Please see the following articles:

Sac Bee, Tues, 6/12:  Davis loosens limits on older plants

Sac Bee, Tues, 6/12: Edison's parent secures financing

Sac Bee, Tues, 6/12: Energy digest: FERC broadens El Paso Gas probe

SD Union, Tues, 6/12: Public furious at 19% rate hike

SD Union, Tues, 6/12: Temporary takeovers to be spelled out in bill

SD Union, Tues, 6/12: New law bypasses PUC rate review

SD Union, Tues, 6/12: Report warns of natural gas shortages this summer

SD Union, Tues, 6/12: Political pressure eases for Davis as power prices dip

LA Times, Tues, 6/12: Davis Eases Power Plant Pollution Rules Electricity :
Order will allow more production from heavily polluting 'peaker' facilities

LA Times, Tues, 6/12: Edison Devises Complex Debt Restructuring Plan Energy:
New subsidiary created to sell bonds would issue the proceeds as dividends to
the parent of utility SCE

LA Times, Tues, 6/12: California State's Rating Still Seen 'at Risk' Bonds:
Standard & Poor's reaffirms its A+ grade but warns it may be cut again

LA Times, Tues, 6/12: California Williams May Be Required to Refund $11
Million for Power

LA Times, Tues, 6/12: THE NATION U.S. Broadens Inquiry Into Alleged Gas
Monopoly

SF Chron, Tues, 6/12: Air standards lowered for power plants
DAVIS ORDER: They can run overtime

SF Chron, Tues, 6/12: U.S. panel steps up probe of supplier
NATURAL GAS: Charges of price fixing

SF Chron, Tues, 6/12: Developments in California's energy crisis

SF Chron, Tues, 6/12: Political pressure eases for California Gov. Gray Davis
as power prices dip

SF Chron, Tues, 6/12: Power plant force-fed to Gonzales
Mayor says he had no choice but to cave in

SF Chron, Tues, 6/12: State seeks electric rate hike for SDG&E customers

Mercury News, Tues, 6/12: Blackouts' first birthday is this week

Mercury News, Tues, 6/12: Drilling aside, Bush plan aids energy industry

Mercury News, Tues, 6/12: Feds to probe Texas energy company's practices
during California energy crisis

Mercury News, Tues, 6/12: Here's an idea: FERC should do its job
(Editorial)

OC Register, Tues, 6/12: Few traffic lights will withstand blackouts

OC Register, Tues, 6/12: Energy notebook
Davis relieves gas-fired plants of pollution rules

OC Register, Tues, 6/12:  Davis' con job    (Commentary)

Wash. Post, Tues, 6/12: Whining in the Dark  (Editorial)

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Davis loosens limits on older plants
By Chris Bowman
Bee Staff Writer
(Published June 12, 2001)
Gov. Gray Davis on Monday waived all local smog rules that limited how long
older and dirtier natural gas-fired power plants can run this summer.
Davis said he issued the order under his emergency powers to help avoid
blackouts.
"We are doing everything possible to keep the lights on this summer," he
said.
The order modifies a directive that Davis issued Feb. 9 that required local
air pollution control districts to extend hours of operation when plants
approached their permitted limits. Plant operators offset the extra emissions
by paying the districts a "mitigation fee." Those fees fund programs that
reduce emissions from other sources.
Some municipal power utilities, however, argued that they shouldn't have to
make a case to the air district for additional hours when the need to provide
for more energy is so apparent.
Under the directive issued Monday, power production to meet demand anywhere
in the state will not count against the hours of operation allotted in the
smog permits.
Waiving the operation limits should encourage operators to increase the use
of these "peaker" plants, which are designed to operate only during periods
of peak energy use, state officials said.
"This will allow us to offer that excess capacity to the state," said David
Wiggs, interim general manager of the Los Angeles Department of Water and
Power.
Air districts generally impose limits on hours of operation on a relatively
small number of older, dirtier plants, as a more economical alternative to
installing modern pollution controls. The order, which is effective
immediately, could provide up to 1,200 additional megawatts in the state this
summer, enough to power about 900,000 houses, state officials said.
Kellan Fluckinger, an energy adviser to Davis, argued that in the long run
the directive will result in a net gain for air quality.
Expanding the use of the peaker plants, he said, will help avoid blackouts
and the attendant use of emergency diesel generators, which typically emit
about 10 times more smog-forming emissions than the dirtiest of natural
gas-fired plants.
In addition, the pollution mitigation fees paid to allow expanded operation
of the peaker plants would go toward local efforts to cut pollution from
other sources, such as diesel-powered trucks and water pumps on farms.
Several air districts, including those in the Sacramento region, offer
financial incentives to businesses to replace dirty diesel engines with
cleaner-burning ones sooner than they normally would.
"They have more applicants than the ability to fund them," said Michael
Scheible, deputy executive officer of the state Air Resources Board.
The governor's office also is expected to announce financial incentives for
companies to press their backup diesel generators into service to forestall
blackouts this summer, according to S. David Freeman, a top Davis energy
adviser.
"Whether or not we do that is still being discussed," Scheible said.
Under the plan, participating businesses would disconnect from the
electricity grid when power supplies are at Stage 3 and turn on backup
generators.
The state would pay the companies for the power saved by converting to diesel
generation.

The Bee's Chris Bowman can be reached at (916) 321-1069 or cbowman@sacbee.com
.

Edison's parent secures financing
By Dale Kasler
Bee Staff Writer
(Published June 12, 2001)
Desperate for cash, Southern California Edison's corporate parent announced a
$1.2 billion finance plan Monday that would ease the parent's financial woes.
The move by Edison International would do nothing to aid the troubled Edison
utility. It is similar to a refinancing undertaken by PG&E Corp. in early
March, a month before it put its utility subsidiary, Pacific Gas and Electric
Co., into bankruptcy, analysts said. But it doesn't necessarily mean Southern
California Edison is ready to file for bankruptcy, they said.
"The utility is no better off and no worse off" as a result of the Edison
International deal, said Standard & Poor's Corp. analyst Peter Rigby.
Edison International, facing hundreds of millions of dollars in debts coming
due this year, said a newly formed subsidiary will sell $1.2 billion worth of
bonds. The proceeds will go to pay off the parent's debts, the company said.
The Edison utility has been on the brink of bankruptcy for months because of
exploding wholesale electricity costs. It has said it would file for
bankruptcy unless the Legislature passes Gov. Gray Davis' rescue plan, which
centers on the state buying Edison's power transmission lines for $2.76
billion. Davis' plan appears doomed, although lawmakers are cooking up
alternative proposals.
Davis spokesman Steve Maviglio said the $1.2 billion financing won't affect
the state's negotiations with Edison.
The utility has more than $3 billion in overdue bills. The parent hasn't
missed any debt payments but is in significant financial pain because of the
utility's troubles. The parent "is dependent on obtaining additional
financing to meet its cash requirements," the company told the Securities and
Exchange Commission recently.
By relieving the parent company's debts, the plan could protect Edison
International even if the utility goes bankrupt, analysts said. "No one has
put the PG&E parent into bankruptcy in this mess, so perhaps this will help
Edison International remain even further insulated from the courts," Dot
Matthews of CreditSights Inc. told the Reuters news service.
To put together the deal, the Edison parent formed a new unit called Mission
Energy Holding Co. That entity sits between the parent company and its
existing multinational power-generating subsidiary, Edison Mission Energy.
Edison first disclosed a month ago that it was considering such a plan.
"The purpose of the financing was not to do anything for the utility," said
Jo Ann Goddard, a vice president with the parent company. "It was to provide
financing to pay off the maturing debts of Edison International."
Edison International's stock was unchanged Monday at $11 a share.

The Bee's Dale Kasler can be reached at (916) 321-1066 or dkasler@sacbee.com.
Jim Sanders of The Bee Capitol Bureau contributed to this report.

Energy digest: FERC broadens El Paso Gas probe

(Published June 12, 2001)
WASHINGTON -- The Federal Energy Regulatory Commission is expanding its
ongoing probe into whether El Paso Natural Gas and its marketing subsidiary
colluded to drive up natural gas prices in California.
In a 23-page opinion Monday, the commission reversed a March order and said
it now wants an administrative law judge presiding over the case to delve
into whether El Paso and its subsidiary, El Paso Merchant, exchanged secret
information that permitted the marketing subsidiary to obtain more than 1
billion cubic feet of pipeline capacity.
"This is the first ray of hope for California," said California Public
Utilities Commission President Loretta Lynch. "I'm really gratified that
apparently a new FERC is taking a new look at El Paso."
The PUC and the state's two largest utilities, Pacific Gas and Electric and
Southern California Edison, have long contended that the sweetheart deal
between the two companies was largely responsible for the unusually high
natural gas prices in California over the last year.
Under the arrangement, according to state and utility allegations, the
companies kept other suppliers from pushing their own gas through the
pipeline, thus constraining the supply into the state to drive up prices and
enrich themselves. The companies have strenuously denied the charges.
--David Whitney

Public furious at 19% rate hike

PUC holds hearings, says its hands are tied
By Craig D. Rose and Anne Krueger
UNION-TRIBUNE STAFF WRITERS
June 12, 2001
California tends to unanimity when it comes to electricity deregulation: The
legislature passed it unanimously in 1996, and people who testified at rate
hike hearings yesterday voiced unanimous opposition.
Speakers at public hearings in San Diego and El Cajon alternately demanded
and implored the California Public Utilities Commission to reject an average
19 percent rate hike that the commission says it is obligated by state law to
pass along to SDG&E electricity customers.
Perhaps the loudest applause from an audience that approached 100 at the
downtown San Diego hearing yesterday afternoon came in response to calls for
the state to exercise its power of eminent domain and seize power plants.

Guy Mock, a Navy enlisted man who was among those calling for such takeovers,
said many in military service are finding rising utility costs a significant
burden, pushing some to use food stamps.
"Remember, people in the military have no choice about being here," Mock
said.
Waving computer printouts from research he said he conducted on the Internet,
Mock said generators were charging outrageous prices, noting in particular
the recent revelation that at one point Duke Energy had charged nearly $3,900
a megawatt-hour for its electricity. Last spring, a megawatt-hour sold for
less than $30.
"Let's take it over," Mock suggested as a solution to the power crisis.
An overflow crowd of about 250 people attended a hearing at the El Cajon
Community Center that at times took on the flavor of a church revival.
Audience members cheered, clapped and called out comments in support of
almost 50 people who spoke at the hearing.
"There are a couple of hundred here who are very irritated," said Chris
Medicus of El Cajon. He said he has been conserving energy even before calls
to cut back on power use.
"Who's going to do something for me since I can conserve no more?"
Edy Mason, a retired nurse who lives in El Cajon, said she can't afford her
rising rent and utility bills on the $732 she receives each month.
"This is legal rape. I'm tired of being raped. This has to stop," Mason said.
Dan McKenna, chief of the Rural Fire Protection District that serves
unincorporated areas of the county, said fire and emergency medical services
will be hurt if there is a rate increase. Fire departments are already having
to spend large portions of their budgets on energy costs, he said.
"That's unacceptable, sir," he said as members of the audience clapped and
called out, "That's right."
Despite the appeals for tough action, Carl Wood, the only member of the
California Public Utilities Commission in attendance at yesterday's hearings,
insisted that the commission was obligated to pass along the proposed 19
percent rate hike demanded by the California Department of Water Resources.
Under legislation passed earlier this year, the department began purchasing
power for state utility customers. The same legislation gave the department
the right to self-judge the reasonableness of its rate hike requests, a
function formerly allocated to the utilities commission.
That leaves the PUC with a limited role in the rate hike process, Wood
acknowledged.
"We are here to spread the pain," said the commissioner, who noted that
customers who use 130 percent or less of the baseline amount are shielded
from any rate hike by state law. The baseline allowance, which is printed on
utility bills, is a subsistence amount of electricity that varies by location
and climate.
But Wood also said later, "We have to (raise rates) if we want to keep power
flowing."
San Diego County Supervisor Dianne Jacob was not persuaded. Jacob said the
duty of the commission is to ensure just and reasonable utility rates for
Californians.
"The only way for the commission to fulfill its mission is to disobey the
(water department)," Jacob said. "I urge the commission to refuse the $915
million rate increase request from the DWR."
Nearly all other speakers agreed, with many blasting the notion that
consumers should be forced to pay for the fallout of a deregulation plan they
said was designed by major energy corporations for their own benefit.
"They spent the money, they had the party and now they are asking the little
guys to clean up the mess," said Frank Jordan.
Another speaker said the utilities commission would find options to the rate
hike if it tapped into public outrage over the electricity crisis.
"Don't throw more money at the problem," said Robert Womack of La Mesa. "Give
us the chance to throw our weight around -- and we have plenty of weight to
throw around."
Holly Duncan of Clairement was as upset over the rate hike process as she was
over the increase itself. Duncan noted that the water department -- which in
effect ordered the rate hike -- was declining to release its power purchase
contracts. That left her, she said, in the position of paying for something
that was negotiated in secret.
"Where is our systems of checks and balances?" Duncan asked.
The commission is expected to have a proposed rate hike plan ready by June
21, with a final vote on the increase slated for June 28.
Additional public hearings will be held at 1 p.m. today at the Country Inn
Hotel, 35 Via Pico Plaza, San Clemente, and at 7 p.m. today at the California
Center for the Arts, Escondido, 340 N. Escondido Blvd.

Temporary takeovers to be spelled out in bill

By Bill Ainsworth
UNION-TRIBUNE STAFF WRITER
June 12, 2001
SACRAMENTO -- Like nuclear weapons in the Cold War, the takeover of power
plants by the state has loomed in the background of the electricity crisis as
a weapon so scary and extreme it could never be responsibly used.
Assemblyman Juan Vargas, D-San Diego, wants to change that.
Vargas is promoting a plan that he says will avoid huge costs and years of
litigation by allowing the state to take over electricity generating plants
temporarily.
Once the electricity crisis has passed, the state would give back the plant
to its owner and pay rent for using it, rather than the high price of buying
it outright. Call it plant seizure lite.
The freshman lawmaker will present his plan today to the Assembly Judiciary
Committee, which is expected to approve the measure along party lines.
"It's a big deal to take over a person's property," said Vargas. "But this is
reasonable. It's rational. They forced us into it and it's time to fight
back."
Some believe the state, by seizing power plants, could obtain electricity for
less than it pays in the existing market, which is widely deemed to be
overpriced.
But Gary Ackerman, executive director of the Western Power Trading Forum, a
group of power generating companies, said the Vargas plan would hurt the
state's efforts to build enough plants to ease the crisis.
"I don't think there is such a thing as seizure lite," he said. "Any
discussion of plant seizures for a day or a lifetime has a devastating effect
on the business climate."
Even a temporary state takeover would discourage investors who want to build
new generating plants to increase the supply of electricity, he said. It
would also discourage bond investors whom the state wants to tap to repay
state taxpayers for buying high-priced electricity on the spot market.
Vargas admits that the governor could temporarily take over plants now
without waiting for legislative action. Still, he said, a bill would give the
governor more support.
"It gives the idea legitimacy," he said.
At issue are the generating plants sold by the state's major utilities,
mostly to southern-based companies. Those companies have made huge profits
while charging skyrocketing prices that have caused the financial collapse of
the state's two major utilities.
Davis has portrayed those companies as ruthless price gougers that maximize
profits at the expense of California's economy. He has threatened to seize
plants, but then backed away. Few believe the centrist Democrat wants to risk
such a move that could alienate the business community, especially now when
the energy market is showing signs of stabilizing.
Additionally, a permanent takeover could force the state to pay billions of
dollars for an outdated, aging facility, said Vargas, because the value of
the plant would be determined by the high prices the plant is now charging
for electricity.
In his research, Vargas said he found that the U.S. Supreme Court in 1949
held that the state needs only to pay the rental value of a property it
seizes temporarily. On top of that, he said, the law specifies that the
Public Utilities Commission, controlled by Davis appointees, would determine
the value of the rent.

New law bypasses PUC rate review

Water agency can set own prices
By Craig D. Rose
UNION-TRIBUNE STAFF WRITER
June 11, 2001
SDG&E customers begin treading a path today to two rate increases likely to
raise their bills 35 percent, or about $1.7 billion, during the next year.
As if that were not irritation enough, consumer advocates and others familiar
with the process say it violates long-standing principles of public
disclosure and oversight.
Public hearings today in San Diego and El Cajon and tomorrow in Escondido and
San Clemente will focus on a proposed increase of about 19 percent sought by
the California Department of Water Resources.
This is unrelated to a request by San Diego Gas & Electric for a rate
increase of about 16 percent, which will be considered later this year.
The state water agency says it needs an increase to cover the cost of
procuring power. The department began buying power earlier this year when
utilities ran into financial trouble.
Until now, proposals for electricity rate increases have come before the
California Public Utilities Commission, a state constitutional body charged
with reviewing the proposals, taking public input, and setting rates at a
level that is just and reasonable.
Not this time.
The same law that authorized the Department of Water Resources to buy power
also empowered the department to judge the merits of its own rate increase
proposals. The department has determined its request for what amounts to $915
million is reasonable.
The water department also has informed the utilities commission that it will
not provide the contracts under which it is purchasing electricity. The state
needs the increases to cover its costs under the contracts.
Gov. Gray Davis insists keeping these agreements secret is essential to
protect the state's position in bargaining for additional electricity
supplies.
The state utilities commission, meanwhile, is left to determine only how to
disperse the department rate increase among SDG&E customers, not how much of
an increase is appropriate. The commission calculates that the Department of
Water Resources' increase will add an average of 2.8 cents to the existing
rate of 14.4 cents per kilowatt-hour. That total includes a 6.5-cent charge
for power purchases plus fees for distribution and other costs.
Consumer advocates and critics say this a perversion of the commission's
purpose. The PUC was created to protect utility customers.
"SDG&E customers will be paying higher rates without any member of the public
knowing the basis for the increase and without anyone allowed to see the
costs that we are paying for or the terms of the deal," said Doug Heller of
the Foundation for Taxpayer and Consumer Rights. "There is supposed to be an
identifiable, calculable basis for any rate increase."
Attorney Michael Aguirre, who is representing Lt. Gov. Cruz Bustamante in a
lawsuit against power suppliers, said the process raises serious legal
questions.
"The governor has denigrated the PUC's function to that of a rate launderer,"
said Aguirre, a former federal prosecutor. "The legislature has passed a law
that interferes with the constitutional function of the PUC."
Carl Wood, a member of the PUC who will attend the sessions today, agreed
that the process surrounding the department's rate increase is unusual. But
he said there is still opportunity for the public to comment on how to
allocate the increase.
Wood noted that the commission sought to shield low-and middle-income
customers from the brunt of similar increases recently imposed in areas
served by Pacific Gas and Electric and Southern California Edison. He said
the hikes in those areas are also "steeply tiered" to hit hardest those who
use the most power.
But Wood, a former utility workers union official who opposed deregulation,
conceded discomfort with the role that has fallen to the PUC.
"I would rather be in a more orderly, regulated world where the PUC had
sufficient authority to ensure reasonable rates," Wood said.
Jim Bell, a member of the Coalition for Affordable Power, a San Diego-based
citizens group, also blasted the process.
"Every newspaper in the country is saying these rates are rip-offs and the
energy companies are crooks," Bell said. "Then to have a non-transparent
process that shoves the rate hikes down our throats is outrageous."
Later this year, the PUC will consider a separate rate increase proposal from
SDG&E. The utility is seeking a surcharge of about 2.3 cents per
kilowatt-hour -- about $800 million -- to cover losses it says it incurred
purchasing power on behalf of its customers before the Department of Water
Resources took over.
The two increases could exceed the amount spent for power by SDG&E customers
last year, when the cost reached $1.6 billion as deregulation dissolved into
crisis. SDG&E spent less than $500 million for power in 1999.

Report warns of natural gas shortages this summer

By Seth Hettena
ASSOCIATED PRESS
June 11, 2001
SAN DIEGO ) California's energy crisis could overwhelm supplies of natural
gas, which fires most power plants, leading to shortages this summer, the
state's energy planning and policymaking agency has warned.
A severe drought in the Pacific Northwest has cut hydroelectric power
supplies and forced natural gas-fired plants to make up the shortfall. The
demand for gas has strained the ability of existing pipelines to supply it.
In the event of even stronger demand this summer, the California Energy
Commission says, utilities could be forced to interrupt supplies to some
power generators.
"Under the high gas use scenario for electric generator demand, curtailments
and diversions of natural gas will be necessary this summer and into the
winter of 2001-2002," according to a draft report by the commission.
While reliable gas supplies are available, many electric generators are
relying on less costly, interruptible supplies of natural gas, putting them
at risk of having gas supplies curtailed during high demand periods, the
report states. California generators are responsible for purchasing and
storing their own supplies of natural gas.
"Curtailment of natural gas supplies to electric generators could exacerbate
rolling blackouts this summer," the commission found. "At the same time
curtailments of industrial customers could increase the economic impacts from
lost production."
The commission's draft report was released last month but has received little
notice. A final report is expected by the end of this month, Michal Moore,
one of the five members of the California Energy Commission, said Monday. He
said that even though gas prices have fallen in recent weeks the possibility
of shortages this summer remains.
The system is most strained in Southern California, where bottlenecks could
force utilities, such as Southern California Gas Co., the nation's largest
gas utility, "to choose between serving electric generators and storing
sufficient gas for the winter."
San Diego Gas & Electric, which gets all its gas from SoCal Gas, "will likely
have to curtail natural gas delivery this summer to electric generators" that
can switch from gas to fuel oil. Over the past winter, the demand on SDG&E's
system exceeded supply on 11 days, requiring the utility to curtail
deliveries to some electric generators, the commission reported.
Duke Energy, which gets gas for its 760-megawatt South Bay power plant in
Chula Vista from SDG&E, said the scenario of gas shortages this summer is
"very valid," said Tom Williams, a company spokesman. The plant has had its
supply interrupted several times over the last nine months and is prepared
for more curtailments this summer, he said.
"It's a big problem," Williams said. "When we are curtailed it's a very
critical time for power as well. You're removing megawatts from the grid at
the time it's most needed."
Sempra Energy, the San Diego-based parent company of both SDG&E and SoCal
Gas, took issue with the conclusions of the report in a letter June 5 to the
commission.
SoCal Gas is confident in its ability to meet electric generators' demands
for natural gas both this summer and have enough gas in storage to satisfy
customer needs this winter. The utility, which claims it has not interrupted
service over the past 10 years, says it is expanding its system to meet the
demand, said Sempra spokeswoman Denise King.
The company also said it does not agree with the portrayal of SDG&E's natural
gas supply, but did not deny that shortages would be likely this summer.
Californians have been hit with skyrocketing natural gas bills. State
residents paid $6.6 billion for natural gas in 1999, $12.3 billion last year,
and $7.9 billion through March 2001, according to a report by a state
Assembly subcommittee.
Members of the subcommittee laid the blame at the feet of natural gas
suppliers, such as El Paso Corp., which they said cornered enough of the
pipeline capacity in California to drive up prices.
But the California Energy Commission found that the high prices are at their
root, one of inadequate infrastructure.
While gas retailers may have manipulated prices, the absence of any surplus
or "slack" capacity has squeezed out competitors that could have offered gas
at lower prices.
"When their is no slack capacity, customers lose the benefits of competition,
and prices increase overall or spike upward," the report states.

Political pressure eases for Davis as power prices dip

By Alexa Haussler
ASSOCIATED PRESS
June 11, 2001
SACRAMENTO ) California Gov. Gray Davis is getting his first glimpse of
relief after months under the political cloud of soaring electricity prices
and rolling blackouts.
A series of events ) from plummeting wholesale energy and natural gas prices
to the unexpected shift in the U.S. Senate ) has left Davis declaring that
the state has "turned a corner" in its power woes.
But politically, he still must weather the hottest summer months, the arrival
of rising electricity bills at homes and a recent dive in his popularity
ratings.
"Some irreparable damage has been done to his image and his popularity," said
Bruce Cain, director of the Institute of Governmental Studies at the
University of California, Berkeley.
Two statewide polls recently showed Davis' approval rating plummeted to its
lowest marks since he took office while electricity rates climbed.
Meanwhile, Davis fought to shed his image as a middle-of-the-road leader,
adopting a new, confrontational style in dealing with the crisis.
He hired high-powered crisis control specialists Chris Lehane and Mark
Fabiani, trained at the Clinton White House and in the Al Gore presidential
campaign. He declared "war" on Texas-based energy wholesalers.
Davis also attacked the Bush administration for opposing price controls on
wholesale electricity.
Soon after, the crisis-weary governor's fortunes started to shift.
Vermont Sen. James Jeffords announced he would defect from the GOP, handing
the majority and committee chairmanships to Democrats who favor price caps on
wholesale electricity.
President Bush, who had been criticized for failing to visit the state since
he took office, traveled to the state and met with Davis.
On a scorching afternoon in late May, the state came within the brink of
blackouts, but dodged them. The state Energy Commission announced that
Californian's had cut power use by 11 percent in May over the year before,
which Davis called a personal victory because he has called for residents and
businesses to conserve 10 percent.
Last week, the price of wholesale electricity and natural gas plunged to its
lowest price in a year. Davis aides called that a direct result of Davis
signing long-term contracts with energy providers.
"We may still have some difficult days ahead of us in the summer but it's
pretty clear that the governor's strategy has now borne some fruit," said
Garry South, chief campaign adviser to Davis.
Still, the energy crisis has battered the governor once considered a
potential presidential contender in 2004.
His state, heavily reliant on the fortunes of the technology sector to fill
its treasury, is facing its toughest budget crunch in years.
Also, some experts said Davis has called a premature victory in the energy
crisis. The state has yet to sell $13.4 billion worth of bonds to repay the
state for power buys, and California still relies heavily on the spot power
market to make up for electricity shortages.
California Republicans, meanwhile, are fortifying their campaign against
Davis and the Democrats that control both houses of the legislature and all
but one statewide office. The state party hired veteran consultant Rob
Stutzman to counter Davis' hiring of Lehane and Fabiani.
Stutzman worked for former insurance commissioner Chuck Quackenbush, who
resigned under the threat of impeachment last year. Stutzman said Davis has
little for which to take credit.
"The governor is like a little kid that breaks his mother's china and then
wants credit for gluing half of it back together," Stutzman said.
In California, Davis' short-term fortunes look better because of his
fragmented opposition. He holds strong leads over the two Republicans who
have announced they will challenge him, Secretary of State Bill Jones and Los
Angeles businessman William E. Simon Jr.
Plus, Republicans in Washington and a large chunk of the state's Republican
congressional delegation have tried to lure outgoing Los Angeles Mayor
Richard Riordan into the governor's race, afraid that Jones and Simon lack
the necessary star power to oppose Davis.
Whoever runs against Davis will find an incumbent with more than $26 million
raised for next year and a team of campaign advisers already using focus
groups and polling to gauge public reaction to the power crisis.

California ; Metro Desk
Davis Eases Power Plant Pollution Rules Electricity : Order will allow more
production from heavily polluting 'peaker' facilities.
DAN MORAIN
?
06/12/2001
Los Angeles Times
Home Edition
Page B-1
Copyright 2001 / The Times Mirror Company
SACRAMENTO -- Gov. Gray Davis agreed Monday to lift air emission limits on
heavily polluting power plants and allow them to run at capacity this summer
as long as the electricity they produce is sold in the state.
State officials said the plants must be pressed into use to avoid blackouts.
Davis' executive order lets the generators build the cost of air pollution
fines into the price the state pays for electricity produced by natural
gas-fired power plants, said Catherine Witherspoon of the California Air
Resources Board.
Municipal utility districts--including the Los Angeles Department of Water
and Power--and independent power companies could supply as much as 1,200
megawatts from so-called peaker plants, facilities that generally are
permitted to operate for only a few hundred hours a year because they pollute
so heavily. That is enough power for more than 1 million homes.
Other gas-fired power plants that have been shut down because of air
pollution restrictions also could be started up as a result of the order.
In a news conference Monday, state officials said the order will have the
effect of lowering air pollution by limiting the use of far dirtier diesel
generators, which industry could use if power supplies are threatened.
"If we don't get every last megawatt we can [from natural gas-fired plants],"
said Witherspoon of the air board, "we will see people turning to diesel more
frequently."
Added Kellan Fluckiger, a top energy advisor to Davis: "If you don't run
these, you're either going to have outages or you're going to run something
dirtier."
Fluckiger said the order expands "the number of hours these things can run
and the amount of energy they can produce."
New natural gas-fired power plants emit about half a pound per megawatt-hour
of operation of ozone-producing pollutants. The plants affected by the order
emit between two and five pounds of oxides of nitrogen per megawatt-hour.
If the plants are pressed into operation for 200,000 megawatt-hours this
summer, there will be between 400,000 and 1 million additional pounds of
oxides of nitrogen emitted into the air.
The state probably will end up paying the fees associated with the extra
pollution through higher electricity prices. The fees amount to $7.50 per
pound of oxides of nitrogen--or $7.5 million if the plants operate for
200,000 hours--and $1.10 per pound of carbon monoxide emissions. The money
would be used to reduce air pollution from other sources.
"Under this order, dirty power plants can run as long as they want and
pollute as much as they want so long as they pay into a fund," said Gail
Ruderman Feuer, senior attorney with the Natural Resources Defense Council.
"Our concern is that there's no guarantee that the fund will result in
emission reductions any time soon."
A Ventura County air pollution control official said that running one peaking
power plant operated by Reliant Energy for one hour is the equivalent of
adding 20,000 new cars to Ventura County highways for an hour. Reliant Energy
could not be reached for comment Monday night.
"To the extent that they run when not needed for an emergency, it's going to
put more air pollution into Ventura County skies and it's going to make our
air dirtier," said Dick Baldwin, air pollution control officer for Ventura
County.
Los Angeles DWP Director David Wiggs hailed the order, saying it was needed
so the city can sell the state as much as 1,000 megawatts of power this
summer.
"This was the issue we had to have solved or we could not offer any of our
excess capacity to the state," Wiggs said.
He added, however, that the city and state have not yet agreed on a price for
the power. Wiggs said the city is "negotiating to get our cost as low as we
can legally charge" so that customers of the city utility district are not
subsidizing consumers in the rest of the state. Municipal utility districts
elsewhere in the state also are expected to benefit from the order.
Though the order was aimed at spurring municipal utilities to sell power to
the state, it also applies to independent power producers such as Reliant
Energy of Houston and Duke of North Carolina--both of which have called on
Davis to ease air pollution restrictions on their old natural gas-fired
facilities.
"This puts more money in the Texans' pockets and more air pollution in
Ventura County residents' lungs," said Baldwin of Ventura County.
Doug Allard, a Santa Barbara County air pollution control officer, also said
it seems as if the governor is giving private power generators much of what
they had sought.
"We have serious concerns about the order," said Feuer of the Natural
Resources Defense Council. "It's taking the discretion away from local air
districts to regulate power plants in their region."
*
Times staff writer Nancy Vogel contributed to this story.
RELATED STORY
Utility: Edison plans to raise $1 billion in debt restructuring. C1

Business; Financial Desk
Edison Devises Complex Debt Restructuring Plan Energy: New subsidiary created
to sell bonds would issue the proceeds as dividends to the parent of utility
SCE.
JERRY HIRSCH
?
06/12/2001
Los Angeles Times
Home Edition
Page C-1
Copyright 2001 / The Times Mirror Company
Edison International plans to raise $1.2 billion in a complex transaction
that would tap the borrowing capacity of its only significant profit
center--a move critical to the firm's financial health.
The financing would pay off $618 million in Edison bank debt that comes due
June 30. Additionally, the offering would be used to pay off $600 million of
floating rate notes due by year's end.
Mission Energy Holding Co., a company created by Edison International for the
sole purpose of issuing these bonds, will offer the notes. The assets of
Edison Mission Energy, a subsidiary that owns a network of power plants
across the United States and in Asia, Australia and New Zealand, will secure
the debt.
Mission Energy Holding plans to issue the proceeds to Rosemead-based Edison
International in the form of dividends, giving the parent company funds to
pay off a substantial portion of its debt.
Despite the backing of such heavy hitters as Wall Street investment bank
Goldman Sachs Group, some analysts question whether there is enough
investment interest to make the deal work.
"I am not sure what type of appetite the market will have for this," said Jon
Cartwright, a bond analyst with Raymond James & Associates in St. Petersburg,
Fla.
The financing plan comes as the firm is struggling to keep its ailing
Southern California Edison electric utility out of Bankruptcy Court. Edison
International can pursue the deal because of its byzantine corporate
structure, designed to reduce the risk that Edison Mission Energy would be
dragged into any potential bankruptcy of either the parent company or
corporate sibling SCE.
The question, Cartwright said, is whether that separation, erected under a
financial legal doctrine called "ring fencing," provides enough protection to
make lending money palatable to investors.
"What price are you willing to get for a security that looks like it will
have to be tested in Bankruptcy Court?" Cartwright asked.
Edison International, which declined to comment about the offering, plans to
start pitching it on Wall Street this week.
Even if the offering were completed, Edison International probably would pay
a high price for its borrowing.
Cartwright said a similarly rated bond at another company would pay an
interest rate of about 9.67%, but given the risk he would expect investors to
demand a higher yield.
The notes will have a credit rating of BB-minus and come due in 2008, said
Standard & Poor's, the bond rating agency. That's slightly higher than the
near-default CC rating now carried by Edison International.
Standard & Poor's said the transaction could raise Edison International's
credit rating to a CCC-plus grade--better but still considered a junk rating
by the investment community.
In issuing its rating for the offering Monday, Standard & Poor's said that
"the prospects of a bankruptcy filing by or against SCE remain high."
That reflects the rating agency's assessment that it is increasingly unlikely
that the state will complete a rescue plan devised by Edison and Gov. Gray
Davis, which calls for the state to purchase SCE's transmission lines for
nearly $2.8 billion and issue up to $3.5 billion in ratepayer-secured bonds
to pay off debts from purchasing electricity at higher rates than it was
allowed to charge customers.
Edison International shares closed unchanged Monday at $11 on the New York
Stock Exchange. The stock has fallen 30% this year.

Business; Financial Desk
California State's Rating Still Seen 'at Risk' Bonds: Standard & Poor's
reaffirms its A+ grade but warns it may be cut again.
?
06/12/2001
Los Angeles Times
Home Edition
Page C-2
Copyright 2001 / The Times Mirror Company
Credit-rating agency Standard & Poor's Corp. reaffirmed its A+ rating of
California 's general obligation debt Monday, but warned that the grade
remains at risk of being cut again.
S&P issued its statement ahead of the state's expected sale today of $1
billion in general obligation bonds. The securities are unrelated to the
record $12.5-billion electricity revenue bond offering the state will make
this summer.
In April, S&P cut California 's bond rating by two notches, from AA to A+,
citing "the mounting and uncertain cost" of the state's electric power
crisis.
The rating reduction left California with one of the lowest credit grades
among the 50 states. S&P's rating of AAA is the highest grade a state can
get.
On Monday, S&P said it maintained the A+ rating because of the state's
"still-positive" general fund balance, the "deep and diverse economy" and
"the possibility that [the electricity -bond offering] will reimburse the
general fund for power purchases already made" on behalf of the state's
beleaguered utilities.
However, the rating agency warned that "substantial uncertainty remains as to
the final cost to the state of the power crisis." S&P said higher costs
incurred directly by the state, and/or deeper problems for the California
economy because of power woes, could result in another rating downgrade.

Business; Financial Desk
California Williams May Be Required to Refund $11 Million for Power
Nancy Rivera Brooks
?
06/12/2001
Los Angeles Times
Home Edition
Page C-2
Copyright 2001 / The Times Mirror Company
A major electricity marketer in California , Williams Cos., said Monday that
it may be required to refund $11 million for electricity sold in the state
this year at prices deemed too high by federal regulators.
Williams of Tulsa, Okla., markets nearly 4,000 megawatts of electricity
produced by three Southern California power plants owned by AES Corp. of
Arlington, Va.
Williams has been ordered by the Federal Energy Regulatory Commission to
justify prices for $30 million of electricity sold in California during Stage
3 power emergencies from January to April.
FERC set a price cap for times of extreme electricity shortages during each
of those four months and found that prices charged by power plant owners and
marketers, including Williams, exceeded the caps by $124.6 million in all.
The companies were told to justify those prices or refund them.
"Williams has filed justification for its prices with the FERC and calculated
its refund liability under the methodology used by the FERC to compute refund
amounts at approximately $11 million," Williams said in a filing with the
Securities and Exchange Commission. Williams said it continues to object to
refunds in any amount.

National Desk
THE NATION U.S. Broadens Inquiry Into Alleged Gas Monopoly
RICARDO ALONSO-ZALDIVAR
?
06/12/2001
Los Angeles Times
Home Edition
Page A-17
Copyright 2001 / The Times Mirror Company
WASHINGTON -- In a departure from a previous ruling, federal regulators
Monday broadened a high-profile inquiry into allegations that a Texas energy
company manipulated California 's natural gas market.
The Federal Energy Regulatory Commission is already conducting a trial-like
hearing into allegations that Houston-based El Paso Corp. acquired
monopolistic power in California last year, adding an estimated $3.7 billion
to the state's total energy bill.
On Monday, FERC's governing board ordered its chief judge also to gather
evidence on whether two subsidiaries of El Paso violated agency rules on
arms-length conduct when they entered into a controversial contract last
year. The subsidiaries are El Paso Merchant Energy, which sells natural gas,
and El Paso Natural Gas Co., which owns a major pipeline system serving
California .
"This order . . . expands the scope of the hearing in this proceeding to
include the issue of whether El Paso pipeline or El Paso Merchant . . .
violated commission standards in bidding for or awarding the El Paso
contracts," FERC Chairman Curt Hebert wrote in supporting the unanimous
decision. "I recognize the seriousness of natural gas prices in the
California market and I am committed to providing all commission resources to
determine the actuality of that price situation."
The ruling appears to be part of a shift toward a more assertive course by
FERC, its five-member board bolstered by two new commissioners who advocate
closer oversight of industry.
"It's about time," California Public Utilities Commission President Loretta
Lynch said of FERC's action. "What this shows is that it may well be a new
commission. . . . They're going to give our day in administrative court."
In a separate action Monday, the commission scheduled a potentially
significant meeting next week on its strategy for helping California keep the
lights on this summer at a reasonable cost. FERC is facing heavy political
pressure from the new Democrat-controlled Senate and from House Republicans
to expand the modest measures it has adopted to limit electricity costs.
In the El Paso case, FERC's governing board had previously ruled that the two
companies did not violate agency standards when they entered into a deal to
ship as much as 1.2-billion cubic feet of natural gas a day to California
--as much as 17% of the state's supply.
As recently as March, the FERC board had ruled there was "no merit" to
allegations that the bidding on the contract was skewed in El Paso Merchant's
favor and no evidence that the two subsidiaries entered into anything other
than an arms-length contract.
"We knew all along there was a major problem here," said Harvey Morris, a
lawyer for the California PUC. "We're glad that FERC has finally seen the
light and set this issue for a hearing."
The PUC and California utilities have accused the El Paso subsidiaries of
pursuing a coordinated strategy to raise the price of natural gas by
withholding supply during much of last year. El Paso Corp. has steadfastly
denied the allegations, saying California 's high natural gas prices were the
result of weather, demand from power plants and other factors.
El Paso spokeswoman Norma Dunn said she was sure that FERC would reaffirm its
previous opinion. Lawyers for El Paso had unsuccessfully battled to keep the
proceedings more narrowly focused.
The commission broadened the inquiry after Chief Judge Curtis L. Wagner Jr.
asked for clarification of its March ruling.
Plaintiffs in the case say still-sealed documents allegedly indicate that El
Paso Merchant executives believed the deal would give the company substantial
influence over the California market.
Southern California natural gas prices have plunged since the El Paso
contract ran out May 31 and some 30 different shippers acquired the capacity
previously held by Merchant alone.
Meanwhile, Congress continues to ratchet up pressure on FERC for stricter
limits on electricity prices.
The issue may come to a head at a meeting scheduled for Monday. The agency is
running out of time to finalize a plan for helping California this summer.
*
Times staff writer Dan Morain in Sacramento contributed to this story.

Air standards lowered for power plants
DAVIS ORDER: They can run overtime
Robert Salladay, Lynda Gledhill, Chronicle Sacramento Bureau
Tuesday, June 12, 2001
,2001 San Francisco Chronicle
URL: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2001/06/12/MN215029.DTL
Gov. Gray Davis eased California's air pollution standards for power plants
yesterday with an executive order that will allow some to run overtime this
summer and squeeze out extra electricity.
Energy advisers said the governor's order actually would cause less pollution
in the coming months because it allows natural-gas powered plants to run
longer and reduce the need to run dirtier diesel-powered generators often
used as backups.
"If you don't run these, you're either going to have outages, or you're going
to run something dirtier," said Davis adviser Kellan Fluckiger.
Under the current state of emergency, the governor has sweeping powers to
make changes in the law.
The Davis administration roughly estimated that about 1,200 megawatts in
extra power could be produced and sold to California, enough to supply an
estimated 1.2 million homes. The Los Angeles Department of Water and Power,
which has been selling its extra electricity to the state, said it might be
able to supply 1,000 megawatts alone.
Under the current law, power plants in California are allowed to emit
specific amounts of major pollutants -- nitrogen oxides and carbon monoxide
-- and then must shut down when they reach a federal and state quota.
The executive order allows power plants in California to bypass those
environmental standards as long as they sell the extra power to the state or
another California-based utility. The order lasts until Davis rescinds it.
EXEMPTION TRADE-OFFS
In exchange for the exemptions, the power generators must pay penalties for
the extra pollution they cause. The fines would probably range around $37.50
for every megawatt produced during these peak periods, according to Catherine
Witherspoon with the California Air Resources Board.
Although prices are falling, a megawatt hour has sold on the daily market for
more than $500 -- at one point soaring to as much as $1,900.
Money from the fines would be put into local pollution-control accounts and
used to reduce emissions elsewhere, Witherspoon said. She said the governor's
order was the best way to get more power and still maintain environmental
standards.
Witherspoon said the federal Environmental Protection Agency, which needs to
approve the new standards set by Davis, had been "very cooperative."
"Bringing the maximum amount of power out of natural gas capacity is really
going to help," Witherspoon said. "If we don't get every last megawatt we
can, we will see people turning to diesel more frequently."
The South Coast Air Quality District, which is the largest and most polluted
area of the state, already has been allowing power plants to produce more
power in exchange for higher fines, said Ralph Cavanagh of Natural Resources
Defense Council.
"The key is whether the mitigation fund being set up will actually be used to
offset pollution," he said. The "jury is still out" on how successful the
program has been, Cavanagh said.
Cavanagh agreed that using natural gas plants was much better than diesel,
something the Davis administration is considering. "Clearly we want to
suppress the operation of diesel," he said. "To the extent that it reduces
diesel, that is a benefit."
The state's municipal utilities have for months been asking Davis for
yesterday's exemption so they can run their natural-gas-powered plants
longer, and presumably make some money off the increase in sales. Power
prices are at their highest in history.
Davis has previously threatened the public utilities takeover because of the
high prices being charged the state, which has spent about $8.3 billion to
purchase power since January. The utilities have said they are only passing
along the high cost of the natural gas used to produce the electricity.
"This was the issue we had to have solved or we could not offer any of our
excess capacity to the state," said David Wiggs, general manager of the L.A.
Department of Water and Power.
The price of the extra power is "being negotiated now with the governor's
people at the direction of Mayor (Richard) Riordan to get the cost as low as
possible," Wiggs said. "We have not reached an agreement."
Tell us what you think -- What are your suggestions for saving energy? Send
your best tips to Energy Desk, San Francisco Chronicle, 901 Mission St., San
Francisco, CA 94103; or put your ideas in an energy-efficient e-mail to
energysaver@sfchronicle.com.
E-mail the reporters at rsalladay@sfchronicle.com and
lgledhill@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?A - 1

U.S. panel steps up probe of supplier
NATURAL GAS: Charges of price fixing
Bernadette Tansey, Zachary Coile, Chronicle Staff Writers
Tuesday, June 12, 2001
,2001 San Francisco Chronicle
URL: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2001/06/12/MN120567.DTL
Federal regulators widened their investigation yesterday of a Texas natural
gas firm accused of inflating statewide energy prices, reversing an earlier
order that had partially exonerated the company.
The Federal Energy Regulatory Commission's 4-to-0 ruling in the investigation
of El Paso Corp., backed by Pat Wood, the Bush administration's new
appointee, was greeted by California's chief energy regulator as a turning
point in the commission's attitude toward state complaints of price gouging.
The commission's action "signals a whole new chapter of vigilant
enforcement," said Loretta Lynch, president of the state Public Utilities
Commission.
The federal commission reopened the question of whether El Paso rigged the
bid for a huge block of capacity on its gas pipeline in favor of its own
marketing affiliate, thus stifling competition that could have prevented
natural gas prices from soaring to the levels they reached last winter.
In the past year, gas from the Southwest has sold at the California border at
prices as much as 10 times the nationwide average, driving up the price of
consumers' heating bills and of electricity produced at power plants that run
on natural gas.
In March, before Wood was appointed, the commission cleared El Paso of
complaints by California officials that the firm had engineered the takeover
by its marketing arm of more than one-third of the space on its pipeline into
California. That pipeline supplies half of the state's gas.
In the same ruling, however, the commission ordered a trial-like hearing on
the separate question of whether El Paso exercised near-monopoly market power
to boost its profits.
The PUC, Pacific Gas and Electric Co. and Southern California Edison say El
Paso's pipeline affiliate and its marketing subsidiary combined to prevent
competing shippers from importing natural gas, jacking up prices.
The hearing, which has already stretched from an original schedule of four
days to more than five weeks, will now be expanded for evidence on
accusations that l Paso broke federal regulations against preferential
treatment for affiliates.
COMPANY NOT WORRIED
El Paso spokeswoman Norma Dunn said the probe would reinforce the
commission's original decision that El Paso was innocent of rigging the
pipeline bid.
"We're confident they'll use the same information to reach the same
conclusion," Dunn said.
Harvey Morris, the PUC's lead attorney in the case, said the order could lead
to harsher penalties against El Paso if an administrative law judge found
wrongdoing.
Lynch said last week that El Paso should be forced to pay back California for
what the state considers its excess costs during the 15-month contract
between the company and its marketing arm, El Paso Merchant Energy. The state
has never estimated that figure, but consultants for Edison say the alleged
market manipulation cost California an extra $3.7 billion.
The PUC first asked the federal commission to void the contract in April
2000. By the time the commission ordered a hearing, the contract was close to
its expiration date -- this past May 31.
Wood, who was sworn in to the commission last week, said in a concurring
opinion yesterday that such cases should be investigated promptly.
"In the framework of active energy markets, it is critical that the
commission act expeditiously on complaints," Wood wrote.
RAISING THE BAR
Wood's remark "seems to raise the bar for FERC" in its role as a market
watchdog, Lynch said.
There has been much speculation about how Wood's presence will affect the
federal commission, which has been at odds with California officials over
virtually every area of energy policy.
Wood, a 38-year-old lawyer, was nominated to the Texas Public Utilities
Commission by then-Gov. George W. Bush in 1995. At the time, Bush said that
Wood "shares my conservative philosophy" and would bring a free-market
approach to regulation.
Bush administration officials have hinted that Wood will replace Curt Hebert
as chairman of the federal commission, though White House spokesman Ari
Fleischer dampened the speculation last week, saying Hebert was not in danger
of losing his job.
On his recent trip to the state, Bush said he had assigned Wood to
investigate the high cost of natural gas delivered to California.
Wood has spoken to Gov. Gray Davis twice on the phone about the energy
crisis. The two plan to meet in Washington on June 20, said Steve Maviglio, a
spokesman for Davis.
"The governor was enthusiastic about Pat Wood after his conversations with
him," Maviglio said. "He feels the commissioner understands the issues out
here, and he promises to provide some relief in one form or another."
Davis declined to comment on yesterday's decision until he had time to read
it.
The PUC's Morris said that it was no coincidence that gas prices in
California had dropped dramatically since El Paso Merchant Energy's contract
expired May 31, and 30 competing shippers started to share the pipeline
capacity.
"It's no longer the 800-pound gorilla on the El Paso system," Morris said.
El Paso spokeswoman Dunn said prices had dropped because of a wide range of
factors, including mild weather, increased hydroelectric power production and
a lower demand for gas.
E-mail Bernadette Tansey at btansey@sfchronicle.com. and Zachary Coile at
zcoile@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?A - 1

Developments in California's energy crisis
The Associated Press
Tuesday, June 12, 2001
,2001 Associated Press
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2001/06/12/state1
040EDT0140.DTL
(06-12) 07:40 PDT (AP) --
Developments in California's energy crisis:
TUESDAY:
* No power alerts Tuesday as power reserves stay above 7 percent.
MONDAY:
* Gov. Gray Davis signs an executive order letting natural gas-fired power
plants operate in excess of usual air emission limitations. The plants must
pay a mitigation fee to local air districts. Municipal utilities and other
power facilities say the order could produce up to 1,200 megawatts of
additional power this summer by expanding the number of hours the plants can
operate.
* Davis says 12 state senators have agreed to hold hearings on his proposal
to help embattled Southern California Edison avoid bankruptcy. Davis met with
the dozen Democrats Monday.
* Attorney General Bill Lockyer briefs Davis on his criminal investigation of
power generators. "We have every reason to believe the investigations are
continuing," says Davis spokesman Steve Maviglio. "The governor's not calling
off the dogs."
* Los Angeles Department Water and Power says it will voluntarily comply with
a 13-page, 72-item document request by an investigatory committee chaired by
Sen. Joseph Dunn, D-Garden Grove. "It could be several Ryder truckfulls,"
says department spokesman Eric Tharp. A Dunn spokeswoman says a subpoena
still will be issued, but not delivered to the department if it complies
voluntarily.
* The state Department of Water Resources negotiates with Dunn's committee
over its compliance with a pending document subpoena. Dunn's spokeswoman says
the subpoena won't be served as long as negotiations continue.
* The California Energy Commission says the state's energy crisis could
overwhelm supplies of natural gas, which fires most power plants, leading to
shortages this summer. The commission says the natural gas system is most
strained in Southern California, where bottlenecks could force utilities,
such as Southern California Gas Co., the nation's largest gas utility, "to
choose between serving electric generators and storing sufficient gas for the
winter."
* The state Assembly, by a 50-17 vote, asks Congress to require the Federal
Energy Regulatory Commission to order refunds of excessive energy charges and
set wholesale electricity price caps. The resolution, SJR7 by Sen. Dede
Alpert, D-Coronado, returns to the Senate for a vote on amendments.
* U.S. Barbara Boxer, D-Calif., files a friend of the court brief asking a
federal appeals court to order the FERC to control energy prices. Her brief
supports a suit by Senate President Pro Tem John Burton, D-San Francisco, and
Assembly Speaker Robert Hertzberg, D-Van Nuys, that was rejected by a
three-judge panel. A Burton spokesman says the suit is being refiled before
an 11-judge appellate panel.
* Twenty-one Democratic House members, including Democratic Leader Richard
Gephardt, D-Mo., ask to testify in favor of price controls at FERC's next
meeting on June 13.
* The Assembly Utilities and Commerce Committee advances a Senate-approved
bill requiring Senate confirmation of members of the Independent System
Operator governing board, and extending members' terms from one year to
three-year staggered terms.
* The Assembly Energy Costs and Availability Committee delays a bill allowing
blackouts in any particular area of the state only on specific days scheduled
a month in advance. The measure would allow businesses to schedule
production, says the author, Assemblyman Mike Briggs, R-Clovis. Chairman
Roderick Wright, D-Los Angeles, says the bill would discourage conservation
because consumers would know they are safe from blackouts most days.
The same committee advances a resolution asking Congress let states operate
on daylight savings time year-round to save energy.
* The former communications director for the state's power grid manager is
hired by Atlanta-based Mirant Corporation. Until last month, Patrick Dorinson
headed communications for the state's Independent System Operator.
* Shares of Edison International close at $11, no change. PG&E Corp. close at
$11.50, down 34 cents. Shares of Sempra Energy, the parent company of San
Diego Gas and Electric Co., close at $26.72, up 22 cents.
* No power alerts as reserves stay above 7 percent.
WHAT'S NEXT:
* Davis' representatives continue negotiating with Sempra, the parent company
of San Diego Gas and Electric Co., to buy the utility's transmission lines.
* The Senate Governmental Affairs Committee, chaired by U.S. Sen. Joseph
Lieberman, D-Conn., holds hearings June 13 and June 20 on the power crisis.
THE PROBLEM:
High demand, high wholesale energy costs, transmission glitches and a tight
supply worsened by scarce hydroelectric power in the Northwest and
maintenance at aging California power plants are all factors in California's
electricity crisis.
Southern California Edison and Pacific Gas and Electric say they've lost
nearly $14 billion since June to high wholesale prices the state's
electricity deregulation law bars them from passing on to consumers. PG&E,
saying it hasn't received the help it needs from regulators or state
lawmakers, filed for federal bankruptcy protection April 6.
Electricity and natural gas suppliers, scared off by the companies' poor
credit ratings, are refusing to sell to them, leading the state in January to
start buying power for the utilities' nearly 9 million residential and
business customers. The state is also buying power for a third investor-owned
utility, San Diego Gas & Electric, which is in better financial shape than
much larger Edison and PG&E but also struggling with high wholesale power
costs.
The Public Utilities Commission has approved average rate increases of 37
percent for the heaviest residential customers and 38 percent for commercial
customers, and hikes of up to 49 percent for industrial customers and 15
percent or 20 percent for agricultural customers to help finance the state's
multibillion-dollar power buys.
,2001 Associated Press ?

Political pressure eases for California Gov. Gray Davis as power prices dip
ALEXA HAUSSLER, Associated Press Writer
Tuesday, June 12, 2001
,2001 Associated Press
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2001/06/12/nation
al0337EDT0446.DTL
(06-12) 00:37 PDT SACRAMENTO, Calif. (AP) --
Gov. Gray Davis is getting his first glimpse of relief after months defending
the state's soaring electricity prices and rolling blackouts.
A series of events -- from plummeting wholesale energy and natural gas prices
to the unexpected shift in the U.S. Senate -- has Davis declaring that the
state has "turned a corner" in its power woes.
But the governor, whose popularity ratings have taken a dive in recent
months, must still weather steaming summer months and homeowner reactions to
record-high electricity bills.
"Some irreparable damage has been done to his image and his popularity," said
Bruce Cain, director of the Institute of Governmental Studies at the
University of California at Berkeley.
Two recent statewide polls showed that as electricity rates climbed, Davis'
approval rating plummeted to its lowest marks since he took office in 1998.
Davis, who is up for re-election next year, is battling his image as a
middle-of-the-road leader and has adopted a confrontational style to deal
with the power crisis.
In May, he hired high-powered crisis control specialists Chris Lehane and
Mark Fabiani, trained at the Clinton White House and in the Al Gore
presidential campaign. He declared "war" on Texas-based energy wholesalers.
Davis also attacked the Bush administration for opposing price controls on
wholesale electricity.
Soon after, the crisis-weary governor's fortunes shifted.
Vermont Sen. James Jeffords announced he would defect from the GOP, handing
the majority and committee chairmanships to Democrats who favor price caps on
wholesale electricity.
President Bush, criticized for failing to visit California since taking
office, traveled to the state and met with Davis.
When the state Energy Commission announced that Californians had cut power
use by 11 percent in May over the previous year, Davis declared a personal
victory. He had called for residents and businesses to conserve 10 percent.
Last week, wholesale electricity prices plunged from more than $500 a
megawatt hour to about $50 a megawatt hour -- their lowest level in a year --
while natural gas prices also dropped.
Some experts attributed the price spiral to conservation efforts and mild
Western temperatures, which have reduced the need to run air conditioners.
But the governor's aides argue the declining prices are a direct result of
Davis signing long-term contracts with energy providers.
"We may still have some difficult days ahead of us in the summer but it's
pretty clear that the governor's strategy has now borne some fruit," said
Garry South, chief campaign adviser to Davis.
Still, the energy crisis has battered Davis, once considered a potential
presidential contender in 2004.
California, heavily reliant on the technology sector, is facing its toughest
budget crunch in years.
Critics argue Davis has called a premature victory in the energy crisis. The
state has yet to sell $13.4 billion worth of bonds to repay the state for
power buys, and California relies heavily on the spot power market to make up
for electricity shortages.
California Republicans, meanwhile, are fortifying their own campaign
strategy. The state party hired veteran consultant Rob Stutzman to counter
Davis' hiring of Lehane and Fabiani.
And Stutzman says Davis has little for which to take credit.
"The governor is like a little kid that breaks his mother's china and then
wants credit for gluing half of it back together," Stutzman said.
Davis' short-term fortunes look promising, however. The state Democrats
control both houses of the Legislature and all but one statewide office.
Davis also holds strong leads over the two Republicans who have announced
they will challenge him, Secretary of State Bill Jones and Los Angeles
businessman William E. Simon Jr.
Whoever runs against Davis will find an incumbent with more than $26 million
raised for next year's election and a team of campaign advisers already using
focus groups and polling to gauge public reaction to the power crisis.
,2001 Associated Press ?

Power plant force-fed to Gonzales
Mayor says he had no choice but to cave in
Mark Simon
Tuesday, June 12, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/06/12/M
NS204982.DTL
If he had his way, San Jose Mayor Ron Gonzales said yesterday, he still would
be opposed to construction of a 600-megawatt power plant in a neighborhood in
the southern part of his town.
But he didn't get his way, and so he was forced to do the best he could with
what he had, Gonzales admitted.
"My basic position was that this plant was coming to San Jose. It was a
situation where the hand was dealt to the city of San Jose," Gonzales said.
As a result, Gonzales and eight of the city's nine council members reversed
field dramatically last week and voted to approve the Metcalf Energy Center,
a $400 million power plant to be built by Calpine Corp. and Bechtel
Enterprises Holding Inc.
In November, Gonzales and the council had unanimously rejected the power
plant proposal, contending that it was too close to the residential Santa
Teresa neighborhood, that the plant belonged in an industrial area and that
it was contrary to the city's general plan for the area.
All of that is still true, although the environmental problems have been
dramatically mitigated, Gonzales said.
What changed is the political atmosphere surrounding energy decisions, and
the plain reality that the decision by San Jose's officials was going to be
cast aside.
"It became more and more clear the California Energy Commission was going to
overrule our decision," Gonzales said.
"Given that inevitability, I felt it was important to act upon the request of
Calpine to sit down and talk."
The result, he said, is a "different facility" than the one the council
rejected in November, although there are plenty of skeptics who contend that
the new plant is not substantially different from the one the city rejected
eight months ago.
The most significant changes were in the protection of the neighborhood's air
quality by requiring more monitoring and stricter safety standards for the
handling of toxic chemicals.
The community also will have its own advisory committee overseeing the plan,
and air quality reports will be made regularly and publicly.
Calpine/Bechtel also agreed to cut back by 25 percent the number of times the
facility will be shut down and restarted. Such events occur as demand ebbs
and flows, and every restart involves a period of unusually high emissions,
in much the same way that emissions rise every time a car is started.
But Calpine spokeswoman Lisa Poelle admitted that the demand for energy at
the new plant -- scheduled to open in mid-2003 -- is expected to be so high
that shutdowns due to a lack of demand are considered unlikely.
The new agreement also gives local business a spot at the head of the line -
- they have a three-month period where they're allowed to apply exclusively
for contracts for the power from the Metcalf plant.
"Most of the power will stay here in San Jose," he said.
Gonzales said he entered into negotiations with Calpine/Bechtel after meeting
with residents of the Santa Teresa neighborhood. He said he believes the
agreement responds to most of their concerns.
"Did we get everything they wanted? No. It was probably impossible to get
everything they wanted," he said.
In fact, despite all the negotiations, Gonzales is plainly disappointed that
he was forced to make the deal.
The plant "is still inconsistent with our general plan, and that is the crux
of the whole process. The California Energy Commission was set up to decide
if they will override a local land-use decision. . . . Land use has become a
moot issue. And when we rejected it in November, it was based on the land
use.
"I acted on the same principles we had from day one -- do everything I could
to protect the neighborhood."
Gonzales steadfastly argued that he was not influenced by the array of
political and business interests that had lined up in support of the Metcalf
project -- including Gov. Gray Davis, every state legislator in the region
and the area's leading business and environmental organizations.
"The other part of the political structure has a very different job than I
have. I have the responsibility of protecting neighborhoods and the city of
San Jose," he said.
Gonzales also said he believed there would be no long-term political damage
to his bid for re-election next year.
His opposition to the power plant was based on his own agenda of protecting
neighborhood interests, a popular position that has guided the rest of his
activities, he said.
"The people of San Jose are my bosses," he said.
"I've continued to stay focused on things that were important to them in
1998. I said I was going to work on strong neighborhoods, traffic congestion
and improving public education, and those are the things I've been working
on. . . . I'm very excited about and looking forward to going back to the
voters of San Jose."
Simon can be seen 7:30 p.m. Fridays on The Chronicle's "Peninsula This Week"
on cable Channel 26, and at other times on local access channels. You can
reach him at (650) 299-8071, by fax at (650) 299-9208, or e-mail at
msimon@sfchronicle.com. Write him c/
,2001 San Francisco Chronicle ? Page?A - 15

State seeks electric rate hike for SDG&E customers
SETH HETTENA, Associated Press Writer
Tuesday, June 12, 2001
,2001 Associated Press
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2001/06/12/state0
312EDT0106.DTL
(06-12) 00:12 PDT SAN DIEGO (AP) --
While resident after resident rose in outrage over the state's ongoing energy
crisis, Gail Hoover stood in the hallway outside the public hearing, begging
for money.
Through tears, the 52-year-old single disabled mother from El Cajon said this
is what California's energy crisis has driven her to. On top of her folding
table sits family photos and a gift bag that reads, "A donation would be
greatly appreciated."
Hoover said electricity is essential to her well-being. She needs power to
keep her medicine cool and to work her electric hospital bed. And because her
disability check isn't enough to pay all the expenses, Hoover said she has no
choice but to ask strangers for help pay her $300 San Diego Gas & Electric
bill.
"We don't have money for anything but food," she said Monday. "My children
are so ashamed we have to do this."
San Diegans were the first in the state to pay out of control power prices
and they will soon experience another first -- an electric rate hike imposed
by the state.
The California Department of Water Resources, which recently took over
electricity buying for the state's cash-strapped utilities, is raising San
Diego Gas & Electric rates 19 percent to collect $915 million the agency says
it needs to make those purchases. The rate hike was the subject of a public
hearing Monday, where residents like Hoover had the opportunity to tell state
regulators how they felt about such increases.
Customers of SDG&E were the first to be exposed to unrestricted power prices
under the state's 1996 deregulation law, which is widely blamed for the
current energy crisis. After local residents saw their power bills double and
triple last summer, the California Legislature stepped in last fall and froze
bundled rates at about 15 cents a kilowatt hour.
The DWR will raise rates on average by 2.77 cents per kilowatt-hour to 17.87
cents a kilowatt-hour, according to the Public Utilities Commission. A
kilowatt-hour is enough to light 10 100-watt lamps for one hour.
SDG&E, which serves 1.2 million customers in San Diego and Orange counties,
has a separate request to raise rates an additional 16 percent or 2.3 cents
per kilowatt-hour, pending before the PUC. The utility says the increase
would raise $800 million to cover losses it incurred paying skyrocketing
prices of electricity before the DWR began buying power in January.
Typically, requests for rate increases, such as SDG&E's, goes through the
PUC, which reviews such proposals and sets "reasonable" rates. But the law
signed in January that gave the DWR the power to buy electricity also gave
the agency the power to solely judge the merits of its own rate increase
proposals. The department has determined that the SDG&E is reasonable,
spokesman Oscar Hidalgo said Monday.
How the rate hike will be distributed has not yet been determined, Hidalgo
said. Under California law, residential customers will not see any rate
increase for using up to 130 percent of their baseline amounts. Low-income
households also are exempt.
,2001 Associated Press ?

Blackouts' first birthday is this week
Posted at 10:40 p.m. PDT Monday, June 11, 2001
BY JOHN WOOLFOLK

Mercury News

It was only a year ago that Californians scarcely considered their electric
bills, rarely thought twice before boarding elevators and never calculated
the kilowatts firing their hot tubs. For many, the biggest care last June was
tracking portfolios on the Internet.
Now, if you want to follow your stocks consistently, you'd better have
bolstered your PC with a battery backup.
Sometime in the year since rolling blackouts first darkened the San Francisco
Bay Area last June 14, most Californians have gained a new obsession:
electricity. And though the power outlook has swung from hopeful to dreadful
and back again, many of us haven't lived quite the same ever since.
``Before, you might have the radio on all day, or the television; now, you
don't do that,'' said Doreen Hufton, 54, of Cupertino. ``We used to have
plug-in air fresheners. We've taken all those out now.''
The transformation has touched everything around us. Gov. Gray Davis, once an
all-but-certain presidential contender, is now fighting for his political
life. California wiped out its multibillion-dollar budget surplus to buy
power for its destitute utilities. And its economy, sixth largest in the
world, is threatened by troubles better-known in banana republics.
Beyond its borders, California has gone from admired trendsetter to a
national laughingstock; from political heavyweight to a beggar for mercy.
``We went from a holiday moment to a funeral,'' said Mark Petracca, a
political scientist at the University of California-Irvine.
More remarkable, Californians themselves -- full of optimism a year ago --
are now glum. Even the prospect that the crisis may ease isn't ending our
malaise, at least not yet.
``It's a wholesale change in attitude,'' said Field Poll director Mark
DiCamillo, who recently found Californians' optimism at its lowest level in a
decade. ``This changeover from a very buoyant outlook to despairing about the
future all happened in a very short period of time. I'd attribute almost all
of that to problems with electricity.''
Lifestyle in flux
Even the hot tubs and white wines that, for many, epitomize California's
laid-back lifestyle are scrutinized over the power they demand for heating
and cooling.
The ``Energy Star'' label that shoppers hardly noticed a year ago is suddenly
must-have. Local appliance and electronics stores say energy-efficient
washers, dryers and refrigerators fly off their shelves, along with
flashlights, batteries, generators and backup battery packs.
``It's all energy-saving -- that's all they want,'' said Pauline Lerma, a
customer service representative at Western Appliance. ``It's just boomed.''
With thermostats up this summer to save power, the state that invented casual
Fridays is dressing down all through the week. It's more shirtsleeves and
fewer blazers at the Santa Clara County Government Center, where department
heads offer battery-powered fans to sweating staff. Even bastions of
formality -- the state Senate and courts, where coat and tie are standard
dress for men -- talk of loosening up.
California's newest residents, many of whom come from countries where power
shortages are routine, find the irony amazing.
``I can't believe this is happening in the richest country in the world,''
said Vandana Kumar, 37, who came to San Jose from Bihar, India, 15 years ago.
Back in Bihar, people live with six hours of blackouts every weekday, from 8
to 11 in the morning and 4 to 7 in the evening, Kumar said. Now they're
chuckling over California.
``They all know about it and it's a big joke,'' Kumar said. ``They say,
`Didn't you go there to get away from this?'?''
Kumar can take comfort in this: No one could have predicted the past year's
turn of events.
The June 2000 blackouts, in fact, were only partly related to the power
crisis they exposed, resulting mostly from record heat that overwhelmed the
Bay Area's long-inadequate transmission capacity.
But when nearly 100,000 customers went dark that day, the state gradually
began to notice a problem that had been building for months. Down in San
Diego, power prices were starting to soar.
The pace of change soon quickened.
By December state leaders were urging limits on holiday lights, natural gas
bills were skyrocketing and major utilities were nearing bankruptcy. The new
year brought first one electric rate increase, then another. And along the
way, the energy crisis became part of our lives.
California's lexicon in 2001 includes ``rolling blackout,'' ``ISO'' and
``outage block.'' And when Gov. Davis speaks of ``QFs'' on TV, referring to
alternative energy producers, at least some of his viewers know he means
qualifying facility.
The state's troubles have had impact far beyond its borders. Because the
energy crisis is widely thought to stem from California's 1996 decision to
deregulate its electricity markets, other states are fleeing the
once-burgeoning deregulation movement.
``It's dampened interest,'' said Suraj Kanhouwa, an economist with the
federal Energy Information Administration. ``Other states that were on the
cusp of deregulation are in a wait-and-watch mode. The California experience
is unfortunate, it was not anticipated, and it's raising a lot of
questions.''
Political agendas, too, have been derailed coast to coast. Gov. Davis and
President George W. Bush campaigned to reform education. Now, it's all about
energy, a concern that's sinking approval ratings for both. Davis, in
particular, seems to get more national exposure these days in the comics than
he does on the political circuit.
Last week, for instance, the Pretzel Logic strip treated readers to the song
``Proud Davis,'' to the tune of ``Proud Mary'' (``Rollin' -- rollin' -- We're
rollin' through a blackout'').
``If you came to work this morning and neglected to put your pants on, you'd
be the butt of jokes,'' said state librarian Kevin Starr. ``California didn't
put its pants on.''
After a year of bickering and precious little progress, Democrats and
Republicans still talk of solving the power crisis. But many Californians
don't see the current problems going away anytime soon.
``It isn't like El Nio, which we know is eventually going to stop,'' said
Petracca, the political scientist, recalling the weather phenomenon that
drenched California three years ago.
Culture shift
Starr thinks California is going through a transformation in its identity,
which he refers to ``a cultural paradigm shift.''
``The previous paradigm was that California was a colonized resort, that all
the gritty industrial infrastructure could be left to sort of un-chic places
like Texas and North Carolina,'' Starr said. ``Californians are realizing now
that when you leave it to them, they charge the kind of prices we see
today.''
And Californians are also realizing -- having weathered earthquakes, droughts
and deluges -- that there may be yet another price of paradise.
``We're trying to cope,'' said Christine Headley, 33, of San Jose. ``What can
you do? I grew up here, I lived here all my life, so I probably won't be
leaving.''
One year ago, electricity was something we took for granted. And now? Now we
settle for less.
``That it should be always on with no interruptions was probably too high an
expectation,'' said Rosanna Kennedy, 42, a software manager from Saratoga.

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

Drilling aside, Bush plan aids energy industry
Posted at 6:42 a.m. PDT Tuesday, June 12, 2001
BY CHRIS MONDICS

Knight Ridder Newspapers

WASHINGTON -- For all the talk of allowing energy companies to expand
drilling in the Alaskan Arctic and in the Rockies, some of the most important
benefits for industry in President Bush's energy plan have little to do with
remote oil and gas fields.
Tucked away in the 162-page administration plan are proposals for cuts in
federal fees, speedier permit review, and subsidies that could add billions
to energy companies' bottom lines, whether there's additional drilling or
not.
The proposals would benefit an industry that's already posting healthy
profits.
The Bush administration says that the plan's proposed financial support for
conservation efforts exceeds assistance to oil and gas companies, electric
utilities and other energy interests. The proposed relief for energy
companies, the administration says, is necessary to spur energy development
in an era of burgeoning shortages and price increases.
``There is a belief that over the next 20 years the federal government will
need to do everything it can to ensure stability and certainty in our energy
markets,'' said Juleanna Glover Weiss, spokeswoman for Vice President Cheney,
who developed the administration's plan for President Bush. ``This
administration's objective is to provide for long-term price stability.''
Environmental groups dispute the administration's claim that some industry
support is needed, charging that the Bush administration is giving breaks to
an industry that is already highly profitable.
``What they have done is prepared a bunch of market warping incentives,''
says Phil Clapp, president of the National Environmental Trust. ``They don't
give you any new energy and they will get you more pollution along with a big
cash gift to polluting industries.''
One potential benefit is a proposal, already being implemented, to
re-evaluate the enforcement of some clean-air rules to see whether they are
unnecessarily impeding the production of electricity.
The program, begun under former President Bill Clinton in 1999, targeted more
than 100 aging power plants that had been exempted from many clean air rules
in 1970s on the belief they eventually would be phased out. Under these
exemptions, such plants were to comply with tougher air pollution rules only
if they significantly increased their capacity or made other major changes to
operations.
But many power companies say that the Clinton administration began to demand
costly pollution control equipment even when the plants made only minor
changes.
``It had a chilling effect,'' says Dan Riedinger, a spokesman for the Edison
Electric Institute, an industry trade group, of the enforcement program's
effect on efforts to improve efficiency. ``The economics are a consideration.
No one wants to install emissions control equipment unnecessarily.''
Huge amounts of money are at stake. In settling one such enforcement action
against power producer Cinergy Corp. several months ago, the Environmental
Protection Agency placed the cost of the new pollution controls and other
efforts agreed to by Cinergy at $1.4 billion. The EPA is involved in eight
other lawsuits seeking to force power producers to upgrade pollution control
equipment under the program.
Bush and Cheney are former oil men and have long-standing ties to the energy
industry. Cheney headed Halliburton Inc., one of the world's largest oil
services firms before stepping down to run with Bush last year. Bush headed
several independent oil companies in Texas' Permian basin, a legendary
oil-producing region, during the 1980s.
The industry has been a big supporter of the GOP. Last year alone, oil and
gas producers gave Republicans some $25.5 million, while giving Democrats
$6.6 million, according to an analysis by the Center for Responsive Politics,
which tracks money in politics.
The fate of the Bush proposal, developed in response to soaring gasoline
prices and persistent electricity shortages in California, came under a cloud
last month when Sen. James M. Jeffords of Vermont quit the GOP, handing
control of the Senate to the Democrats.
Democrats could thwart many of Bush's initiatives because they control the
flow of legislation to the Senate floor. And at the top of the hit list is
his proposal for drilling in Alaska's Arctic National Wildlife Refuge.
But the change in Senate leadership won't stop all of Bush's proposals.
That's because the energy industry has some powerful Democratic allies, such
as John B. Breaux of Louisiana, an oil and gas producing state, and Sen.
Robert C. Byrd of West Virginia, a longtime ally of that state's powerful
coal industry.
Perhaps more important, much of the Bush plan can be accomplished through
administrative orders signed by Bush or his cabinet secretaries.
A proposal to reduce royalty fees charged to oil and gas companies for
offshore drilling is one such initiative.
Ever since a similar program aimed at encouraging oil and gas exploration in
the deep waters of the Gulf of Mexico expired a year and half ago, the
industry has been pushing for broad renewal of the plan. The Interior
Department, using its discretionary power, has responded by instituting
reductions on a case by case basis.
Chris Oynes, a regional director for the Interior Department, said that under
the now-expired program, oil companies have been exempted from paying $1.4
million in royalties because of the incentive program in the Gulf of Mexico.
The benefit is expected to increase enormously as other wells drilled under
the program begin pumping.
The administration also has proposed extending a program jointly funded by
the government, electric utilities, coal companies and other interests to
find commercially viable methods for reducing pollution from coal-burning
plants.
The so-called clean coal technology program has already consumed $2 billion
in government funds with limited results. While the industry has lauded the
program, arguing that some pollution control equipment produced in the
program already is in wide use, environmentalists deride it as a huge
government boondoggle.
``Our problem with the program is that we don't think the coal industry needs
taxpayer money to do research and development; they have the money to do it
themselves,'' said Cena Swisher, program director at Taxpayers for Common
Sense, a Washington-based public interest group.
But, with gas prices high, the pressure to deal with the nation's energy is
likely to grow. That may give the Bush plan, or at least parts of it, an
added push.
``Congress is going to feel the necessity to pass some energy legislation
between now and the next election,'' Clapp said.

Feds to probe Texas energy company's practices during California energy
crisis
Posted at 9:56 p.m. PDT Monday, June 11, 2001
BY JENNIFER BJORHUS

Mercury News

Federal regulators said Monday they will examine charges that El Paso Corp.
illegally monopolized its interstate gas pipeline into Southern California by
leasing part of its capacity to its own affiliate.
The decision by the Federal Energy Regulatory Commission expands an ongoing
investigation into the Houston company's market behavior, which allegedly
cost Californians as much as $3.7 billion in energy overcharges. With
Monday's order, FERC reversed a March 28 decision to drop the so-called
affiliate abuse issue.
The El Paso investigation, one of the most prominent price-gouging actions
stemming from California's energy crisis, is already stretching into its
fifth week and looks likely to last much longer. The FERC administrative
judge hearing back-and-forth testimony in the El Paso case had been slated to
make a decision by September. That could change given Monday's decision to
tackle the new issue.
Major highway
An El Paso spokeswoman said FERC's decision didn't surprise her.
``The bottom line is that the evidence that FERC used to make their decision
initially is the same evidence that they're going to look at again so we're
very confident that they'll come to the same conclusion a second time,'' said
Norma Dunn, senior vice president of government affairs for El Paso Corp.
Dunn said she remained confident the judge will conclude that El Paso did
nothing wrong.
At issue in the new order is whether El Paso violated the law when it sold
one-third of the capacity on its interstate pipeline to an affiliate at a
steeply discounted price. That pipeline is a major highway for natural gas
into California.
The affiliate's pipeline contract expired on May 31. The pipe space was then
bid out again to 30 different companies. Average natural gas prices at the
Southern California border have dropped from $9.98 per million British
thermal units on May 31 to $3.54 last Friday, according to Natural Gas
Intelligence's daily gas price index.
Key fuel
Experts consider the cost of natural gas -- a key fuel for California power
plants -- a major culprit in high electricity prices in California.
A California public official camped out in Washington, D.C., for the hearing
called FERC's decision on the affiliate abuse issue a win.
``We're very pleased that FERC has finally seen the light of day,'' said
Harvey Morris, an attorney for the California Public Utilities Commission,
which filed the rehearing request. ``It shows that FERC is taking our case a
lot more seriously, like they should have all along.''
FERC Commissioner Linda Breathitt said the main reason the board acted Monday
was that the administrative judge listening to evidence in the El Paso case
had formally questioned commissioners last Thursday about the scope of the
ongoing hearing.

Contact Jennifer Bjorhus at jbjorhus@sjmercury.com or (408) 920-5660.

Here's an idea: FERC should do its job
Published Tuesday, June 12, 2001, in the San Jose Mercury News
ASKING the Federal Energy Regulatory Commission to do its job -- that is, to
regulate -- seems reasonable to Senate Majority Leader Tom Daschle. He has
lent his support to a bill by California Sen. Dianne Feinstein and Oregon
Sen. Gordon Smith calling on FERC to see that electricity prices are
reasonable here.
There's plenty of blame for the energy crisis to go around, but FERC has a
share. The electricity market is far from the kind of free exchange in which
competition ensures fairness. It remains an experiment, and FERC was supposed
to make sure consumers got a fair shake. Not cheap electricity -- just a fair
shake.
Daschle can't push the Fein stein bill through the House of Representatives
or past a presidential veto. But along with Senate committee hearings later
this month, his support adds to the pressure on FERC to act.

Few traffic lights will withstand blackouts
More than 90 percent of O.C.'s intersections are not expected to have battery
backup systems by July.
June 12, 2001
By HEATHER LOURIE
and TIFFANY MONTGOMERY
The Orange County Register
Brent Helmick reached a dark intersection in Lake Forest minutes into
Southern California's first rolling blackout of the energy crisis.
He stopped, carefully proceeded through - then got slammed by another car.
"I got thrown against the side of the door, and my head hit the window," said
Helmick, 20. "I was like, 'Dude, do you understand the lights were out?'"
Officials across Orange County fear motorists are in for a summer of
potentially deadly accidents if predicted power outages arrive. Some are
combating the problem by installing pricey battery backups for signals at a
time when energy bills are socking their budgets. But only six cities will
have batteries at some intersections by July 1.
The Orange County Register made a survey of 3,030 intersections with traffic
lights - all those controlled by cities, the county or the state - and found
that 209 will be equipped with batteries by July 1, and 341 more will be
ready by Sept. 1. Ten cities are studying the issue; eight others have no
plans to buy batteries.
While Huntington Beach, Laguna Woods, Mission Viejo and San Clemente are
ahead of the curve, Laguna Niguel and Westminster are the best prepared. By
July 1, all of Laguna Niguel's 74 signals and Westminster's 62 signals will
have backups. Westminster is even putting batteries on 19 signals it shares
with other cities.
"It's expensive, but if it saves a few lives and saves a few injuries, it is
worth it," said Westminster City Councilman Kermit Marsh, who saw several
cars barrel through dark intersections in Costa Mesa during the March
outages.
Westminster and Laguna Niguel were able to move quickly because they upgraded
signals early with light-emitting diodes, a technology that uses 70 percent
to 90 percent less electricity than standard incandescent bulbs. The LEDs, in
turn, allow the battery backups to last several hours.
The Westminster City Council approved the backups March 21 - right after the
first Southern California rolling blackouts on March 19 and 20.
Several other agencies in California had the same idea that week. Janna
McKhann, a regional saleswoman for Synchronex, a company that distributes
battery systems, said she and the rest of the sales force were at a meeting
when, suddenly, all their cellular phones began ringing.
"People were calling, saying 'How soon can we get some?'" she said. "It was
unbelievable."
Some cities have purchased batteries that make a signal flash red when the
power goes out; others are opting for batteries that keep the signal fully
operational. Prices range from about $3,000 to $5,000 per intersection.
Orange is looking at full-cycle batteries. Officials there hope to outfit 44
of the city's 137 intersections by early October. The City Council will
discuss spending $220,000 at its meeting tonight.
"Our feeling is that at the more complicated intersections, flashing red
lights during peak periods really doesn't facilitate the movement of traffic
more than a dark intersection would," Public Works Director Harry Thomas
said.
By the end of the summer, nearly one-fourth of the Orange County signals
operated by the state highway department will remain fully operational during
a blackout.
"Our goal is to keep the system operating as designed," said Dennis Trujillo,
a state Department of Transportation spokesman. Signals at major
intersections or at the end of off-ramps are being retrofitted first.
Eight Orange County cities - Dana Point, Fountain Valley, Garden Grove, La
Habra, La Palma, Placentia, San Juan Capistrano and Seal Beach - have decided
not to buy batteries now. Several point to the vehicle code, which requires
motorists to treat every dark intersection like a four-way stop. That code
will legally protect the cities that do not buy batteries, several officials
believe.
"The law is pretty clear," said Placentia City Administrator Bob D'Amato, who
is also concerned about the cost and reliability of the systems.
Ed Cline, a Los Angeles- based traffic engineer, agrees that the law is
clear. But while cities have been reminding drivers about the vehicle code,
Cline thinks batteries still are important to protect against those who
aren't going to stop.
"We have a moral responsibility," said Cline, a former Institute of
Transportation Engineers board member. "Flashing red is a lot safer than
black. In our industry, our day-to-day goal is to try to reduce traffic
accidents."
Some cities have other reasons to pass on batteries. San Juan Capistrano and
Fountain Valley officials think outages won't affect their traffic signals
much because of the electrical grid pattern.
"By placing stop signs and having the Police Department present in
intersections, if we do go black, we feel it will be adequate to address
those outages which we (believe) will be infrequent at best," said Fountain
Valley City Engineer Mark Lewis.
Fountain Valley also is concerned about maintenance costs, as is Anaheim.
"We need more information," said John Thai, traffic engineer for Anaheim,
which has 285 signalized intersections. "If this is an ongoing problem, these
things need to be examined carefully. This (technology) is brand new."
Thai said his city would need to spend at least $1.4 million to buy the
equipment, and that doesn't include preventive maintenance or the cost of
replacing batteries after five years. "Since it's such a big expenditure, you
want to know all the implications before you jump on the program," he said.
Some traffic experts also are skeptical about the need for batteries.
Dave Royer, an engineer and transportation-safety consultant who teaches at
the University of California, Berkeley's Institute of Traffic Studies, thinks
cities would be better off educating the public about the vehicle code.
"I'd spend my money on advertising campaigns and billboards," he said. Royer
does support backup systems to keep major intersections in full operation
because such systems reduce congestion.
Seal Beach Public Works Director Steve Badum said his city happens to have
one intersection with a backup because it's new - but the city has no plans
to equip the other 20.
"Money is pretty tight in this town," Badum said.
And according to Gov. Gray Davis' office, the state Office of Emergency
Services and the League of California Cities, there is no state funding
available to help cities buy battery systems. Instead, Seal Beach may have
employees put up stop signs or have police direct traffic at major
intersections during an outage.
"Other than that, we're kind of helpless," Badum said.

Energy notebook
Davis relieves gas-fired plants of pollution rules.
June 12, 2001
From staff and news service reports
SACRAMENTO Gov. Gray Davis used his emergency powers Monday to let
natural-gas-fired plants operate at maximum levels this summer even if they
exceed air-pollution standards.
The order waives limits on the number of hours gas- fired plants can run and
bypasses usual state and local regulations, said Davis energy adviser Kellan
Fluckiger. He said the move will minimize blackouts and the use of diesel
backup generators by increasing the use of plants designed to operate during
peak energy use.
Operators of the state's municipal utilities said the order will let them
provide more power to the state grid by using generators that otherwise would
be required to shut down.
Officials said the order could provide up to 1,200 additional megawatts to
the state power grid during the summer, enough to power about 900,000 homes.
The gas-fired plants must pay a mitigation fee to the local air districts of
$7.50 per pound of oxides of nitrogen (NOx) and $1.10 per pound of carbon
monoxide emitted.
Natural-gas demand may outstrip ability to deliver
SAN DIEGO California's energy crisis could overwhelm supplies of natural gas,
which fires most power plants, leading to shortages this summer, the state's
energy planning and policy-making agency has warned.
A severe drought in the Pacific Northwest has cut hydroelectric power
supplies and forced natural gas-fired plants to make up the shortfall. The
demand for gas has strained the ability of existing pipelines to supply it.
In the event of even stronger demand this summer, the California Energy
Commission says, utilities could be forced to interrupt supplies to some
power generators.
The system is most strained in Southern California, where bottlenecks could
force utilities such as Southern California Gas Co., the nation's largest gas
utility, "to choose between serving electric generators and storing
sufficient gas for the winter," the report said.
Enron is bowing out of residential electric market
Enron Corp., the Houston-based energy supplier, notified its 16,000
residential customers in California that it can no longer provide electricity
service because of "an uncertain market.''
Enron sent letters late last month giving customers 30 days' notice to return
to their local utility for electricity service. Enron will continue to
provide power to industrial and commercial customers with long-term
contracts.
"We just couldn't provide a low enough rate to get customers to switch,''
said Peggy Mahoney, an Enron spokeswoman.
Enron was one of the first energy service providers to enter California's
newly deregulated electricity market in 1996.
Two years later, when electricity prices began to rise, the company abandoned
plans to sign up new residential customers. But it had agreed at that time to
continue serving existing customers.
"I really believed in competition,'' said Dick Terris of Westminster, who
signed up for Enron's service three years ago. "I thought deregulation would
be a good thing for California.''
FERC expands its probe of alleged price manipulation
WASHINGTON Federal energy regulators broadened their investigation of El Paso
Corp. to include charges that one company unit showed favoritism to another
in awarding a contract that, plaintiffs say, allowed El Paso to manipulate
California natural-gas prices.
The company's pipeline subsidiary, El Paso Natural Gas, last year sold 1.2
billion cubic feet of capacity to the company's merchant energy unit, which
makes money by trading electricity and natural gas.
The Federal Energy Regulatory Commission is investigating whether the trading
unit then withheld gas from the California market to drive up prices.
The plaintiffs, including the California Public Utility Commission, say El
Paso committed "affiliate abuse" by allowing its pipeline subsidiary to offer
a better deal to the merchant-energy unit than was offered to competing
bidders. The FERC today ordered that the charge be included after Judge
Curtis Wagner asked commissioners if he should widen his investigation.
The FERC is looking into why the average price of gas jumped almost fivefold
in California in the first three months of the year compared with that period
a year earlier, and why prices there are much higher than elsewhere in the
country. Gas is used to fuel many power plants.
Since the El Paso companies' contract expired May 31, spot market prices at
the Southern California border, the main delivery point into the state, have
plunged to a 13-month low of $7 per million British thermal units compared
with a peak price of $58 hit in December.
Register staff writers Kate Berry and Dena Bunis, Bloomberg News and The
Associated Press contributed to this report.

Tuesday, June 12, 2001

Davis' con job
Governor withholds truth from taxpayers about state's electricity crisis

TOM MCCLINTOCK
Senator McClintock represents the 19th Senate District in the California
Legislature. His website address is www.sen.ca.gov/mcclintock

In a free society, California's electricity problems would have corrected
themselves long ago. A shortage develops, electricity becomes relatively
scarce and prices rise. As prices rise, consumers reduce their demand while
producers develop more generation. Consumption declines, production
increases, prices fall. The result: low prices and abundant electricity.
In California's society, a simple shortage becomes catastrophic. As prices
rise, the government begins heavily subsidizing electricity purchases. This
drives prices still higher while hiding the reality of those prices from
consumers. Meanwhile, government officials threaten producers with the
seizure of their assets and imprisonment if they set foot in California. The
result: Consumers will see surcharges tacked onto their power bills and taxes
for years to come to pay for the subsidies, while investors who planned to
come to California to build more power plants decide to invest elsewhere.
There is a very simple truth that California's governor just can't seem to
grasp: Governments can hide prices, but they cannot set them. When Gov. Davis
buys power for 50-cents per kilowatt-hour and sells it back to consumers for
seven cents, consumers haven't been spared the other 43 cents. It simply ends
up on their tax bill. Already, the state's treasury has lost more than $8
billion (about $950 for an average family of four) in this manner.
To fill this growing hole in his budget, Davis approved the biggest bond
measure in history to be repaid with crushing surcharges on consumers' future
electricity bills, averaging about $2,000 per ratepayer.
To keep consumers from revolting over those surcharges, the administration is
now struggling with how to disguise them. It is doing so by tinkering with
baseline prices.
Different "baselines" for usage will be adjusted to determine who has been
virtuously frugal and should be rewarded with subsidies and who has been
profligate and should be punished with sky-high rates. What makes this
fundamentally unjust is that the question of "fairness" depends on an
infinite combination of factors that government cannot foresee.
It is impossible for government to account for these infinite variations in
personal circumstances and any preferential pricing scheme is bound to create
countless injustices.
There are four principles that government in a free society should instill
into the pricing structure. They are the four principles that California's
government has violated.
The first is freedom of choice. In 1996, consumers won the right to choose
the provider that offers them the best deal for electricity. Although the
state's electricity supply collapsed before those choices materialized, the
fact remains that the ultimate defense against price gouging is the ability
to take your business elsewhere. Gov. Davis and the Legislature took that
right away from consumers.
The second is equity. When the price of electricity falls, so should our
rates. But they won't, because of billions of dollars in surcharges Gov.
Davis is adding to future electricity bills.
The third is the truth. Consumers deserve to know the price they're paying
for electricity when they buy it. This is the only way they can decide how
much they need and what they're willing to pay for it. The governor's
policies have denied them this information.
The fourth is justice. In a just society, a consumer would pay only for his
or her own consumption - no more and no less.
When politicians intervene, the politically favored always end up benefiting
at the expense of the politically weak.
It shouldn't surprise anyone that family electricity bills have been
subsidizing businesses for years.

Editorial
Whining in the Dark
?
06/12/2001
The Washington Post
FINAL
Page A24
Copyright 2001, The Washington Post Co. All Rights Reserved
California Gov. Gray Davis [op-ed, May 16] asserted that California 's energy
crisis is a result of the federal government's failure to "carry out [its]
statutory obligation to ensure energy prices are 'just and reasonable.' "
Nonsense.
For 12 years, by Gov. Davis's own admission, California has not built a major
power plant within its borders. Instead, it has exported pollution to the
other states (where does that lovely "green" electricity come from?) and
patted itself on the back for its environmental "consciousness."
Now Gov. Davis says, "The federal government must do its part to temporarily
control runaway energy prices." Again, nonsense. The "runaway energy prices"
California pays are a direct result of a conscious decision to export
pollution to its neighboring states for 12 years.
And, it should be pointed out, demanding that the federal government
institute "temporary" price controls is the equivalent of demanding that the
rest of the states pay for accepting California 's pollution.
Until California brings its own generators on line -- and the
refining-pipeline capacity to fuel them -- let it whine in the dark. It won't
freeze.
MICHAEL HANKAMER
Manassas

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