled rooms, lawyer says
San Diego attorney Mike Aguirre and another team of lawyers, suing on behalf
of the city of San Francisco, say the Web sites were a new kind of collusion,
made possible by two things: a market dominated by just a few players, and
technology that allowed those players to view the same live data in the same
format.
Aguirre said they knew this would make it possible to take the same actions
to drive up prices. The Web sites were part of the plan, and it worked, he
said.
"They are now marching lockstep and communicating in the way a cartel
communicates, only they are actually much more sophisticated - you aren't
going to catch them together in some smoky room," said Aguirre.
By the time the two main sites were shut down because of complaints that they
were being used to drive up prices, the generators had a lock on the market
and understood the nuances of how to manipulate it, he said. The Independent
System Operator believes the Web site data were used last summer to "exercise
market power and (for) gaming in the real market." The accusation was made in
an Oct. 10 letter to owners of the coordinating council Web site.
State power grid officials said they routinely saw power producers triple
their prices within minutes of a bottleneck on a transmission line. Kellan
Fluckiger, the grid's operations vice president, likened it to a closure on a
state highway that might give businesses - that know they are the final stop
for bread or water - the incentive to mark up prices and take advantage of a
captive clientele.
"We saw generators on the right side of the congestion change their bids from
$50 a megawatt(-hour) to $150 immediately after there was a clog in the
line," said Fluckiger.
Another strategy to create price spikes, according to grid manager Jim
Detmers, was to intentionally pull generators offline to create scarcity.
Reliant Energy Vice President John Stout said neither his company nor his
competitors used the Web site data to fix electricity prices.
"There are two sides to this. On the one hand you can say that people were
able to quickly start up their generators to keep the lights on," Stout said.
"On the other hand you can say that someone kept generators offline to
extract more money. But that didn't happen. Shutting down a generator when
there's an opportunity to sell energy isn't a wise thing to do."
Utility executives - who bought power from the generating companies - have
fought for the live data to be restricted to those responsible for managing
the transmission lines. For everyone else, they want it embargoed for a week
or more.
"A delay should be enough to prevent real-time action - using the information
to create congestion or to take advantage of bottlenecks - but would allow
for analysis later," said Gary Stern, director of market monitoring and
analysis for Southern California Edison.
Consumer groups say they are shocked the live data were being shared, because
power merchants have fought the release of the information to regulators
investigating the market.
"The mantra of the energy industry is, 'All this information is protected as
a trade secret. Regulators, the government, the public can't see any of it
because it would give competitors too much information,' " said consumer
advocate Doug Heller. "But internally the companies seem to be more than
happy to share and have access to crucial market data as a tool to manipulate
the market."
Southwestern University law professor Lawrence Sullivan, a national antitrust
expert, said antitrust cases are tough to prove. Sometimes there is no
collusion, just a group of individuals or companies presented with similar
conditions, all reacting in the same way. He uses a rainstorm analogy.
"Suddenly it starts raining; you put your umbrella up and so does everyone
else," said Sullivan. "You are acting for you own reasons and you don't care
if anyone else puts their umbrella up. You are doing it for yourself."
Equal data sharing in 'transparent market'
From the regulators' perspective, the only requirement on data-sharing is
that it be done equally, so that all market participants can take advantage
of it. Moreover, the federal commission actually requires the OASIS site.
Commissioner William Massey said the economic principle driving the
commission's philosophy is that sharing information, or having a "transparent
market," should foster healthy competition. But Massey concedes California
has too few players and not enough electricity to have a truly competitive
market.
Stanford University economist Frank Wolak - who does market surveillance
studies for the grid operator - said people expected that federal regulators
would protect consumers by setting price caps if the market became unwieldy,
allowing flaws in the market to be worked out.
He blames federal regulators rather than generators.
Generators' "job is to maximize profits. It's like asking a predator not to
seek its prey," said Wolak. "Lions are supposed to eat zebras, but the game
warden is supposed to do something if they are eating too many zebras. FERC
has an obligation to do something if the prices are going to kill the
California economy."
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Studies show pitfalls in power market
Investigators believe the deregulated system has opened itself up to
manipulation of supply and pricing.
March 25, 2001
By KIMBERLY KINDY
The Orange County Register
Nearly a dozen studies and investigations have found evidence of flaws and
weaknesses in California's deregulated electricity market that - if detected
and rooted out earlier - could have prevented the state from spiraling into
crisis.
A growing number of lawmakers, energy regulators and academic experts believe
power producers exploited these weaknesses to "game" the market.
Earlier this month, the state Senate formed an investigative committee to
determine if energy producers illegally manipulated the market. The move came
less than a week after the Federal Energy Regulatory Commission ordered power
producers to refund nearly $70 million for energy sold in January, unless
they can justify the prices charged. In other words, for the first time the
onus is on the generators: They must prove they didn't manipulate the market.
State Sen. Joe Dunn, D-Santa Ana, who will chair the new investigative
committee, has reviewed piles of evidence collected against the power
producers and believes it's time to determine whe ther Californians have
become victims of a new energy cartel.
"Not only is there a grassy knoll, there are many who believe the gunman is
still standing there firing," said Dunn, an attorney who has successfully
litigated against the tobacco industry for engaging in unfair business
practices.
The market flaws that allowed for manipulation include:
The "crazy auction." That is how Gov. Gray Davis described the state's daily
energy market when the crisis hit. The auction guaranteed that every seller
would get paid the last bid price. The model was supposed to encourage power
producers to bid early to avoid being locked out when the utilities had
enough electricity lined up. But sellers never did fill the energy needs
early in the day, so by the time the market was about to close, buyers had
increased their bidding price in an effort to secure enough energy. As a
result, the sellers were always awarded the highest bid price - even if 90
percent of the energy had been secured at a lower rate earlier in the day.
Lack of generation. The California Energy Commission says the state's
consumption grew by no more than 5 percent from 1999 to 2000, leading many to
argue that scarcity alone could not have driven the market so out of control.
However, economists say it may have contributed to the problem. Here's why:
even with the commission's projections - which are disputed by generators who
place increases at closer to 20 percent - the rate of consumption was nearly
equal to the rate of generation. Economists say a healthy market for
ratepayers will only come when generation exceeds consumption by at least 20
percent.
Instant updates. The ability to see real-time, market-sensitive information
allowed power producers maximum potential for com mand ing the highest
possible price. Two Web sites in particular allowed generators to see what
their competitors were up to, minute by minute, as they bought and sold
energy. The information-sharing is at the heart of two lawsuits filed against
the power producers, accusing them of violating antitrust laws to fix prices.
Producers say they did nothing wrong.
Regulatory gaps. The Federal Energy Regulatory Commission had the power to
step in and set caps to stabilize the market. The idea was to allow the
private energy suppliers to make profits, but not at rates that will harm the
economy. The decision not to use this authority emboldened the merchants,
resulting in increased profits from 1999 to 2000 of more than 300 percent,
according to consumer groups and a state Independent System Operator filing
with the federal commission.
Too few sellers. Even when production levels climb, economists say, the
marketplace will be better served if more players are introduced. Most of
California's energy needs have been met by five major suppliers, each having
about 20 percent of the state's business. Energy and antitrust experts say
it's too easy to mirror one another's actions and form a mon opoly with a
group of sellers this small.
Abrupt shift to a new market. The state didn't build safety bridges from the
old system to the new. For example, in other states where deregulation has
been enacted, the utilities sold off their power generators, but only on the
condition that the new buyers sell them electricity at a locked-in, low rate
for the first few years. Economists say this would have helped stabilize
costs until the new market was established.
Dunn's committee will look at ways to restructure the marketplace so that
prices can stabilize. But a second goal is to determine whether power
generators have criminally exploited weaknesses in the marketplace.
The power generators say they've endured scrutiny in studies and state and
federal investigations, and that no proof of criminal wrongdoing was found.
"There have been at least nine investigations that have looked at this ...
including a federal investigation," said Jan Smutny-Jones, executive director
of the Independent Energy Producers, a trade organization for power
generators. "To date no one has concluded there is any illegal activity or
any other kind of misconduct."
But Dunn, antitrust experts - and even the researchers -- said these repeated
claims by power producers and their representatives misstate what the studies
show.
Here's why: The academic studies and market surveillance reports never aimed
to prove illegal activity. Instead their goal was to determine if the Federal
Power Act needed to be enacted by FERC. The act requires that the federal
regulators step in when evidence of market power, or monopoly power over
prices, is being exercised by the generators -something that nearly every
study found.
"Their only job is to look at if the market is dysfunctional," said Dunn.
"They are not looking at it through the lens of a prosecutor."
MIT economist Paul Joskow said his work shows that supply and demand
scenarios could not possibly have led to the prices Californians have been
paying for electricity. Market power had to be exerted, but he said he didn't
have the power to subpoena documents or witnesses that might have revealed
illegal activity.
"My objective was not to determine if anyone engaged in illegal behavior,"
said Joskow, who conducted research that was funded by Edison International.
"It was designed to assist FERC ... then it was up to FERC to decide the
implications in enforcing the Federal Power Act, which requires that they set
just and reasonable prices."
Joskow's work showed that prices, in many instances, were twice as high as
they should have been.
Stanford University economist Frank Wolak, who heads a team of economists
that conducts regular market surveillance reports for California's main
electricity grid operator, said he has repeatedly found evidence of market
manipulation and reported it to FERC.
In 2000 alone, Wolak said, his work showed that market manipulation accounted
for an $8 billion overcharge out of the $27 billion that was paid for
electricity in the California market.
However, no action was ever taken by federal officials.
"It's frustrating because they say, 'Be very vigilant in searching for market
power,' but when we find it, they don't do anything," Wolak said. "They say,
'Oh no, that's not market power.' If they would define what market power is,
we would be looking for it. But I don't think they want us to find it."
Wolak said he believes that recent actions by federal officials - in which
they have ordered refunds - represent a token gesture and are a response to
intense public pressure for them to act. So far, they've identified less than
$80 million in potential overcharges, compared with the billions that Wolak
and others have identified.
One federal commissioner agrees with Wolak. Commissioner William Massey said
the commission has resisted stepping in and using its authority because it
believed the free market would correct itself. Massey said members are
beginning to intervene, but he, too, believes the actions should be more
aggressive.
"We have been the beneficiaries of countless market monitoring reports for
two or three years now. Very sophisticated reports that have talked about the
existence of market power," Massey said. "I think we should have heeded those
warnings. I think we should have done a better job."
Last year, FERC did its own investigation to determine if power producers
were conspiring and intentionally taking generators offline to drive up
prices. But that study - often cited by power generators as proof that they
have been cleared of wrongdoing - was cursory.
FERC described the work as an "informal investigation" and said at the
beginning of the report that it did not subpoena witnesses or documents. Most
of the work was done over the telephone with a few power plants subjected to
scheduled inspections.
"That FERC study was ridiculous," said Severin Borenstein, director of the
University of California Energy Institute. "They asked (the power producers)
if they were manipulating. I guess I wasn't surprised by their answer."
Attorneys who have accused the power producers of breaking anti-trust laws
said they are using the academic studies to help them with their own
investigations.
But they serve as a starting point.
The lawyers are looking at the evidence found by researchers - why they
believed the market was being manipulated - and will subpoena the necessary
people and records to see if there is proof that illegal actions were behind
the manipulation.
"It's not all in one place, and it's not sitting on a silver platter, but we
believe it's out there," said Len Simon, an attorney working on the city of
San Francisco's lawsuit filed against power producers. "They (academic
researchers) have found evidence that these high prices are not purely the
result of market forces, but they have not been able to secure conclusive
proof. That's what we plan to do."
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Headed toward 'disaster'
Analysts: California fails in bid to get handle on crisis
By Steve GeissingerSACRAMENTO BUREAU
SACRAMENTO -- Big power rate hikes. Dangerous rolling blackouts. Volatile
utility bankruptcies.
For months, all were deemed nightmares to be thwarted at virtually any cost.
Yet now they all appear likely, even inevitable, according to experts who see
California tumbling from an energy crisis into something worse.
"We're getting closer andcloser to a situation that could be described as a
disaster for the state," said James Swee-ney, director of Stanford
University's energy institute.
Energy woes are starting to hinder California's economy, the sixth largest in
the world.
At the same time, Gov. Gray Davis' 11th-hour, multibillion-dollar attack on
the crisis starting last winter has so sapped the state budget that
government fiscal watchdogs say it's even a potential threat to essential
ongoing programs.
And despite the effort, analysts say California appears headed toward just
what Davis and legislative leaders most feared -- major rate hikes that would
eat into consumers' budgets and a summer filled with rolling blackouts that
endanger people and pummel businesses.
"These were the sort of things we said would happen unless the governor and
lawmakers started taking actions beyond what they've been willing to take,"
Sweeney said.
But the state's quest to ease the energy price and supply crisis amid a
tangle of powerful, competing interests has turned into such a roller coaster
ride of ups, downs and surprises that increasing clashes and frustration are
slowing or even derailing proposed remedies.
By default, experts say, the utilities may wind up in bankruptcies that throw
the energy crisis and California's fate largely to the federal courts.
Signs of trouble abound:
Rolling blackouts during two spring days earlier this week were caused in
part by small generators shutting down after utilities missed making payments
for months. Many view the outages, the first since January and the first to
strike Southern California, as a harbinger of summer woes despite attempts to
foster greater conservation and build power plants.
Though there have been lurches toward an agreement, negotiators apparently
remain substantially apart in secret talks on a state plan to financially
rescue nearly bankrupt utilities.
Major stakeholders in the energy crisis, and their court cases, continue to
threaten the utilities with bankruptcy at any time.
The fiscally ailing utilities continue to seek rate increases from state
regulators -- a move that politicians fearing voter backlash oppose but
energy and economic experts support as the quickest way out of the crisis.
With the state's bill for short-term power buys hitting $4 billion, some
lawmakers are resisting the administration's requests for additional funds.
The governor, who has declared a state of emergency, has the authority to tap
funds on his own but fears the political fallout.
Long-term power contracts negotiated by the state won't cover as large a part
as hoped of California's demand for electricity until 2004, indicating that
the state will be forced to seek power for some time on the costly short-term
market.
Many more power generators, frustrated at not being paid by the utilities,
may either cease operations or start selling out of state.
There remains little sign that federal regulators will order tough wholesale
price caps, though there are now indications they may pressure generators to
rebate some alleged overcharges. Numerous government investigations are
looking into allegations of price gouging.
Critics are balking at secrecy shrouding the Davis administration's costly,
short-term power buys to thwart rolling blackouts, purchase of long-term
contracts and utility bailout talks. Officials say the secrecy is needed to
avoid skewing the market.
Some critics say the state is failing to address natural gas supplies and
costs, an underlying cause of the crisis. Republican lawmakers have futilely
called for a special legislative session, as was convened on power woes, to
address the issue.
Municipal utilities, including Alameda, Palo Alto, Lodi and Santa Clara, say
they are tired of being asked to participate in rolling blackouts. And
they've provided power to the grid, for which they haven't been repaid.
Nowhere recently has the tension over the crisis emerged more publicly than
in the Legislature, where thwarting utility bankruptcies has been the mantra
of the administration and legislative leaders for months.Lawmakers' outrage
But several lawmakers were outraged earlier this week as they battled
utilities' reluctance to repay the state or small generators for power.
"Let'em go belly up," said Senate leader John Burton, D-San Francisco. "I
don't care anymore."
Sen. Debra Bowen, chair of the Senate energy and utilities committee, said
she felt "the legislative equivalent of road rage" at Pacific, Gas and
Electric, which serves Northern California, and Southern California Edison.
The utilities, trapped between skyrocketing electricity prices and capped
retail rates, amassed $14 billion in debts that left them teetering on the
edge of bankruptcy, unable to buy power. The state has spent $4 billion
brokering power sales as it works on a rescue plan for the utilities.$50
million daily
But negotiations on a bond-backed bailout of the utilities appear stalled. In
the meantime, the state is continuing to broker power sales on their behalf
at the staggering cost of about $50 million daily.
Controller Kathleen Connell earlier this week blocked what she described as
Davis' effort to tap billions more in state money for the energy crisis,
saying such a transfer of funds could leave California short of cash for
essential services such as public schools.
Since the state started making emergency power buys in January, the budget
surplus has fallen from $8.5 billion to about $3.2 billion, she said.
Likewise, Sen. Steve Peace, D-El Cajon, chairman of the joint Legislative
Budget Committee, has warned the Davis administration that he will try to
block additional funds for emergency, short-term power purchases.
Peace wants to see the state Public Utilities Commission make progress toward
recovering from utilities the money that already has been spent.
The state budget also is being endangered by slow progress toward issuing
bonds that are intended to repay coffers for short- and long-term power buys,
according to Connell.
The delay is due in part to action by the utilities, which are appealing a
ruling by the PUC that essentially ensures the state will be repaid.
In the face of myriad signs of trouble, Davis asserts that he is making
steady, certain progress toward solution of the crisis.
But Davis' aides privately acknowledge that his fate is inevitably tied to
his handling of the crisis.Jones'opportunity?
A potential Republican opponent during Davis' re-election bid next year,
Secretary of State Bill Jones, is pressing what he views as an opportunity
big enough to drive his campaign through in 2002.
Under Davis' leadership, Jones said, California is "essentially mortgaging
our future for our children and grandchildren."
Meanwhile, consumer advocates are still threatening a 2002 initiative that
would overturn rate increases and any taxpayer-financed bailout of
investor-owned utilities.
"Davis has not taken the action that is needed to solve this problem," said
Harvey Rosenfield of the Foundation for Taxpayer and Consumer Rights. "Unless
he does, he's finished."
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Published Sunday, March 25, 2001
Experts predict summer outages Some say conserving not enough
By Mike Taugher
TIMES STAFF WRITER
For months, the brains guiding California's approach to resolving the state's
energy crisis have been focused on getting through the summer.
They now must be wondering if they will make it through the spring.
California was plunged deeper into crisis last week on a variety of fronts as
authorities escalated their claims that hugely profitable power companies are
largely to blame.
Two days of widespread rolling blackouts. Small generators shutting down
because they have not been paid, and state legislators unable to agree on how
to bring them back. Accusations that big generators have overcharged
billions. State officials scrambling to protect a once-generous surplus that
is hemorrhaging. The revelation that Gov. Gray Davis' efforts to secure
long-term contracts for cheap electricity have so far fallen short of
expectations.
All in all, one hell of a week.
And this is supposed to be the easy time of year.
The state's energy crisis is deepening. Positions are hardening, and the way
out of this mess has never looked so difficult.
But it is the coming summer months, when peak demand for electricity will be
50 percent higher than it is now, that is of greatest concern to policymakers
and energy officials.
Most experts agree that there is a bona fide shortage of electricity;
official state estimates are in the range of 5,000 to 7,000 megawatts in the
summer, or enough to power 5 million to 7 million homes.
The California Energy Commission says, however, that with strong conservation
efforts and new power plants, blackouts can be averted.
Others are not so optimistic.
An influential East Coast energy consulting firm recently estimated the state
will see 20 hours of outages in the coming months, but others fear it will be
far worse.
One industry representative said the number of blackouts would be in the
dozens. And he said if high wholesale prices have shocked anyone, they could
double again before summer is out.
"The prices are going to be more damaging than they are right now," said Gary
Ackerman, director of the Western Power Trading Forum, an association of
energy generators and traders. "I would say in the range of $500 to $600."
Consider this: A year ago one megawatt-hour was going for $30. Last summer,
wholesale prices rose to nearly $150, and that was high enough to drive the
state's two largest utilities to near-bankruptcy and force a state bailout.
Today, as the state shells out $50 million a day to keep the lights on,
prices are at about $300.
The reasons that experts give for the problems that California faces this
summer are numerous and many are well-documented. No major new power plants
built in a decade. A growing, technology-dependent population that is using
more and more power. Drought in the Pacific Northwest. Growing Western states
using the juice they used to sell to the Golden State. And now small
generators are shutting down or threatening to sell out of state because they
have not been paid.
But there is also growing evidence that many of the problems are caused by
generators and traders unfairly taking advantage of a dysfunctional market,
some analysts said.
"The other thing that makes this summer a little tenuous is last summer our
experience with generators and traders timing the market to maximize their
profit," said Claudia Chandler, spokeswoman for the California Energy
Commission.
Because of mild weather last summer, the highest peak of demand for
electricity was actually slightly less than it was in the summers of 1999 and
1998, when electric restructuring took effect.
And yet it was not until last year that the state's wholesale electricity
market went haywire. In San Diego, the first part of the state where retail
rates were deregulated, consumer bills doubled and in some cases tripled
while the state's two largest utilities began their slide toward the brink of
bankruptcy.
A growing number of experts now say generators and traders, beginning last
summer, began exercising unfair influence over a market where the margin
between supply and demand is razor thin.
A dramatic example of how that influence is exercised would be where a power
plant owner closes a unit to decrease supply and drive prices up high enough
to make up for lost production with sales from other units. Earlier this
month, federal regulators accused two companies of doing just that in
Southern California during April and May of last year.
More common, experts say, is generators and traders offering for sale less
than a full supply of electricity so that the state is thrown into a
panic-buying situation to secure enough electricity to prevent blackouts.
"What they are doing is perfectly legal," Chandler said. "But what they are
able to do is put just enough megawatts into the market to keep the prices
high.
"From the standpoint of supply and demand, there's enough supply in
California to meet demand, assuming we get this new generation on line and
increase energy efficiency," she added. "The unknown is whether the
generators and traders are going to put electricity into the grid that is not
being controlled by contracts. That's the unknown."
Industry representatives vehemently deny they are doing anything but
producing all the electricity they can and putting it into the market. High
prices and shortages, they say, are simply due to the tight margin between
supply and demand, combined with the high cost of natural gas and pollution
controls.
"In a market that's tight, if you have power chasing itself all over the
western United States, you're going to have high prices," said Jan
Smutny-Jones, director of the Independent Energy Producers Association.
"We're getting tired of being the public policy piata here."
Smutny-Jones and other energy officials say they are convinced they will be
exonerated, and in the meantime they suggest investigating their activities
could prove damaging.
Blaming generators, he said, could lead generators to decide the political
and regulatory atmospheres are too unstable.
"The supply that California needs to work its way out of this is not going to
show up, or if it does show up, it will show up with a significant premium,"
Smutny-Jones said.
Still, accusations of unfair market practices escalated last week when the
state's grid manager, the Independent System Operator, complained to federal
regulators that generators and traders reaped $6.2 billion in excess profits.
Even the Federal Energy Regulatory Commission, which has been loathe to take
a strong stance in California, has recently demanded that power companies
refund tens of millions of dollars for prices the federal body says were
excessive in December and January.
"I think the generators have gotten smarter about how to make money in the
market," said Severin Borenstein, director of the University of California's
Energy Institute.
Borenstein is among those who believe generators are exercising market power.
Although any given generator might own 5 percent or 6 percent of the state's
generation capacity, when margins are so tight an individual company can
spell the difference between keeping the lights on or forcing outages.
That gives those generators the power to force prices to go up artificially
high, said Borenstein.
But even some of the generators' harshest critics acknowledge that the
problem is not confined to market behavior.
The shortage is real, experts say.
And drought in the Pacific Northwest is particularly worrisome, since
Northern California relies heavily on hydroelectric dams in that region
during the summer, and transmission constraints will make it difficult, if
not impossible, to make up for that shortfall with power imports from the
Southwest.
"Any time you have more rain in L.A. than in Seattle, you're going to have
trouble," said Patrick Dorinson, a spokesman at the California Independent
System Operator.
In response to worries about what the next several months will bring, the
governor has launched an intense, multi-faceted plan designed to avert
blackouts and prevent a financial catastrophe.
Davis and other Californians also have urged federal regulators to cap
wholesale prices before summer. But FERC commissioners and the Bush
administration have been opposed to price caps, saying they don't work and
would drive electricity out of the western market.
And to date, Davis' plans to minimize the damage this summer have not shown
results. His drive to secure long-term contracts has so far come up short,
and the keystone effort to buy the transmission lines of the utilities has
stalled.
Still to be determined is the success of his efforts to bring more generation
on line and encourage Californians to conserve electricity at unprecedented
levels.
Last year, San Diegans had the strongest incentive possible to conserve
electricity. They were paying the real market cost of power, and that was
doubling and in some cases tripling their electricity bills.
But San Diegans conserved only about 9 percent during that time, according to
a source at the ISO. What's more, once lawmakers recapped their electric
rates and removed their price incentive, customers of San Diego Gas &
Electric immediately reverted to their old levels of electricity use,
according to the ISO source.
Davis, meanwhile, is counting on Californians to heed his call for 10 percent
voluntary reduction in usage with no price incentive at all, except that
those who conserve an ambitious 20 percent during the entire summer will
receive a rebate.
Borenstein said the ISO's information about San Diego's electricity use last
summer is consistent with what he has seen, but he noted that the price
incentive was not as clear as it might appear.
As soon as electric bills soared, Borenstein said, politicians began
agitating customers to not pay their bills.
So consumers never really thought they were going to be punished for high
use.
He thinks it would be good to raise rates because, he said, that will reduce
consumption.
"Rate increases, unfortunately, are not at all inevitable," he said. "We
could pay for all of this through the state treasury."
Either way, he said, Californians will pay.
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Calif To OK 20% Rate Hike For Utils Tue - Commissioner
By Jason Leopold
Of DOW JONES NEWSWIRES

03/24/2001
Dow Jones Energy Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)

LOS ANGELES -(Dow Jones)- The California Public Utilities Commission will
likely approve a 20% rate increase for two of the state's largest utilities
Tuesday, ending a three-year-old retail rate freeze, two PUC commissioners
told Dow Jones Newswires Saturday.
The rate hike would let the state recoup money it spent buying power since
January, said the commissioners, who asked not to be named. The increase also
would let utilities start paying small independent power producers on a
forward basis for electricity sold directly to the utilities, the
commissioners said.
PUC also may approve a trigger mechanism. The move would allow utilities PG&E
Corp. (PCG) unit Pacific Gas & Electric and Edison International (EIX) unit
Southern California Edison additional rate increases of 5%, if needed, to
cover future power costs. Rates could go down if the future price of power
stabilizes, the commissioners said.
A PUC administrative law judge is expected to issue a proposed order that
does not support the rate increase and end to the rate freeze. As a result,
PUC Commission President Loretta Lynch is expected to issue an alternate
proposal that will call for a rate increase of about 20%, the commissioners
said.
Both proposed orders are expected to be issued Sunday afternoon.
"There is just no way we can extract 10 cents from a nickel," said one
Democratic commissioner, who asked not to be named. "Unfortunately, we are
going to have to grant the utilities an increase."

SoCal Ed To Present Rate Arguments Monday

The commission is expected to hear oral arguments Monday by SoCal Ed
executives regarding the company's rate stabilization plan. When first
presented to the commission in November, the plan called for a 10% rate
increase. PG&E also filed a rate stabilization plan at the time asking for a
similar increase.
Both utilities argued last November that their costs exceeded their revenues
because wholesale power prices spiked during the summer. The utilities'
customers' rates were frozen, but wholesale prices continued to soar,
surpassing the roughly 5.5 cents per kilowatt hour and 6.5 cents/KWh rate the
utilities were legally allowed to charge their customers.
In December, PG&E and SoCal Ed revised their rate stabilization plan,
requesting rate increases of as much as 30% because wholesale power prices
failed to stabilize and the utilities were getting deeper into debt. The
commission denied the request in January and approved a temporary rate
increase of 9% for residential consumers and 14% for large industrial
customers.
PG&E and SoCal Ed are now more than $13 billion in debt, have seen their
ratings downgraded to junk-status by Wall Street credit agencies and have
defaulted on billions of dollars in dividend payments, power bills and bank
loans.
Gov. Gray Davis was in Palm Springs over the weekend for a fundraiser, and
his staff was unavailable for comment. Representatives for PG&E and SoCal Ed
were also unavailable for comment.
Earlier this month, Davis told Wall Street analysts that he would not allow a
rate increase because he feared a ballot initiative by consumer advocates in
the state, who would call for an end to the state's deregulation law.
"Believe me, if I wanted to raise rates I could have solved this problem in
20 minutes," Davis said at a March news conference.

Group Pledges 'Ratepayer Revolt' If Prices Rise

Harvey Rosenfield, executive director of consumer advocacy group The
Foundation of Taxpayer and Consumer Rights, promised a "ratepayer revolt" and
2002 ballot initiative if electricity rates are increased. Consumer advocates
are also expected to testify at Monday's hearing about why the utilities
should not be permitted to raise consumer electricity rates.
Legislative sources said the rate increase is needed so the state Department
of Water Resources, which in January started purchasing power for the
cash-strapped utilities, can be repaid. Moreover, the utilities can begin
paying the state's so-called qualifying facilities for electricity. PG&E and
SoCal Ed have not paid the QFs in full since January, and the companies owe
the generators about $1 billion.
In hindsight, one key Democratic state senator said, if the state allowed the
utilities to raise rates in January, the DWR would not have had to spend
nearly $4 billion from the general fund buying power. Further, said the
senator, who asked not to be named, the state would not have had to negotiate
a deal to buy the utilities' power lines in an effort to restore the
companies to financial stability.
"Think about it. PG&E and Edison could have regained access to loans and
would have been able to restore their credit," the senator said. "We
ultimately spent more than $5 billion than we should have if a rate increase
is approved. That's not counting, the billions of dollars more we spent and
are going to spend on long-term contracts, transmission assets and revenue
bonds. People are going to want answers and I don't know what we're going to
tell them."
-By Jason Leopold, Dow Jones Newswires; 323-658-3874;
jason.leopold@dowjones.com
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Few share Davis' view on rate hike: Even aides predict big power cost boost
By Dan Smith and Amy Chance
Bee Capitol Bureau
(Published March 25, 2001)
With new threats of fiscal distress descending on California's power industry
and the state treasury, Gov. Gray Davis finds himself increasingly alone in
his belief that the state can weather the energy crisis without significant
electricity rate increases.
Top lawmakers and other key officials involved in sorting through the crisis
-- including some of Davis' own staffers -- now believe rates need to rise,
perhaps to double. And they said the Public Utilities Commission is likely to
signal that some rate increase is needed when it meets this week.
"I think the facts finally came out in terms of the magnitude of the
problem," said Senate President Pro Tem John Burton, D-San Francisco. "You
have to get the money from somewhere -- unless you steal it or win a lottery
ticket ... I don't know how you solve this problem without (a rate increase)
and I never really saw how you could solve it without one."
The assumptions the Democratic governor has relied on to bolster his "hope
and expectation" that rates won't rise beyond the already anticipated 19
percent increase are rapidly falling apart.
As the crisis drags on, the state will have to spend far more than anyone
expected in January for short-term power purchases, long-term contracts and
the utilities' transmission lines.
Davis had also hoped the state could strike a deal to rein in the costs the
utilities pay alternative energy suppliers, but by week's end suppliers were
balking and previous legislative agreements began to disintegrate.
On March 7, state Treasurer Phil Angelides had recommended the state
initially sell $10 billion in bonds to help the state purchase power, saying
a significantly larger-scale bond issue would increase costs for ratepayers.
The Senate on Thursday approved a bill it thought would make that possible.
But by Friday, neither Republican lawmakers nor the Davis administration was
on board.
Key lawmakers were told by high-level Davis staffers that the state may need
to borrow as much as $23 billion -- and raise rates by as much as 60 percent
to 80 percent above the initial 19 percent to support it -- over the next 18
to 24 months.
Davis, meanwhile, was in the Palm Springs area for most of the day Friday. As
negotiations continued in the stalemated Assembly, Davis attended a campaign
fund-raising luncheon at a top desert golf resort. His spokesman, Steve
Maviglio, said the governor did not play golf, but attended the event between
a morning groundbreaking ceremony and a mid-afternoon television interview.
"It's insane and disgusting at this point," said Doug Heller of the
Foundation for Taxpayer and Consumer Rights. "Governor Davis is unfortunately
tending to his campaign coffers more effectively than he is tending to the
state's energy needs. He is double-bogeying his round as governor."
One administration source said some Davis advisers have been calling for a
rate increase for weeks. Maviglio said Saturday that the governor has not
been briefed on the most current financial models with which his negotiators
and legislators are working.
"The governor has not signed off (on a rate increase)," Maviglio said. "What
the staff says doesn't matter. ... There's absolutely no change with what
he's said all along."
But others said it is time the governor confronted the reality of a rate
increase.
On Friday -- after his briefing with the administration -- Assembly Speaker
Robert Hertzberg, D-Sherman Oaks, said, "it seems more inevitable that the
Public Utilities Commission will have to raise rates."
Assemblyman Fred Keeley, D-Boulder Creek, for months a key player in the
energy talks, concluded a month ago that state
policy-makers have little ability to influence the price and availability of
power in the short term.
"Even if the governor and the Legislature acted in perfect harmony, the
ability of state government to effectuate an outcome is very, very limited,"
Keeley said. "My guess is the force of events -- the enormity of the
economics involved in this -- are playing out and that the administration is
coming to the same conclusion."
Angelides said the numbers suggest the state can't survive financially under
the current rate structure.
"There's a limit to how much you want to sell bonds to keep delaying
reality," he said. "At the end of the day the PUC is going to have to set
rates that allow the state to buy power and the state and utilities to
recover their costs. It is certainly worth borrowing money to repay the
general fund, but then you have to ask: 'How many billions are we willing to
borrow to delay the tough reality of where we are?' "
Heller, whose group vigorously opposes any rate increase, said he believes
Davis is politically averse to boosting voters' energy bills -- but at the
same time doesn't want to take the steps necessary to crack down hard on
energy generators, such as seizing power plants or imposing a windfall
profits tax.
That leaves the Legislature little choice, he said, but to embrace a rate
increase as necessary.
"It's political suicide, but they have to be considering throwing this right
on (power) bills, and using blackouts as a mechanism to scare us into
accepting these rate increases," he said. "The Legislature appears to be the
fall guy for the governor's weakness."
Keeley said Davis could help the situation -- and perhaps be viewed as
courageous -- if he publicly embraced a rate increase soon.
"It would end the fantasy that this situation could be stabilized without a
rate increase," Keeley said. "That fiction -- and the effort to maintain that
fiction -- gets in the way of genuine problem solving."
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Rising cost of purchasing electricity sparks alarm
Posted at 11:00 p.m. PST Saturday, March 24, 2001
BY PAUL ROGERS

Mercury News

A chorus of frustration, anger and renewed calls for the state to seize
privately owned power plants echoed across California Saturday, following
news that the state might have to spend as much as $23 billion over the next
two years to buy power to keep the lights on.
``Where do we go from here? How about off the bridge?'' said Sen. John
Burton, D-San Francisco.
``Deregulation has been a disaster in California,'' said Assembly Speaker Pro
Tem Fred Keeley, D-Santa Cruz. ``Most of us didn't vote on this, but it is
our job to clean it up. And the cleanup is going to be awful.''
Republicans were equally gloomy.
``The amount of money we are talking about now is so massive that most people
are shellshocked,'' said Bill Campbell, the Assembly Republican leader from
Orange.
The state's energy crisis reached a new level of anxiety among many lawmakers
Friday, after top staff members for Gov. Gray Davis told legislative leaders
that the tab for the state to buy power over the next two years might not be
$10 billion, a previous estimate, but could reach as high as $23 billion.
The new projections stem in part from the state's failure to sign enough
long-term contracts for low-cost energy, to move aggressively on an ambitious
summer energy conservation plan, and to approve a bailout for Pacific Gas &
Electric Co. and Southern California Edison.
Sources said the governor's aides estimated the rate increase for consumers
could be as high as 80 percent to cover the costs.
`Wildly speculative'
On Saturday, the governor's office did not confirm or deny the number.
``There are a differing number of what-if scenarios being played out,'' said
Steven Maviglio, a spokesman for Davis. Maviglio called the $23 billion
estimate ``wildly speculative.''
He said Davis holds out hope that ratepayers might get ``billions of dollars
in refunds'' from the Federal Energy Regulatory Commission. The state this
week alleged that power companies have overcharged California ratepayers by
$6.2 billion.
And he said Davis still is trying to avoid having consumers' rates go up,
something many legislators, including his fellow Democrats, now say is
unlikely.
Davis appeared briefly on a CNN television broadcast to discuss the crisis.
He did not say whether rates would have to be raised, or address the $23
billion price tag.
The two leading choices are to raise rates for consumers or sell bonds, which
would be repaid by ratepayers but would cost more over time because of
interest.
``It seems increasingly there isn't a will in the Legislature to finance a
huge debt over time,'' said John Nelson, a spokesman for PG&E. ``I would say
a rate increase is more and more likely, whether or not it is the governor's
first choice.''
On CNN, Davis repeated calls for consumers to conserve power by at least 10
percent this summer and blamed out-of-state power generators for raising
rates to take advantage of California's flawed 1996 deregulation law.
``They have what we need, and they are demanding very high prices for it,''
Davis said. ``It has driven our utilities to the edge of bankruptcy and
complicated our problem.''
Davis took a backhanded swipe at San Jose, a city that has blocked attempts
by Calpine Inc. to build a 600-megawatt power plant in Coyote Valley.
``Everyone has to do their part. Cities can't be turning down plants,'' he
said.
Some were calling for more drastic measures.
Burton, the president pro tem of the state Senate, said that having the state
forcibly take over by eminent domain and buy out power plants across
California, many of them operated by Texas and other out-of-state power
companies, is looking more possible.
``If these figures are right,'' he said, ``maybe we just go in and buy these
generation plants. If we are going to spend $20 or $30 billion, we might as
well own them.''
A bill written by Burton to create a state power authority that could build
and buy power plants passed the Senate last month and is pending in the
Assembly.
Davis broached the subject of an eminent domain takeover of power plants in
his State of the State speech in January. Since then he has said little about
the option.
Instead, Davis has tried to fix a flawed 1996 deregulation law by having the
state enter into long-term contracts to buy power for PG&E and Southern
California Edison. The two utilities say they have lost more than $13 billion
since last summer and now teeter on the verge of bankruptcy because they have
been forced to pay high wholesale electricity costs, and California's 1996
deregulation law prevents them from raising rates.
Consumer advocates on Saturday were unequivocal, however.
``It's time to get the pitchforks and go to the Bastille,'' said Nettie Hoge,
director of The Utility Reform Network in San Francisco. ``You have to put it
at the feet of the people who are doing the generating -- the Texas and
Southern companies.''
Hoge said that California residents are in for ``certain blackouts'' this
summer when energy demand outstrips supply. And with power bills likely to
rise, she said interest is already high in crafting a ballot measure for 2002
for the state to take over the power plants.
``What you have is a huge black hole of generator greed. We have almost
burned through the state surplus. Somebody has got to put on the brakes,''
she said.
Power producers, however, said that solution would be ill-advised.
``We would vigorously defend our interests,'' said Tom Williams, spokesman
for Duke Energy. ``You can't seize property without fair market value. It is
against the law.''
Duke has bought four power plants since 1998, paying $611 million. The
company has already begun a $1.6 billion effort to upgrade and expand the
plants, which include former PG&E facilities at Moss Landing and Morro Bay.
If the state seized the plants, long court battles would ensue. Williams said
Duke's plants are worth far more than what the firm paid for them, and the
state would lose tens of millions of dollars in tax revenue.
Opposition to seizures
Republicans in Sacramento have opposed seizing power plants, saying it will
discourage new construction. Campbell said Saturday that if rates have to be
raised, he favors using the state's surplus for a $6 billion or more tax cut.
The state Public Utilities Commission is to take up the rate hike on Tuesday.
So far, the PUC has raised retail electricity rates only 9 percent since the
crisis began.
One Democratic leader, Keeley, agreed that costs would be so high for the
state to seize power plants it might not be worthwhile. He said the state
should stay the course, and can get by with rate increases, issuing bonds for
some of the costs and continuing to permit the construction of new power
plants.
Keeley also said for the first time Saturday that he is no longer opposed to
letting PG&E or Southern California Edison go bankrupt. It may be cheaper, he
said, for the state to take over those companies -- and the one-third of
California's power they produce -- than continuing to help bail them out.
Will Davis agree to more radical notions like seizing power plants or
allowing bankruptcy of the state's venerable utilities?
One political observer said he will do what the public wants, especially as
his re-election in November 2002 nears.
``Gray Davis wants the lights on until the day after the election,'' said
Sherry Bebitch Jeffe, a senior scholar at the School of Policy, Planning and
Development at the University of Southern California. ``He is a political
pragmatist. You do what you need to do.''
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Bond may fall short, Davis aides fear
Governor holds out hope of keeping a lid on rates

By Ed Mendel
STAFF WRITER
March 25, 2001

SACRAMENTO -- Gov. Gray Davis' administration is concerned that a planned $10
billion bond issue may fall short of covering power costs, and some think
utility customers will be hit with a hefty rate increase.
But a spokesman said yesterday that Davis continues to say his "hope and
expectation" is that the electricity crisis can be solved without an increase
in the existing rate structure.
"He said there is absolutely no change in what he has been saying all along,"
said Steve Maviglio, Davis' press secretary.
Maviglio said the administration asked the Assembly on Friday to delay action
on a bill that would limit the bond issue to $10 billion while "some
cash-flow issues" are studied.
A Davis energy adviser, Joseph Fichera of Saber Partners, said the
administration is studying "various scenarios" based on payments to small
generators, long-term power contracts, the price of natural gas used by
generators and the cost of buying power on the spot market this summer.
"We wouldn't be good analysts if we didn't vary assumptions widely on our
inputs to try to see what comes out of them," Fichera said.
Maviglio denied reports that the governor's top aides have concluded that a
rate increase is necessary.
"We have one anonymous staff (member) saying that," he said. "I can tell you
from my meetings the whole staff isn't sold on it."
The state began buying power for utility customers in mid-January after a
failed deregulation plan drove Pacific Gas & Electric Co. and Southern
California Edison Co. to the brink of bankruptcy.
The rates the utilities could charge their customers were frozen as the cost
of wholesale power soared, producing what the utilities say is a combined
debt of nearly $13 billion.
The state has been spending about $1.5 billion a month from the general fund
to buy power, and $4.2 billion has been earmarked for power purchases so far.
The plan is to repay the general fund with bonds paid off by utility
customers.
The state Treasurer's Office had hoped to obtain a $5 billion, short-term
"bridge" loan by the end of this month, which would provide funds until the
$10 billion bond could be issued at the end of May.
The lawmaker who carried the legislation authorizing the bond issue,
Assemblyman Fred Keeley, D-Boulder Creek, has said from the outset that a
rate increase is likely, despite the governor's hope to the contrary.
Now new estimates of what the state may have to spend to buy power during the
next two years reportedly are as high as $23 billion. The concern is that
paying off a bond of that size would force a substantial rate increase.
Assembly Speaker Robert Hertzberg, D-Van Nuys, was pessimistic about avoiding
a rate increase as he spoke with reporters Friday after the Assembly
adjourned for the weekend.
"I don't think so," Hertzberg said when asked if a rate increase could be
avoided. But he quickly added, "I don't know yet."
The governor wants to use the existing rate to pay off not only the bond to
buy power, but a second large bond issue to pay off the massive debt of the
utilities as part of the state purchase of their transmission systems.
The Public Utilities Commission may consider a proposal Tuesday to reallocate
revenue from the bills paid by utility customers, giving the state the
"California procurement adjustment" needed to pay off the power bond.
Davis also wants the PUC on Tuesday to order PG&E and Edison to begin paying
small, non-utility generators in the federal "qualifying facilities" program
that provide about one-quarter of the state's power.
A number of the small generators have quit operating, contributing to rolling
blackouts early last week. Edison has not paid the small generators since
November, and PG&E has only paid 15 percent of what they are owed.
But paying the small generators, while providing revenue to pay off two large
bond issues, strains the existing rate structure. PG&E warned Friday that it
may file a lawsuit if the PUC does not leave enough of the rate revenue for
the utility to pay its bills.
The bill that would limit the power bond to $10 billion also contained a
provision that would no longer require that payments to small generators be
based on the price of natural gas, which has soared in recent months.
Small generators who use gas turbines oppose the change, warning that it
would put them out of business. A third part of the bill would cap the rates
for businesses served by San Diego Gas & Electric Co.
Negotiators meeting over the weekend are expected to place the bond limit,
the small-generator provision and the SDG&E business-rate cap in three
separate bills.