Please see the following articles:

Energy Insight, Fri, 4/6:  "PG&E files for Chapter 11"

Sac Bee, Mon, 4/9:  "Energy supply setback: Big generator can't be forced to
sell emergency power to the state,
a U.S. court rules"

Sac Bee, Mon, 4/9:  "Dan Walters: Hertzberg's oversight is looking more like
a whitewash"

San Diego Union, Sun, 4/8:  "PG&E awards bonuses hours before filing Chapter
11"

San Diego Union, Sat, 4/7:  "PG&E looks to court for debt relief; Davis
promises to expedite deal with Edison"

San Diego Union, Sat, 4/7:  "Utility argues for Otay power plant "

San Diego Union, Sat, 4/7: "United at the start, lawmakers now split on how
to clean mess "

San Diego Union, Sat, 4/7:  "GOP activists feel state is being snubbed by
Bush"

LA Times, Mon, 4/9:  "With Power Price Surges, California's a Follower"

LA Times, Mon, 4/9:  "Judge in PG&E Bankruptcy Case Seen as a Problem Solver"

LA Times, Mon, 4/9:  "Bankruptcy Filing Threatens Tax Bases"

LA Times, Mon, 4/9:  "Others Learning from California's Energy Mistakes"
LA Times, Mon, 4/9: "Generators Scrambled to End Pacts With Utilities "

LA Times, Sun, 4/8:  "PG&E Gave Bonuses Prior to Bankruptcy"

LA Times, Sun, 4/8:  "Shifting Action to Neutral Arena May Be Bankruptcy
Filing's Upside"

LA Times, Mon, 4/9:  "Shock's Silver Lining"        (Commentary)

LA Times, Mon, 4/9:  "Use Eminent Domain as a Power Tool "  (Commentary)

SF Chron, Mon, 4/9:  "Governor, Utility In War Of Words
Davis furious as PG&E defends bankruptcy filing "

SF Chron, Mon, 4/9:  "Power Grab -- Some Democrats Favor Seizing Plants"

SF Chron, Mon, 4/9:  "Davis Could Still Show Courage "   (Editorial)

SF Chron, Mon, 4/9:  "Governor, bankrupt utility blame each other for power
woes "

SF Chron, Mon, 4/9: "Negotiations continue between state and SoCal Edison "

SF Chron, Mon, 4/9:  "SAN FRANCISCO
PUC General Manager To Leave S.F. Post "

Mercury News, Mon, 4/9:  "Gov. Davis, bankrupt utility blame each other for
power woes"

Mercury News, Mon, 4/9:  "Cheap, abundant coal eyed with new interest"

Mercury News, Mon, 4/9:  "Leaders threaten to seize power contracts, plants"

Mercury News, Mon, 4/9:  "Blackouts this summer?"  (Commentary)

Individual.com, Mon, 4/9:  "Pacific Gas Files for Chapter 11"

Individual.com, Mon, 4/9:  "Davis endorses rate hikes, defends handling of
energy crisis"

Individual.com, Mon, 4/9:  "Sempra Energy And SDG&E Reaffirm Strong Financial
Position in Response to PG&E Bankruptcy"

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	Friday, April 6, 2001

By Rick Stouffer
rstouffer@ftenergy.com

Pacific Gas & Electric Co., saddled with $9 billion in wholesale power costs
it could not collect and with costs increasing by $300 million per month,
filed Friday for protection from creditors under Chapter 11 of the U.S.
Bankruptcy Code.

Under Chapter 11, the utility unit of PG&E Corp. will be given time to
reorganize its precarious financial situation, including the restructuring of
its massive debt. The filing in no way impacts PG&E or its other
subsidiaries, including National Energy Group.

"We believe filing for Chapter 11 bankruptcy protection is the best
alternative to protect the legal rights of Pacific Gas & Electric and to
allow us to continue serving our (13 million) customers," said Pacific Gas &
Electric Chairman Robert D. Glynn Jr., during a Friday teleconference.

Four primary reasons for filing
In a teleconference on Friday April 6, Glynn listed four primary reasons for
filing for Chapter 11, including:

Failure by California to assume the full procurement responsibility for the
utility's "net open position," which the company said was provided for. This
resulted in Pacific Gas & Electric continuing to be exposed to purchase costs
totaling an estimated $300 million-plus per month.
"We don't actually know how much we owe the DWR (California Department of
Water Resources) or the ISO (California Independent System Operator), because
they've never told us," Glynn said.

Actions taken by the California Public Utilities Commission (CPUC) on March
27 and April 3, which Pacific Gas & Electric said created new payment
obligations and undermined its ability to return to financial viability.
Those actions included mandating Pacific Gas & Electric pay the full amount
of the bills presented by qualifying facilities, and that the utility "pay
out more in cash to DWR than we collect in rates," according to Glynn.

Lack of any progress in negotiations between the company and the state
concerning the $9 billion in excess wholesale power costs spent since last
June.
"Talks were going nowhere; we would reach agreements that were then not
followed up on," Glynn said. "We've heard a lot of words come out of
Sacramento, but the challenge was to follow up with action."

The adoption by the CPUC of what Pacific Gas & Electric called an illegal and
retroactive accounting change that would appear to eliminate the company's
uncollected wholesale costs.
The CPUC ruled that the utilities offset their wholesale power costs against
the transition costs collected from ratepayers.

The order also requires the utilities to offset their operating costs with
the money they make from selling power from their own generating units during
the rate freeze. The companies believe that if the order isn't changed, they
could not recover past purchased power expenses.

PG&E PROFILE SPREADSHEET

Many not surprised
Analysts for the most part were not surprised that Pacific Gas & Electric
took Friday's action, many saying they had expected a filing weeks ago.

"I always believed this was the smartest way to deal with this debacle," said
Bill LeBlanc, vice president of retail consulting for Boulder, Colorado
research and consulting firm E Source*the retail-energy wing of FT Energy. "I
expect Southern California Edison to follow suit; I had actually expected
these utilities to file Chapter 11 about eight weeks ago."

LeBlanc said he expected a Chapter 11 filing, because California will not
bail out the utilities, and they have no way to recover costs in an
expeditious manner in what they believe is economically fair to their
corporation and customers.

Governor's acquiescence didn't help
Even a short press conference Thursday by California Gov. Gray Davis, in
which he finally admitted a rate hike was needed, and his proposal to provide
as much as $8 billion in bonds to pay the utilities' past power costs, could
not deter Pacific Gas & Electric's filing.

The governor's words had little effect on Glynn. "Did we hear the governor's
speech last night? We heard a lot of words, but we have not seen the
actions," Glynn told his teleconference audience.

"Almost every day since this crisis began, we have looked at staying out of
bankruptcy, vs. entering bankruptcy," Glynn said. "We expect the court to
provide the venue needed to reach a solution which the state and regulators
have been unable to achieve."

"This (bankruptcy filing) really wasn't unexpected; this company has been
making noise like this for weeks," said Dresdner Kleinwort Wasserstein energy
analyst Linda Byus. "The governor probably expected that he made a big noise
last night with his announcement, but these guys said no, not really."

"It's a very unfortunate situation, extremely complicated," according to
Jeffrey Holzschuh, managing director and head of Morgan Stanley Dean Witter's
Global Energy Group. "There are just so many people involved in this that I
don't think you can come to conclusion quickly or easily."

Judge holds the power
What bankruptcy offers is a utility "czar," a court judge with virtually
unlimited power, legal scholars said. The judge will hold the situation in
his or her hands*and the governor, shareholders and consumers be darned.

"Bottom line is the judge has total control," according to Robert Nachtmann,
professor of finance and executive associate dean of the Katz Graduate School
of Business at the University of Pittsburgh.

Preservation of the utility's assets is first and foremost in the judge's
eyes*doing what needs to be done to keep the company operational.

Who loses?
Who loses? In particular, the power producers that have been vilified by
Glynn and his counterpart at SoCal Ed will lose*as well as Gov. Davis.
However, in reality, just about everyone in the state of California will
suffer.

Stocks of power wholesalers, including Duke Energy, Dynegy Corp., Williams
Cos. Inc. and Reliant Energy Inc. immediately swooned once word spread
concerning Pacific Gas & Electric's filing.

"Creditors, including the state, wholesalers, equipment vendors, etc. will
take something of a financial hit*probably get back something like 50 cents
to 75 cents on the dollar for what they are owed," according to John Egan, E
Source's director, strategic & marketing issues.

Shareholders will be the big losers; typically they will be wiped out, Egan
said.

Glynn said he did not know how long the process would take, but expect it to
be long and extremely costly. The University of Pittsburgh's Nachtmann said
the average time frame for bankruptcy for a publicly traded entity is about
30 months.

Huge monetary cost
As for cost, the 1992 to 1996 bankruptcy of El Paso Electric Co. cost an
estimated $100 million*and that was for a company many times smaller than the
behemoth Pacific Gas & Electric.

One thing is for sure: The problems and trials in the California energy
market will only continue.

"This will continue daily, weekly, hourly for the foreseeable future," Morgan
Stanley's Holzschuh said.

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Energy supply setback: Big generator can't be forced to sell emergency power
to the state, a U.S. court rules.
By Denny Walsh and Carrie Peyton
BEE STAFF WRITERS
(Published April 6, 2001)
In a development that does not bode well for California's energy supply, a
federal appellate court Thursday halted enforcement of a lower court order
that a big electricity generator must sell emergency power to the state
without guarantee of payment.
State energy officials said the ruling wouldn't have any immediate effect but
could precipitate a power emergency if the generator decided to take a plant
off-line for maintenance.
On March 21, citing "rolling blackouts (that have) darkened the California
landscape," U.S. District Judge Frank C. Damrell Jr. imposed an injunction
against Reliant Energy Services Inc., one of the nation's major generators.
Houston-based Reliant controls approximately 3,800 megawatts, or about 20
percent, of the gas-fired generation capacity in the state, and Damrell found
that loss of that production "poses an imminent threat."
But Thursday, a three-judge panel of the 9th U.S. Circuit Court of Appeals
granted an emergency stay of the injunction, saying Reliant has shown "a high
likelihood of success on the merits" of its appeal.
While not spelling it out, the panel apparently bases its finding on the
question of the courts' jurisdiction over the energy market. The panel
directed that a hearing on the appeal be scheduled for the second week in
July.
The decision leaves California's electric grid more fragile, at least
temporarily, according to the state Independent System Operator, which
maintains and controls power transmissions.
It gives the agency no immediate recourse if Reliant chooses to shut down any
of its plants for maintenance, said ISO Vice President Jim Detmers.
"It's not going to change anything overnight, and it's not going to change
anything over the weekend," said Detmers. "But if Reliant decided on a
unilateral action to take their units off for maintenance ... we definitely
could have a system emergency."
Reliant officials, when told of the ruling, took a conciliatory tone but
declined to specify their next move.
"Reliant ... has pledged to keep the lights on in California," said company
lobbyist Marty Wilson, and "is still of a mind to want to cooperate."
Without further comment, the appeals court judges cited a 1980 U.S. District
Court decision. In that case, 14 cities sued Florida Power and Light Co.,
alleging that it was violating a number of laws in its sales of power and
production of electricity.
The judge found, however, that the Federal Power Act reserves oversight of
interstate utilities exclusively to the Federal Energy Regulatory Commission.
He ruled that only the commission may bring an action involving energy sales
into federal court -- unless it is a request to review a commission order,
and that goes directly to an appellate court.
The lawsuit before Damrell was brought by the ISO to force Reliant and two
other generators to respond to ISO's emergency orders for power, even though
the agency is buying on behalf of two retailers that are broke and hopelessly
in debt.
Because Pacific Gas and Electric Co. and Southern California Edison can't pay
their bills -- about $14 billion -- some wholesalers want to cut off sales to
the utilities.
The other three defendants in the ISO's suit -- Dynegy Power Corp. of Houston
and Tulsa-based AES Corp. and its marketer, Williams Energy Marketing &
Trading Co. -- have entered into written agreements with ISO to continue
supplying emergency power until the FERC decides whether they are required to
sell to companies that are not creditworthy.
But Charles Robinson, ISO general counsel, points out that the generators can
rescind those agreements with 48 hours' notice.
"My hope is this is a temporary setback," said Robinson. He added, however,
that the practical effect is "at least for now, we don't have a tool to
compel them to do what we believe they're obligated to do" -- respond to
emergency demands for power.
Reliant has insisted since the suit was filed Feb. 6 that Damrell has no
jurisdiction over the rate schedules that govern dealings between generators
and the ISO, and that the Federal Power Act mandates that the FERC must
settle any disputes about terms of those tariffs.
In issuing the injunction, Damrell acknowledged that the FERC has special
expertise concerning agreements between generators and ISO.
"Absent the extreme exigencies of the California power crisis, the court
agrees that a stay pending further action by the FERC would be proper," he
said. "But those are not the facts here. Electricity is in critically short
supply. The health and safety of the people of California are potentially at
risk."
Immediately upon receiving the 9th Circuit's order Thursday, attorneys for
the ISO asked Damrell to set an accelerated schedule for its motion to amend
the suit. The agency apparently has crafted a new complaint stressing its
view that the matter is an ordinary contract dispute over which the judge has
jurisdiction.
Damrell scheduled a hearing on the motion for Thursday.
In a further development that could complicate the state's dire need for
energy, an alternative supplier won a court fight Thursday to bypass the big
utilities and sell its power on the open market.
Timber giant Sierra Pacific Industries, which operates four biomass plants
that produce power for PG&E, obtained a temporary restraining order in
Sacramento Superior Court that says Sierra Pacific is not required to sell
its power to PG&E.
The ruling means PG&E and Southern Edison could lose power as alternative
energy generators, fed up with months of nonpayment, sue to be able to sell
their comparatively cheap product elsewhere, including outside the state.

The Bee's Denny Walsh can be reached at (916) 321-1189 or dwalsh@sacbee.com.
Bee staff writer Dale Kasler contributed to this report.
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Dan Walters: Hertzberg's oversight is looking more like a whitewash

(Published April 9, 2001)
When Bob Hertzberg was elevated into the Assembly speakership a year ago, he
pledged to make a priority of what's called "oversight" -- the much-neglected
legislative duty to examine how administrative agencies operate programs.
"We pass all these bills," Hertzberg said in a speech shortly after being
elected speaker. "What do they mean? What did they do? We intend to do a
great deal of oversight."
Seemingly, Hertzberg made good on his pledge when the Assembly conducted an
exemplary, bipartisan investigation of state Insurance Commissioner Chuck
Quackenbush's questionable regulation of insurers. The Assembly investigation
was the key factor in Quackenbush's decision to abandon his once-promising
political career.
Flaying Republican Quackenbush for his shortcomings was relatively easy for
Democrat Hertzberg. Would he, many wondered, be equally eager to examine
wrongdoing, or simple incompetence, by Democratic officeholders, especially
Gov. Gray Davis?
The answer, apparently, is no. While there are many potential targets for
deeply probing legislative examinations, Hertzberg and his much-vaunted staff
of investigators have not given them the same attention as Quackenbush
received.
Early this year, the Hertzberg hit team went to work on the energy crisis,
and Assemblyman Darrell Steinberg, D-Sacramento, was appointed to chair a
special committee that was to delve into how the crisis came to pass. But
after fiddling around with the matter for several weeks and failing to
pinpoint some easy villains, the investigation sputtered.
The moratorium on oversight occurred just as the committee was moving into an
area that could have been embarrassing to Davis and state Public Utilities
Commission President Loretta Lynch -- what they did or did not do last summer
when the crisis first became apparent. It's an area of inquiry whose
importance was magnified by Friday's bankruptcy filing by Pacific Gas and
Electric Co. Republicans complained about the investigation's shutdown, but
to no avail.
The hollowness of Hertzberg's oversight pledge was demonstrated again the
other day when a subcommittee of the Assembly Governmental Organization
Committee staged what it described as an "informational hearing" on what are
arguably the state's two most dysfunctional agencies, the Department of
Veterans Affairs and the California National Guard.
The former is a mess from top to bottom and has been for years. Its two major
functions, providing home loans to veterans and operating two residential
facilities for aged and/or ill veterans, have been plagued by mismanagement
and downright neglect. It's been a notorious dumping ground for political
hacks through several gubernatorial administrations. Agency secretaries have
come and gone in clouds of personal scandal.
Revelations about the National Guard are more recent but equally disturbing.
Its readiness for either active military duty or responding to state
disasters has declined, and its non-military programs supposedly serving
delinquent youths are marginally effective at best and riddled with financial
irregularities. Under Adj. Gen. Paul Monroe, the Guard has become top-heavy
with cronies while Monroe has feuded openly with his second-in-command, Ezell
Ware. At one point this year, Monroe unilaterally dumped Ware from the slot
to which he had been appointed by Davis, but within four days Ware was
restored to his deputy's position.
The subcommittee's chairman, first-term Assemblyman Ed Chavez, D-La Puente,
conducted what can only be described as a sham hearing, allowing bureaucrats
for both agencies to emit a blizzard of self-serving statements and data with
little or no questioning, and then praising them for their appearances.
Monroe, he said, "showcased the National Guard as we had hoped."
If the aborted energy investigation and the Chavez hearing were what
Hertzberg had in mind as "oversight," a better word might be "whitewash."

The Bee's Dan Walters can be reached at (916) 321-1195 or dwalters@sacbee.com
.
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PG&E awards bonuses hours before filing Chapter 11

ASSOCIATED PRESS
April 8, 2001
SAN FRANCISCO ) As a reward for "staying the course" the parent company of
Pacific Gas and Electric Co. awarded about 6,000 bonuses and raises to
midlevel managers and other employees hours before the utility filed for
bankruptcy, a newspaper reported.
PG&E Corp. Chairman Robert Glynn issued an internal memo late Thursday that
incentive payments denied in January would be awarded to eligible employees
at the subsidiary utility.
The payments were made in time for many of the bonuses to be deposited into
workers' bank accounts before the utility filed for Chapter 11 Friday
morning, the San Francisco Chronicle reported Saturday after obtaining a copy
of the memo.
Gov. Gray Davis issued a brief statement Saturday in response saying "PG&E's
management is suffering from two afflictions: denial and greed."
Glynn applauded the employees' "efforts, teamwork and dedication during the
past year, and particularly throughout the ongoing energy crisis," he wrote.
"Thank you for staying the course."
The bonuses and raises were earned as part of the company's incentive
program. In January, the amount owed to employees who met their department
objectives was estimated at $83 million, Pacific Gas & Electric Co. spokesman
Ron Low said Saturday.
The amount paid out was less than the earlier estimate because top-level
company executives were exempt from payment. Low did not have a dollar figure
for the amount paid out but said it was based only on department objectives
met by employees.
Low said the money came from a combination of a $1.1 billion tax refund,
paying power generators only what the company receives in rates and cash
conservation within the company such as halting the installation of
underground distribution lines.
The raises and bonuses were given to secretarial staff, midlevel managers and
other support staff. No money was distributed to rank-and-file union members
who already received a wage increase earlier this year as part of their
contract, Low said.
The performance-based bonuses can equal up to four weeks of an employee's
regular salary, said company spokesman John Nelson.
Annual raises average 3 percent of an employee's salary and are meant to
balance cost-of-living expenses, he said.
Los Angeles lawyer David Huard of Manatt, Phelps & Phillips said the practice
of compensating employees prior to filing Chapter 11 is not uncommon. In
addition, the U.S. bankruptcy court in San Francisco granted approval for
Pacific Gas & Electric Co. to make outstanding compensation payments to
employees and to maintain related bank accounts.
"It's not unusual for corporations anticipating bankruptcy to sweeten the pot
and encourage management to stay," Huard said.
But Assembly Republican Leader Dave Cox, R-Fair Oaks, said it's disgraceful
to the state's ratepayers.
"On the surface it's outrageous," he said. "Declaring bankruptcy and at the
same time providing increases and bonuses for employees would just be in your
face to the consumers of the state of California."
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PG&E looks to court for debt relief; Davis promises to expedite deal with
Edison

By Ed Mendel
UNION-TRIBUNE STAFF WRITER
April 7, 2001
SACRAMENTO -- California's electricity crisis entered a new phase of open
combat yesterday when the state's largest utility, Pacific Gas and Electric,
suddenly declared bankruptcy, blaming Gov. Gray Davis for delaying
negotiations.
Davis said San Francisco-based PG&E has "dishonored itself" and that he vows
to complete an agreement with Southern California Edison soon to show that
negotiation, not bankruptcy, is the best way out of the crisis.
PG&E said routine service will continue and that no employees will be laid
off. The bankruptcy filing halts attempts to collect debts from the utility
as a judge begins a process that some think could be lengthy, with an
uncertain outcome.

Utility argues for Otay power plant
United at the start, lawmakers now split on how to clean mess
GOP activists feel state is being snubbed by Bush
Continuing coverage: California's Power Crisis
?

The utility filed for protection under Chapter 11 of the federal bankruptcy
law, which means it plans to reorganize and pay off its debt over time. The
bankruptcy judge, Dennis Montali of San Francisco, may seek a change in a big
rate increase approved by the Public Utilities Commission last week for PG&E
customers.
Creditors form committees under the bankruptcy process to represent their
interests. Angry consumer groups said they will form a committee of their own
and attempt to become part of the process.
The consumer groups accused PG&E of maneuvering to protect its parent firm,
PG&E Corp., while forcing ratepayers to pay off an $8.9 billion debt, run up
while rates were frozen under deregulation and wholesale power costs soared.
"The holding company vacuumed all of the assets out of the utility and is
perfectly willing to let it go bankrupt," said Nettie Hoge of The Utility
Reform Network in San Francisco.
Senate Energy Committee Chairwoman Debra Bowen, D-Marina del Rey, a lawyer
who worked on the Chrysler bankruptcy, predicted one benefit of the
bankruptcy will be that generators accused of gouging California will not get
full payment.
"There is no way generators expecting to get paid 100 cents on the dollar
come out of a bankruptcy with 100 cents on the dollar," Bowen said.
The surprise PG&E announcement came the morning after the governor used a
statewide televised address to reassure the public that he had a plan for
ending the crisis, which included paying off the utilities' huge debt.
But PG&E, which has resisted state purchase of its transmission system in
exchange for payment of its debt, said it concluded that the court offers the
best way out while the utility continues routine service to customers.
"The regulatory and political processes have not provided a solution, and now
we are turning to the court," said Robert Glynn Jr., chairman of PG&E Corp.
Glynn said Davis aides did not meet with PG&E for more than three weeks while
they tried to wrap up the Edison deal and that they then did little in a
meeting this week.
"We have heard a lot of words from the Sacramento sources that simply have
not come to fruition," Glynn said.
The governor, who used the televised address to drop his opposition to a big
rate increase and propose one of his own, was not happy to learn that he has
lost his battle to keep the utilities out of bankruptcy.
"I believe PG&E has dishonored itself," Davis said as he signed a bill in
downtown San Diego yesterday. "It has created undue alarm among 34 million
citizens of this state."
Davis acknowledged that the PG&E bankruptcy may force him to alter his rescue
plan based on the principle that the utilities must give the state something
in exchange for aid in paying off their debts.
To make the deal work, he said, he needs the transmission systems of all
three utilities: PG&E, Edison, and San Diego Gas and Electric.
The judge and the creditor committees presumably would have to approve the
sale of the PG&E transmission system. If that is not possible, Davis said, he
will negotiate for "comparable assets," such as the hydroelectric facilities
owned by the utilities.
The governor's plan would give the utilities part of the revenue from the
monthly bills paid by their customers -- a "dedicated rate component" -- that
could be used to finance an $8 billion bond to pay off their debts.
In San Diego, the governor signed a bill that extends the SDG&E rate cap to
businesses, retroactive to Feb. 7. He appeared earlier at an Escondido
elementary school, where he praised student conservation efforts.
Davis told reporters that PG&E chairman Glynn told him a week ago that the
PG&E board was one vote short of filing for bankruptcy and that seeking a
solution in the court was "a very real option."
The governor said PG&E chose to further its own interests, not the best
interest of Californians. In contrast, he said, PG&E's creditors have acted
responsibly and shown faith in negotiations by not pushing the utility into
bankruptcy.
"I am pleased that Southern California Edison and San Diego Gas and Electric
are allowing us to negotiate a settlement as opposed to forcing this matter
into bankruptcy," he said.
Davis said he planned to attend a previously scheduled meeting yesterday
afternoon with John Bryson, Edison's top executive, to work on the final
issues in the purchase of its transmission system.
"We are down to a few remaining issues that we hope to work out within the
next very few days," Davis said.
Southern California's parent, Edison International, yesterday emphasized the
importance of completing the sale of the transmission system quickly to
prevent creditors from taking the utility into bankruptcy.
Lynn LoPucki, a UCLA law professor who specializes in corporate bankruptcies,
predicted that Edison will follow PG&E into bankruptcy. He said the two
utilities have comparable business plans and have made similar decisions so
far.
"They have pretty much marched together on this," LoPucki said.
PG&E and Edison say they ran up a combined debt of $13 billion when their
rates were frozen under deregulation last year and wholesale power costs
soared.
After generators refused to extend the utilities more credit, the state was
forced to begin buying power for utility customers in mid-January. The state
has spent more than $4 billion so far, most of it on the expensive spot
market.
The state has signed more than $40 billion worth of long-term contracts to
provide cheaper power during the next 10 years. The state general fund will
be repaid by a bond of $12 billion or more, paid off by ratepayers over a
dozen years.
Glynn said PG&E decided to declare bankruptcy because the PUC, while raising
the utility's rates last week, gave the additional money to the state for its
power purchases and imposed new costs on PG&E by requiring the utility to pay
small nonutility generators.
In addition, said Glynn, the PUC adopted an "illegal and retroactive
accounting change" advocated by consumer groups that would have counted
transfers to the parent firm to offset the estimate of the utility's debt.
But another important factor was that the state has not been paying for
expensive last-minute power acquisitions made by the Independent System
Operator to keep the grid at minimum levels.
Glynn said the state has been improperly assigning the cost of this expensive
emergency power to PG&E, increasing the utility's debt at an estimated rate
of $300 million a month.
Ironically, federal regulators ruled yesterday that generators cannot be
forced to sell emergency power to the California grid if the utilities can't
pay for it. Now the state may have to begin paying for the emergency power.
PG&E contends that if the PUC had approved its request for a rate increase
last fall, the utility would have raised rates less than the PUC and Davis
have proposed, obtained cheap long-term power contracts, and thus the state
would not have had to begin buying power.
Under bankruptcy, PG&E said it will be able to pay all new bills, continue
normal service to its customers, and provide health care and other benefits
to its employees and retirees. But payments on bonds and loans may be
suspended, the utility said.
Glynn said he expected bankruptcy to aid shareholders by halting PG&E's
mounting debt. But the surprising move caused the stock of all three
California utilities to drop yesterday, and trading in PG&E stock was halted
briefly.
Some small nonutility generators that operate under the federal "qualifying
facilities" program have formed a creditors committee, the first step toward
taking Edison into bankruptcy.
A spokesman for the creditors committee, Jack Raudy, said yesterday that
PG&E's bankruptcy "underscores the state's critical need for a real solution
without further delay."
The generators who formed the creditors committee get power from "renewable"
sources such as wind, solar, geothermal and biomass. Nonutility
"co-generators" use natural-gas turbines and sell the waste heat to
businesses.
"None of the members that I represent are interested in putting Edison into
involuntary bankruptcy," said Ann MacLeod of the California Cogeneration
Council.
Staff writers Bruce V. Bigelow, Karen Kucher and Eleanor Yang contributed to
this report.
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Utility argues for Otay power plant

Rivals claim it would add to area pollution
By Jeff McDonald
UNION-TRIBUNE STAFF WRITER
April 7, 2001
While attorneys for the state's largest utility were filing for bankruptcy
protection in San Francisco yesterday, executives from its sister company
were in San Diego lobbying state energy officials to push ahead with a huge
investment.
At a committee hearing in the County Administration Building yesterday, PG&E
National Energy Group urged a California Energy Commission committee to
approve plans for a 510-megawatt power plant on Otay Mesa. Operators of two
power plants in the county opposed the request, saying it could result in
dirtier skies.
"We're focused on getting this plant on-line as soon as possible," project
manager Sharon Segner told the panel. "Any (commission) delay, whether it's a
week or a month, presents greater risk of this plant not coming online in
2003 .?.?. The schedule is already tight."
The bankruptcy filing by Pacific Gas and Electric has no effect on the Otay
Mesa project, Segner said. "It may be confusing to the public, but at the end
of the day, we are separate companies," she said after the hearing.
The Otay Mesa application, which has been in the works for more than three
years, is expected to be considered by the full commission April 18. The
plant would provide enough power for roughly 380,000 homes and businesses.
The siting committee has indicated its support for the project, but the
hearing yesterday was intended to give opponents and members of the public an
opportunity to testify for and against the plant.
Attorneys for the owners of the Encina and South Bay power plants urged the
committee to reject the Otay Mesa project, saying the area's natural-gas
pipelines could not accommodate enough fuel to supply another plant.
What's more, lawyers for Duke Energy and Cabrillo Power said, the Otay Mesa
plant could only run on natural gas. The two existing plants can run on
natural gas or fuel oil, which causes more pollution. If there are natural
gas shortages, the lawyers said their clients would have to burn the dirtier
fuel.
"We would be criticized for that publicly," said Jane Luckhardt, an attorney
for Duke Energy, which operates the South Bay plant in Chula Vista. "We will
be forced to purchase very expensive (smog) emission credits."
A consultant for Cabrillo Power, which co-owns the Encina plant in Carlsbad,
also told the committee that the Otay Mesa facility would hurt his clients.
Robert Weatherwax of Sierra Energy and Risk Assessment told the panel that
allowing the Otay Mesa plant would create as much as 800 tons of smog,
although he did not specify over how long a period the extra smog would be
created.
The new power plant "will force Encina and South Bay to burn more oil,"
Weatherwax warned.
The PG&E National Energy Group said it will get much of its fuel from a
natural gas pipeline scheduled to be built between Blythe and Tijuana. Gas
from that line would power both the Otay Mesa plant and another in Rosarito,
Mexico, company officials said.
"There's no nexus between our proceeding and their issues," Segner said of
the complaints from Duke Energy and Cabrillo Power attorneys.
The Otay Mesa power plant application won praise from several business groups
as well as Supervisor Bill Horn, who urged the committee to approve the
project as soon as possible.
Horn said he received numerous complaints from area biotechnology firms after
rolling blackouts hit San Diego County for the first time last month. Three
companies in particular reported losing years of research, he said.
The Otay Mesa project "will play a key role in solving the energy problem
that's plaguing San Diego County," Horn told the committee. While the plant
would brighten the West's electricity supply picture, there is no requirement
that the power generated at the Otay Mesa plant be used in San Diego County.
The project was opposed by some environmentalists, who chastised the
California Energy Commission for relying too heavily on fossil fuels for the
state's power needs.
William Claycomb of the Save Our Bay nonprofit group said commissioners
should focus more attention on lowering the price of photovoltaic systems,
which use solar power to provide energy to homes and businesses.
"We're going to spend a lot of time and money building power plants up to our
ears that won't be needed" in the coming years, Claycomb said. "The sun is
the ultimate source of energy."
Ownership of the Otay Mesa plant will be transferred to Calpine Corp. of San
Jose once final approval is granted by the state Energy Commission.
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United at the start, lawmakers now split on how to clean mess

By Toby Eckert?
COPLEY NEWS SERVICE
April 7, 2001
WASHINGTON -- Back in 1997, as California's experiment with electricity
deregulation was about to get under way, the state's entire House delegation
signed a letter assuring congressional leaders that the plan would "provide
tremendous benefits to the citizens of our state."
Now that the experiment is acknowledged as an abject failure, the delegation
has yet to present a united front on what, if anything, the federal
government should do to help out.
Most notably, there seems to be no consensus on the wisdom of slapping
federal price controls on the stratospheric cost of wholesale power in the
West. While nearly all California Democrats have publicly embraced the
proposal, including U.S. Sens. Dianne Feinstein and Barbara Boxer, only a
handful of Republicans have joined them.
"In terms of price caps, there are deep divisions," an aide to one top
California Republican said.
Many GOP members worry that price controls "would leave (power companies)
disinterested in selling to the California market," aggravating the
electricity shortage, the aide said.
The feeling is not unanimous among Republicans, however. Republican Reps.
Duncan Hunter of El Cajon and Randy "Duke" Cunningham of Escondido -- whose
San Diego-area constituents were hit with huge power bills last summer --
have advocated wholesale price limits.
And some Democrats suspect there are more California Republicans who are
willing to support price controls but are wary of publicly challenging the
Bush administration, which adamantly opposes the limits.
"I think there are Republicans who are very supportive. And we hope that they
will join us," said Rep. Susan Davis, D-San Diego.
California consumer advocates, who favor price controls, are critical of the
congressional response.
"They all organized themselves when it came time to pushing for the utility
companies (who favored deregulation). But they're not organized at all when
it comes to (price) caps. They're AWOL," said Harvey Rosenfield, president of
the Santa Monica-based Foundation for Taxpayer and Consumer Rights.
But Tim Ransdell, executive director of the nonpartisan California Institute
for Federal Policy Research, said the divisions in the congressional
delegation reflect the complexity of the power crisis.
"If there was a silver bullet for this, if there was a single obvious remedy,
I think Californians would flock to it," Ransdell said. "Price caps may be
the right way to go or they may not be. There are strong arguments in varying
directions. They've got to do something. Nobody knows what the right
something is."
Congressional delegations from other states affected by the power crisis,
such as Washington and Oregon, are similarly divided.
Despite the rift over price controls, the GOP aide maintained that California
Republicans and Democrats "have worked together in a number of ways to ensure
that the (Bush) administration is paying attention to the problem and doing
what it can."
Members of both parties sent strong signals to the administration that the
Federal Energy Regulatory Commission was not doing enough to address the
power crisis, the aide said. That message played a role in President Bush's
reported desire to replace FERC Chairman Curtis Hebert and the commission's
subsequent flurry of threats to order power providers to pay refunds for
overcharging California utilities, the aide speculated.
Other observers say Bush merely wants to install his "own man" as head of
FERC -- former Texas utility regulator Pat Wood -- and that the agency's
actions amount to tokenism.
Some Democrats believe that the pressure for federal electricity price
controls will grow as consumers throughout California start seeing a recent
retail rate hike show up in their bills. Widespread blackouts this summer
could add more momentum.
"I think we're going to be witnessing initiatives, referenda, recall efforts,
a consumer revolution in California unless we find a way to put a tourniquet
on this problem," said Rep. Jane Harman, D-Venice.
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GOP activists feel state is being snubbed by Bush

They fault administration's handling of energy crisis
By George E. Condon Jr.
COPLEY NEWS SERVICE
April 7, 2001
WASHINGTON -- California Republican activists are starting to grow restive at
what many see as President Bush's inattention to the nation's largest state
in the opening months of his administration.
Despite frequent assurances from the White House that the president has
California concerns on his agenda, many Republicans believe that he has
already missed an opportunity to rebound from his shellacking in the state in
November's election.
"It is a slow, day-by-day erosion of California confidence in the
administration's understanding of the needs and desires of Californians.
There are people here who are getting pretty nervous," said a senior
Republican, who has been heavily involved in Republican administrations in
Sacramento and Washington.
"It's just slowly backing up in the California consciousness that these guys
look like they're completely out of touch with mainstream California
concerns," said the Republican, a longtime Bush supporter who would speak
only on the condition that he not be named out of fear of being branded
"disloyal" by the White House.
Other Republicans are equally cautious about going public with their
concerns. But they don't like what they have seen so far:
?By the end of next week, Bush will have visited 25 states, including 11 of
the most populous 13, but not California.
?There is no Californian among the president's senior domestic advisers. The
highest-ranking Californians on the president's domestic staff are Ruben
Barrales, director of the office of intergovernmental affairs, and Lezlee
Westine, director of public liaison.
?His early environmental and abortion actions have been at odds with majority
California views.
?The administration's early positions on the energy crisis have come across
to many Californians as aloof and uninvolved.
Gerry Parsky, the Rancho Santa Fe investment banker who ran the Texan's
California campaign last year, is the president's prime adviser in the state.
He disagrees with the criticism now bubbling up and urges skeptics to take a
second look.
"My message is that from the moment that this president began his campaign
for the presidency, he made it clear that California was important to him and
that he was committed to helping change the face of the Republican Party in
California and to reach out to people that felt left out," said Parsky.
"That began with the campaign, it carried throughout the campaign. And since
he's been president, he's demonstrated repeatedly, with appointments he has
made and with his continual contact with the state, that he hasn't changed
his position at all," added Parsky.
Three Californians serve in Bush's Cabinet: Ann Veneman, Norman Mineta and
Anthony Principi are, respectively, secretaries of agriculture,
transportation and veterans affairs.
At the White House, spokesman Ken Lisaius objected to tallies of presidential
trips that have excluded California.
"It's a little unfair to say that, because somebody is not there, that they
don't care or they're ignoring the state," he said, calling administration
officials "very engaged" in the state's issues.
But other Republicans say there are few visible signs of that engagement.
More troubling than the president's travel itinerary, they say, has been the
administration's handling of the state's energy crisis. With staunch
opposition to price caps and the appointment of a Dick Cheney-led task force,
the administration has emphasized that the problem was caused by a bad
California law and it is up to Californians to extricate themselves from the
mess.
Over and over, Democrats -- gleefully -- and Republicans -- ruefully -- say
the impression left has been a paraphrase of the famous 1970s New York
tabloid headline: "Bush to California: Drop Dead!"
"Substantively, the administration has been saying all the right things,"
said veteran state Republican operative Dan Schnur. "But stylistically, the
message that Californians hear is that George Bush doesn't care."
Energy, he said, "is the only issue in California right now and the
administration's distance represents a missed opportunity to make up lost
ground."
Garry Sragow, a Democratic consultant in the state, said his daily tracking
polls since Bush's inauguration show his popularity remaining flat in
California, evincing none of the honeymoon bounce evident nationally. But he
said there has been a steady, daily increase in the number of Californians
who say the president should "do more" about the energy crisis. That number
now stands, he said, at two-thirds of Californians.
"He is not feeling our pain the way Bill Clinton did," said Sherry Bebitch
Jeffe, a political scientist at the University of Southern California. "There
is a disconnect between George Bush and California."
Democratic pollster Mark Mellman said the message is clear:
"He doesn't care enough about the state to even show up. And on the issue
most critically important to the state, he refuses to do anything. There
couldn't be a bigger kiss-off."
There have been no recent public polls. Surveys of California voters taken
for the administration show Bush's popularity lagging below his national
numbers.
"He's got no place to go but up," said Sragow. "He started off with his
hard-core base in California. He's not going to lose them. The question is,
will he begin to attract swing voters? And he has made no effort to do that
yet."
It is with these voters that the environmental decisions have been damaging,
said several analysts, who also noted the sharp contrast between the current
approach to the state and that adopted by Clinton.
"We got accused of throwing too much to California and ignoring the rest of
the country. He's getting accused of the opposite," said John Emerson, the
California lawyer who was a senior adviser to Clinton.
Unless it is changed, he warned, Bush's hands-off approach to the state
"almost fore-ordains a blowout" loss in 2004.
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With Power Price Surges, California's a Follower

Energy: Much of the nation is already being zapped by double-digit increases.
Several states have higher rates. Deregulation, anti-pollution laws and
distance from fuel sources are to blame.

By ERIC SLATER, Times Staff Writer

?????CHICAGO--For all its energy notoriety and outrage over surging
electricity rates, California has plenty of company. Much of the nation faces
double-digit price hikes, and several states--especially in the
East--continue to pay more for electricity than California.
?????Not even Gov. Gray Davis' reluctant proposal last week to kick rates up
as much as 34.5% for the heaviest residential users would guarantee
California the dubious honor of having the priciest electricity in the United
States.
?????Overshadowed by the rhetoric, lawsuits and rolling blackouts is the fact
that Californians have been paying less for electricity than residents in
Rhode Island, New Hampshire, Vermont, New York, Alaska and, by a longshot,
Hawaii. California, in fact, is barely in the top 10 when it comes to
electrical prices.
?????One of the reasons that Californians have been paying less is because
they conserve more, with the average resident draining 40% less from the grid
than the average American.
?????Another reason, however, is that California's rates have been frozen by
law, even as the lids have been coming off the prices in other states that
are deregulating their utilities.
?????"I don't know about you guys," said state Sen. Sheila Kuehl (D-Santa
Monica) at a hearing last week in Sacramento, "but my constituents don't
think they suffered over the past several years because their rates didn't go
up 45% and 50% the way they did in New York and Pennsylvania and other parts
of this country."
?????These dramatic price spikes are driven by a strange, worst-case
confluence of electrical-world forces.
?????A drought in the Northwest means that there's not enough water to turn
the turbines in the great hydroelectric dams; massive price increases for
natural gas come even as the country is moving toward more natural
gas-powered electrical generators; and the deregulation of utilities--left
largely up to individual states--has proved more complicated than almost
anyone dreamed.
?????"We look at it as a perfect storm," Rep. Jay Inslee (D-Wash.) said of
the improbably bad stew of circumstances.
?????In Boston, residential users face a possible 23% hike, industrial
customers 69%. In Cheyenne, Wyo., some residential customers are insulating
themselves against possible hikes of 57%, with some commercial customers
looking at an 88% jump. In Idaho, they're talking hikes of between 34% and
63% for some customers. In Nevada, rate hikes scheduled at more than 1% a
month, starting in September and continuing until September 2003, will raise
residential rates about 75%.
?????All this after two decades of steadily declining electricity rates in
the U.S.--with almost all of the price drops preceding the deregulation that
was supposed to bring down prices.

?????Price of Power Fell Steadily for Years
?????In the early 1980s, one kilowatt hour of power cost residential
customers about a dime. Over the next two decades, Americans began to employ
more energy-efficient appliances, computers, even lightbulbs, and utilities
produced their power more and more efficiently.
?????At the same time, utilities took advantage of low interest rates to help
retire massive debt incurred during the high-cost, post-Chernobyl building of
nuclear reactors, and they were thus able to pass on further savings to
customers.
?????By last year, buying a kilowatt hour set the average American back just
7.5 cents.
?????The trend has suddenly stopped.
?????In a forecast released Friday, the Energy Information Administration
predicts that a kilowatt hour will cost about 8 cents on average nationally
by the end of this year and rise another half-cent in 2002.
?????"For the first time in a long time, the prices are going up," said
administration forecaster Neil Gamson.
?????A one-cent increase in the price per kilowatt hour would boost the
monthly bill of a typical California residential customer by about $10, to
$117. For big industrial users, the extra monthly cost could be in the
thousands.
?????Substantial regional differences have always existed, with the Northeast
the longtime home of the highest prices in the continental U.S. Some
Northeastern customers pay twice as much, or more, than consumers 3,000 miles
due west.
?????One reason is that, although environmental laws in the Northeast are
typically less stringent than those in California and the Northwest, growing
concerns and tougher anti-pollution legislation have forced utilities to
shift away from the higher-polluting coal-powered generators and toward
cleaner-burning natural gas. The environmentally conscious move has left
them, like several other areas, vulnerable to the recent price spikes of
natural gas.
?????The Northeast is also farther from most major sources of fuel, including
natural gas, oil and coal.
?????Several states in the Northeast, including Connecticut, Maine, New
Hampshire, New York and Massachusetts, are actively deregulating. Like
California, only with less drama, they are finding the birth of a free market
painful and expensive.
?????Under Massachusetts' deregulation statute, the standard retail rate for
a kilowatt hour was fixed at an average of just over 9 cents through 2005.
However, the rise in natural gas prices has left utilities pleading with
regulators to allow them to raise prices, lest they face California's problem
of selling their power at a loss--precisely the circumstance that led the
Pacific Gas & Electric Co. of San Francisco to declare bankruptcy Friday.

?????Kilowatt Hour's Average Cost Rising
?????Earlier this month, the Massachusetts Electric Co. got the go-ahead to
charge 270,000 residential customers an additional 23%. Statewide, analysts
say, the average price of a kilowatt hour is probably edging up from its
already high October figure, the last available, of 11.2 cents.
?????In New York, the average cost of a kilowatt hour statewide was 14.1
cents in October. However, even under a deregulation plan that won't fully
free the utilities from price controls until 2002, some New York City
residents have seen their rates rise by nearly 20%, to 13.9 cents a kilowatt
hour, in recent months.
?????Still, Cornell University economist Tim Mount said he would be surprised
and "very disappointed if we mess things up in the East as badly as they
messed it up in California. I think the regulators thought that it would be
easy to run a market, and they didn't allow for very much malfeasance" on the
part of newly untethered utilities or private power generators.
?????The South, with its coal reserves, has long hovered in the relatively
cheap range of 6 to 8 cents per kilowatt hour and, along with the Midwest, is
likely to be among the most stable areas in the near future.
?????Several states in the South and Midwest are also among the last to
consider deregulation--for the very reason that their power is already
cheap--and so may benefit the most from studying the daily jolt of news out
of California.
?????The Midwest has, as with so many things, been a picture of moderation
when it comes to electrical rates. A kilowatt hour goes for 7 to 8 cents or,
in the case of Illinois, a bit over 9 cents. (Chicago, the country's
third-largest city and the location of several infamous--although
localized--blackouts in 1999, tends to raise the state's average
considerably.)
?????Having continued to build power plants when states in the West and East
had all but halted construction, and with Illinois home to 11
price-stabilizing nuclear reactors, the Midwest is expected to hold the line,
at least in the near future.
?????The Northwest, long the land of cheap, clean hydroelectric power, is
already beginning to see its 5- and 6-cent electric rates climb.
?????Many of the utilities in the Northwest receive huge portions of their
juice from the Bonneville Power Administration, which oversees 29 dams in the
Columbia and Snake River basins and provides 45% of the region's electricity.
?????However, the severity of the region's drought--and the accompanying
electricity shortage--was illustrated last week when the BPA announced that
it would stop spilling precious water over its dams to help the spring salmon
run.
?????Announcing the news to residents who for decades have fought to restore
salmon runs decimated by the dams was perhaps made a bit easier for acting
BPA administrator Steve Wright because he had previously made another
announcement. The BPA, Wright said, would likely be raising its own wholesale
rates from 95% to 200% come October.
?????Some of the rate hikes around the country are surcharges, meant to fill
utility coffers left empty by the leap in natural gas prices, for example.
Many others, however, are viewed as permanent. In the West, especially, there
is simply no reason to believe that costs will drop any time soon.
?????The bankruptcy move Friday by PG&E only solidified that widely held
opinion. Among its other worries, Bonneville has been holding a $100-million
IOU from California utilities--half of it owed by PG&E--and hoping that money
would help to mitigate its rate hikes to other customers.
?????When PG&E became the biggest utility in U.S. history to seek bankruptcy
protection, BPA became just another creditor likely to lose money.
---
?????Times staff writer Julie Tamaki in Sacramento contributed to this story.
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Judge in PG&E Bankruptcy Case Seen as a Problem Solver

Courts: Dennis Montali will face unprecedented legal complexities.

By MAURA DOLAN, Times Legal Affairs Writer

*

Bankruptcy Judge Dennis Montali is called a "reasonable man."
AP

?????SAN FRANCISCO--U.S. Bankruptcy Judge Dennis Montali, who will oversee
Pacific Gas & Electric Co.'s bankruptcy reorganization, is a highly respected
scholar and effective mediator known for persuading reluctant parties to
reach agreement.
?????In a recent case, Montali achieved in only three days a settlement
between a debtor and creditors in the bankruptcy of an international
engineering firm. The case had been in bruising litigation for two years when
another judge asked Montali to mediate it.
?????As a lawyer, Montali helped divert a statewide agricultural crisis 10
years ago by persuading warring factions to accept a deal in the bankruptcy
of an agricultural cooperative, according to a lawyer in the case.
?????"He is very good at not embarrassing people but getting them to
understand they are wrong," said lawyer Larry Engel, who has known and worked
with Montali for two decades.
?????Montali, 60, the son of a winemaker, grew up in San Francisco and now
lives in Berkeley. He is considered among the top tier of bankruptcy experts
in the United States.
?????He will be calling the shots in one of the largest bankruptcy
reorganizations in U.S. history. The case raises unprecedented legal
questions and is expected to make new law. Some of the legal disputes may
wind up before the U.S. Supreme Court, attorneys said.
?????Lawyers who know the easygoing, witty judge say he is probably relishing
this legal challenge the way a golfer looks forward to playing a new and more
difficult course. The court action begins today, when Montali is expected to
decide whether PG&E can spend cash that others have laid claims to.
?????Right from the beginning, Montali will be in the limelight, and lawyers
will be eagerly searching for any clues to his leanings. Montali declined to
be interviewed, but those who know him say he is fair, smart, hard-working
and thoughtful. He does not browbeat, but quietly negotiates to bring people
around, lawyers said.
?????The judge is highly engaged in his cases. He is well prepared,
intellectually curious and knows the hard questions to ask, lawyers said. He
also is a relatively quick decision-maker, frequently ruling from the bench.
?????"Reality tends to come out" in his courtroom because Montali does not
allow lawyers to evade his questions, Engel said.
?????There are few precedents to guide Montali in many of the novel legal
questions he is likely to be asked to rule upon. Can he order electricity
rate hikes? The law is unclear. Can he force energy suppliers to hold down
their prices? Doubtful, bankruptcy lawyers said. Can he force PG&E's parent
company to cough up some money? Possibly. Can he force PG&E to sell off
assets? Yes, but probably not in the near term.
?????"This is going to be one of these cases where the envelope is going to
be pushed, and I think there is a danger in making any categorical statements
right now," said a bankruptcy lawyer who is involved in the case.
?????PG&E's Chapter 11 bankruptcy reorganization will be enormously complex
legally, lawyers said. Montali will have to reconcile state utility law and
federal energy law with bankruptcy law. Bankruptcy judges have broad
discretion to decide disputes, and Montali will control PG&E's purse strings.
?????Lawyers who know Montali well say he is savvy about using the Internet
to communicate court information, masters arcane legal subjects quickly, and
probably is thrilled to be making the calls in a case that will be watched
nationally.
?????Some people go on the bench to retire. Montali went on in 1993 to have
more fun intellectually, lawyers said.
?????Montali "tends to be very constructive," said another lawyer who asked
not to be identified by name because he may represent a creditor in the PG&E
case. "He wants his cases to go somewhere, and he tries to encourage people
to make progress."
?????Before he was appointed to the bench, Montali had practiced bankruptcy
law for more than two decades. He began representing debtors but was doing
primarily creditor work in his last law firm job with the city's venerable
Pillsbury, Madison & Sutro.
?????The bankruptcy bar he was a part of is relatively small, and the lawyers
who practice it know one another. Several lawyers interviewed about Montali
referred to him by his first name.
?????Because these lawyers are likely to be players together in many cases
over the years, trustworthiness is important, bankruptcy attorneys said.
Effectiveness requires that other members of the bar trust your word and
credibility.
?????The practice also requires knowledge of economics and economic terms,
ease both with deal making and trial work, and above all else, practicality,
lawyers said.
?????Whereas a business litigator may know exactly what he or she will be
doing two months from now, bankruptcy lawyers tend to operate on tight
deadlines with little notice. Many of these lawyers were at their desks over
the weekend preparing for the PG&E case.
?????"There is no one in town who is not part of this case," said Engel, who
is representing a municipal utility. "Everyone is involved."
?????Montali is tall, lanky and balding. His trademark is his handlebar
mustache, which he has worn for decades and which reflects his gregariousness
and humor, other lawyers said. He cooks Italian food expertly and likes to
sail around San Francisco Bay and walk his dog during his time away from
work. His wife, Mary, is in the real estate business, and they have three
grown daughters.
?????As a lawyer, Montali was masterful at bringing about a compromise in the
bankruptcy of a major agricultural cooperative a decade ago, Engels said. At
the time the co-op went bankrupt, farmers had picked their crops, but there
was no money to operate the canneries and no money to pay the growers.
Montali was representing a bank in the case.
?????"We could have had a disaster," Engel said. "Literally, imagine if 5,000
farmers lost their entire crop because there was nobody to take it. Each of
them would have gone into bankruptcy."
?????The parties locked themselves together in one place for a week and half.
Montali was "at the core of it," Engel said. He persuaded all parties to
agree to a plan that involved selling the cooperative. "He would take someone
who was being a problem over to the side and explain that it wasn't going to
work if they persisted that way," Engel said.
?????"He is the ultimate reasonable man who convinced them that this path is
the one they needed to be on in their own self-interest."
?????Richard Levin, a Los Angeles bankruptcy lawyer, said Montali has
"tremendous integrity." As a lawyer, he was cogent and forceful in arguments
and would make simple, clear statements that would cause everyone in the
courtroom to pause and think, Levin said.?????Montali earned a bachelor's
degree in English from Notre Dame University and then entered the Navy to
fulfill a Reserve Officer's Training Corps commitment.
?????He served in various officer positions on two destroyers and taught
briefly at the United States Navy Reserve Officers Candidate School in
Newport, R.I., before entering law school. He obtained his law degree from UC
Berkeley's Boalt Hall School of Law in 1968.
?????Montali has been elected to the National Bankruptcy Conference and the
American College of Bankruptcy, both elite bodies reserved for those at the
top of their field.
?????Last year, he was appointed to hear appeals in bankruptcy cases for the
U.S. 9th Circuit Court of Appeals in addition to his trial duties.
?????One of his first cases on the bench ended in disaster. Shortly after he
became a judge, he ruled in favor of a landlord who was trying to evict a
tenant. The tenant had a bankruptcy case before Montali.
?????The tenant later went to the landlord's office, shot and killed him,
wounded the landlord's son and tried to kill himself.
?????"I didn't have any regret about the decision," Montali told the Daily
Journal, a legal newspaper, several years ago. "But it reinforced in the real
world that I'm making decisions that affect people. It put some real meaning
into things."
?????In 1997, Montali ruled that a gay man was liable for damages because he
failed to warn his former lover that he was infected with HIV before they had
unprotected sex.
?????The case had wound up before Montali because the defendant filed for
bankruptcy to avoid paying monetary damages if he lost the sexual battery
lawsuit.

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Bankruptcy Filing Threatens Tax Bases

PG&E: Counties, particularly small ones like Plumas, depend on revenue for
schools and other services.

By RONE TEMPEST, Times Sacramento Bureau Chief

?????QUINCY, Calif.--The PG&E bankruptcy protection filing Friday came only
four days before the state's largest utility is to make $80 million in
property tax payments to 49 California counties.
?????In Northern California's remote Plumas County, this was especially bad
news. Because of its large hydroelectric holdings, Pacific Gas & Electric is
Plumas' largest taxpayer, accounting for about 18% of the county's
$2.3-billion tax base.
?????Bankruptcy laws usually require that government obligations, including
taxes, be paid first. But the uncertainty over financially crippled PG&E's
ability to pay sent tremors through government offices in the High Sierra
county south of Mt. Lassen.
?????"If we took a hit like that, we were probably looking at job layoffs and
program curtailments," said County Assessor Chuck Leonhardt. He said things
ranging from library books to police salaries could be affected.
?????The state's two biggest private utilities, PG&E and Southern California
Edison, annually pay more than a quarter-billion dollars in property taxes,
including $70 million levied on Edison by Los Angeles, Orange, Riverside and
San Bernardino counties. Edison officials said their company intends to meet
the Tuesday property tax deadline.
?????The biggest impact of unpaid taxes falls on the state, which is legally
required to supply most uncollected money that is for schools--which is most
of the property tax load. In smaller, rural counties like Plumas, which has a
permanent population of only 22,000, a utility tax default would seriously
reduce funding for other local services. PG&E pays Plumas almost $4 million a
year in taxes.
?????A large county that could be seriously hurt by a PG&E default is San
Luis Obispo on the central coast, where the utility's Diablo Canyon nuclear
plant generates $28 million in property taxes, about 15% of the county's tax
revenue.
?????"This is not catastrophic for us, but it is significant," said county
Auditor-Controller Gere Sibbach. Sibbach said one large school district, San
Luis Coastal, could come up $2 million short as a result of a PG&E default.
?????"That school district gets $10 million in taxes from PG&E," Sibbach
said, "but the state will only backfill for $8 million, so they would have to
cut programs if PG&E doesn't pay."
?????Plumas County faces a double threat in the PG&E bankruptcy filing.
?????Here, beautiful Lake Almanor and other hydroelectric reservoirs are
strung along the north fork of the cascading Feather River. The "PG&E lakes,"
as the reservoirs are known here, are what attract retirees and
tourists--mainstays of the fragile local economy since the timber industry
went into decline.
?????The landscape here is rich in broad, green valleys and more than 100
lakes. In addition to boating and fishing, the county has 10 golf
courses--one for each 2,200 residents.
?????Because hydroelectricity is at such a premium this year, the utility is
expected to suck all the water it can from Lake Almanor and nearby Bucks
Lake, bringing potential ruin to the area's tourism and recreation industry.
?????"They are probably going to draw every drop of water out of the lake
they can," said Marvin Alexander, one of the retirees who lives on Lake
Almanor. "The boat ramps won't even reach the water."
?????The equation here is simple: When lake levels fall too low, the fish
don't bite, the tourists don't come and the property values decline.
According to real estate agent Tim O'Brien, Lake Almanor homes have sold in
recent years for $500,000 to $1 million.
?????These days the housing market is slow. "This community basically lives
and dies by the lake levels," explained Chris Luna, a Chester civil engineer
and home builder.
?????The energy crisis is disrupting what had become a comfortable
relationship in recent years. For most of the last decade, Plumas County
homeowners and businesses have evolved a modus vivendi with PG&E.
?????With electricity in good supply, PG&E officials kept the lake high in
July to keep boaters and fishermen happy. Residents agreed not to make too
much fuss when the lake level declined in late August so the utilities could
generate power.
?????But now that the specter of rotating blackouts is haunting the populous
and politically powerful California lowlands this summer, few here hold out
much hope that PG&E will continue to be the benign water lord they have come
to know.
?????"I have a feeling," said Alexander, a former college administrator who
is on a local committee that deals with water rights, "that this year the
need for public power is going to take priority over the need for recreation."
?????PG&E spokeswoman Lisa Randle would not say how much water the utility is
drawing from the upper lakes. But Plumas County residents took it as an
ominous sign when the Buck's Creek Power House recently began gushing water
from its four big turbine discharge gates late every afternoon during peak
power periods. They are not accustomed to seeing that so early in the year.
?????The Buck's Creek station, amid flowering dogwood and redbud trees on
California 70 in the heart of Feather River Canyon, is one of the most
accessible and visible PG&E facilities along the Plumas County watershed that
engineers call the "stairsteps of power."
?????When all four discharge gates are open, as they were on a recent
afternoon, the station generates enough electricity to light 65,000 homes.
The power is produced by the force of water that falls through pipes 2,500
feet from Buck's Lake to the bottom of the canyon, where it drives two huge
turbines.
?????According to Plumas County Supervisor Bill Dennison, the lakes are
already 17 feet below normal capacity for this time of year. Even with
additional snowmelt, he said, the lake levels are likely to be nine feet
below normal. "It looks like a very bleak summer for Plumas County," Dennison
concluded.
?????When the lakes get too low, Alexander said, remembering the 1987-92
drought years, the sandy beaches around the Lake Almanor Country Club become
mudholes and, as water in the shallow lake heats up, fishing becomes terrible.
?????"For the past seven to eight years the people up here have been lulled
into complacency," said Alexander. "People were in denial. They knew that
PG&E owned the lake and can do anything it wants.
?????"But the prospect of living up here is so attractive they just kind of
throw caution to the wind and hope it will all work out."

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Others Learning from California's Energy Mistakes

By JAMES FLANIGAN, Times Staff Writer

?????For all the agony and anger about energy in California, compounded now
by the bankruptcy filing of Pacific Gas & Electric, deregulation and the
transformation of the electric power industry is moving forward
nationwide--and worldwide.
?????Many electric companies elsewhere are thriving and being recommended by
investment analysts even as the regulated utility division of PG&E Corp.
surrenders its management to a bankruptcy court and Southern California
Edison, a subsidiary of Edison International, remains under heavy threat of
being forced to do the same.
?????Companies and regulators everywhere cite California's troubles as
stemming from mistakes they will avoid.
?????For example, American Electric Power, a Columbus, Ohio-based leader of
the utility industry, told shareholders in its annual report that
California's blunders of "insufficient power supplies, total reliance on spot
pricing and capping of rates for retail consumers even as costs of wholesale
power multiplied, are not likely to be replicated elsewhere."
?????Indeed, many of deregulation's dangers may be avoided now simply because
California and PG&E have put everybody on their guard.
?????California's horrible example has spurred recognition that power plants
need to be built.
?????And PG&E's collapse sends a message that utility companies operating
partly in regulated and unregulated environments need to separate their
accounts so as to better understand the different businesses they are
managing.
?????Wall Street sees electricity as a growth industry just because power is
in relative short supply in many parts of the country.
?????"The United States has not built enough power plants over the last 10
years to meet demand," says analyst Brian Youngberg of Edward Jones & Co., a
St. Louis-based investment company.
?????That spells opportunity for companies able to produce low-cost power and
market it in different regions.

?????Promising Investment
?????Today's favored utilities are those moving to acquire power plants and
sell power as an unregulated commodity in different areas, even as they cope
with deregulation and competition in their home territories.
?????The examples of two leading companies will explain a lot about the
utility business today, why investors regard it as promising and how
companies and state regulators elsewhere are taking steps to avoid the
blunders of California.
?????Utilicorp United, based in Kansas City, Mo., is the modern outgrowth of
a family-owned electric company dating to 1902. Under Richard Green, the
founder's great-grandson who has been chief executive since 1982, Utilicorp
went eagerly into wholesale marketing and trading of electricity around the
world, acquiring companies in Australia and New Zealand, even as it continued
to operate regulated utilities in Missouri--where electricity remains
regulated--and six other Midwestern states.
?????Utilicorp, helped by the growth of its Aquila Energy subsidiary that
trades electricity contracts, has expanded to $29 billion in revenue in 2000
from just over $1 billion a decade ago. "I've got two companies," Green says,
"one is a regulated utility, growing 3% to 5% a year and paying a dividend,
and the other is Aquila, which is growing 20% a year."
?????So he is separating the two, issuing stock in 19.9% of Aquila now and
intending to spin it off as an independent company within a year. "Investors
can then have their choice of growth or stability and dividends," Green says.
?????American Electric Power is a venerable pioneer of the utility industry.
It originated the practice of siting power plants atop coal mines so the fuel
could be transferred efficiently to the steam turbine boilers.
?????Now its home state of Ohio is going through a three-year process of
deregulating electricity. So AEP is going aggressively into wholesale
electricity generation and marketing.
?????Last year it acquired Dallas-based Central & Southwest Co. and now
markets in Texas, Louisiana and Oklahoma as well as its traditional bases in
Ohio and Michigan.
?????AEP, too, is going to separate its unregulated and regulated businesses.
?????It's doing this, the company told shareholders, because "it will enable
investors to value our businesses separately and will improve our ability to
manage the realities of electric deregulation and to focus on the differing
capital requirements of each business."
?????Why is that significant? Because PG&E, the holding company that owns
Pacific Gas & Electric, also has thriving energy trading and out-of-state
electricity operations within its corporate structure.
?????It built up the unregulated business in recent years by transferring
proceeds from sales of California power plants and cash flow accruing from
the state's complex deregulation scheme.
?????But PG&E didn't separate the unregulated and regulated businesses for
shareholders. And now PG&E's publicly traded stock has lost 77% of its value
and the company faces a battle in bankruptcy court to keep its unregulated
assets out of the hands of creditors.

?????Avoiding Mistakes
?????As companies elsewhere try to avoid PG&E's errors, so other states take
pains not to make California's big mistake of going into deregulation without
a reserve of electric generating capacity. Ohio is making sure that it has a
surplus of generating capacity.
?????The Northeastern states of Massachusetts, Connecticut, New Hampshire and
Rhode Island, which have deregulated, also have plenty of spare capacity,
reports Cambridge Energy Research Associates.
?????With electricity in surplus, those states and regions can encourage
price competition in electricity. But when there are shortages, as began to
occur last year in California, desperation buying by customers and price
gouging by suppliers are all but inevitable.
?????A point to keep in mind in the wake of California's disaster and PG&E's
downfall is that the electric utility industry and the U.S. system are at the
outset of a long process of transformation.
?????It's not unlike the telephone business that has changed so much in the
last 30 years, starting from, say, the rise of MCI in the 1970s or the
breakup of AT&T Corp. in 1984.
?????Yet those years also saw the rise of whole new technologies and new
companies, even as giants of another age faded and failed.
?????California and California companies may yet find success in this new age
of opportunity--and peril--for electricity.
---
?????James Flanigan can be reached at jim.flanigan@latimes.com.
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Generators Scrambled to End Pacts With Utilities

Energy: Even before PG&E filed for bankruptcy, alternative plant owners who
hadn't been paid in months pursued court actions.

By JULIE TAMAKI, Times Staff Writer

?????SACRAMENTO--In filing for federal bankruptcy protection last week,
Pacific Gas & Electric Co. determined what other power producers had already
concluded: The state had failed to solve their payment problems and the time
had come for the courts to step in.
?????In the days leading up to PG&E's Bankruptcy Court petition, a growing
number of alternative energy producers had also been filing lawsuits, seeking
to be freed from their contracts with PG&E and Southern California Edison.
The litigation was triggered in part by a controversial new rate plan imposed
last month by the state Public Utilities Commission in addition to millions
of dollars of debt owed to the producers by the utilities.
?????On Tuesday, Dynamis Inc. filed suit in Fresno, saying PG&E owes it $3
million.
?????Carson-based Watson Cogeneration Co., one of the state's largest
alternative energy producers, also had filed suit to have its contract with
Edison suspended. So did Delta Power, which owns five small gas-fired plants
in California. Both producers are owed tens of millions by Edison.
?????At least a dozen such suits have been filed in civil courts, and lawyers
warn that more could be on the way.
?????"Tough solutions were not being brought to the equation, which left PG&E
and others feeling they were better off in the court system," said Jerry
Bloom, an attorney for the California Cogeneration Council.
?????The court actions come on the heels of an order by the PUC last month
that Edison and PG&E begin fully paying hundreds of small alternative energy
producers. But some producers say that a new rate plan issued by the PUC
would force them to operate at a loss and that nothing has been done to
address the about $1.5 billion owed to members of the group by PG&E and
Edison.
?????Lawyers say other producers have served Edison with notices that they
plan to cancel their contracts.
?????Gas-fired generators account for about two-thirds of the electricity
produced by the alternative energy group.
?????The California Independent System Operator, keeper of the state's power
grid, reports that there continues to be a roughly 3,000-megawatt reduction
in output from the alternative energy producers. The daily sum is enough
power to supply 2 million to 3 million typical homes.
?????"It clearly shows the problem hasn't been fixed," said Jan Smutny-Jones,
executive director of the Independent Energy Producers.
?????California is home to nearly 700 producers of alternative and renewable
energy, which as a group provide more than a quarter of the electricity used
by consumers.
?????Some of the producers have gone offline or reduced supplies for
maintenance reasons, but others have cut back because they have not been paid
by Edison since November or have received only partial payments from PG&E.
?????The drop in output has at times forced the state to purchase replacement
supplies on the pricey spot market for electricity and contributed to rolling
blackouts last month. The latter event prompted Gov. Gray Davis to propose a
plan to get the generators up and running again.
?????Consequently, the PUC established a new rate plan for the producers and
ordered the utilities to begin fully paying them beginning this month. The
payment goal would be accomplished in part by slashing the rates that PG&E
and Edison must pay the producers.
?????But the PUC action appears to have compelled a growing number of
gas-fired generators to file lawsuits in an effort to be released from their
contracts with the utilities and be paid the millions they are owed.
?????Bloom contends that the new rate plan will force some producers to
operate at a loss because it does not adequately compensate for their gas
expenses. He said he expects generators to challenge the plan in court or
before the Federal Energy Regulatory Commission.
?????Smutny-Jones contends that the plan wrongly assumes that all natural gas
used by his members can be piped in from the Oregon border, where the price
of natural gas is cheaper. The producers, he added, are seeking assurances
that they will be paid realistic rates by the utilities for future deliveries.
?????Utilities are scheduled to pay the first round of reduced rates, as
ordered by the PUC, early next week. Both utilities have indicated that they
plan to make the first round of payments.
?????Edison officials said Friday they have been served with 10 producer
lawsuits. They say they fear that if the generators are let out of their
contracts, they could sell their supplies out of state, which could in turn
cause rates to rise for California consumers because it would reduce supply.
?????PG&E spokesman John Nelson said in an interview last week before the
bankruptcy filing that PG&E has been served with two such lawsuits. He said
his company is also concerned about the PUC rate plan and whether it truly
lowered the rates PG&E must pay the alternative producers and whether there
would be enough money in the rates paid by customers to turn around and pay
the producers.
?????"We're concerned that the commission decision does not solve the
problem," Nelson said.
?????A Davis spokesman said last week that the administration is still
working on the issue of money owed to the producers and that the
administration is continuing to work with the PUC to get more generators back
online.
?????Observers believe the number of producer lawsuits will grow because most
cases to date have been aimed at Edison. The utility has not paid its
producers since November and has fought to have its rates slashed.
?????By comparison, PG&E has made efforts to partially pay its producers in
recent months and to keep them informed of their financial situation.
?????A Bankruptcy Court is expected to decide whether to affirm the contracts
of producers who sell to PG&E or to free them to sell their power elsewhere.
?????An Imperial County judge has already freed CalEnergy, a small geothermal
producer, from its contract with Edison because of Edison's failure to pay
the company. The court has delayed ruling on CalEnergy's request for $99
million in back payments until April 16--the day the utility is expected to
begin paying its alternative generators.
?????Since it quit transmitting 270 megawatts to Edison last month, CalEnergy
has been selling its electricity to El Paso Energy, a marketing company that
resells power on the spot market. If other generators are able to repeat the
pattern, it could further reduce state energy supplies, particularly this
summer, when every megawatt will be needed to avoid blackouts.
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PG&E Gave Bonuses Prior to Bankruptcy

Before its filing, the utility also had $2.5 billion on hand and had
restarted services suspended earlier because of shaky finances.

By TIM REITERMAN, Times Staff Writer

????? SAN FRANCISCO--In the days approaching Pacific Gas & Electric Co.'s
bankruptcy filing, the debt-ridden utility had more than $2.5 billion in cash
on hand and was restarting services suspended earlier this year because of
its shaky finances.
?????Then, the day before the filing, the utility awarded 6,000 managers and
other employees more than $50 million in annual bonuses and announced that
long-delayed merit increases had kicked in for the same workers.
?????The timing of the bonus payments in particular raised an outcry from
consumer groups and state officials.
?????"Management is suffering from two afflictions: Denial and greed," Gov.
Gray Davis said in a statement.
?????"It does not look good," said state Senate President Pro Tem John
Burton. "They [already] have a business and a P.R. problem."
?????The bonuses and raises were announced in an e-mail sent Thursday by
Chief Executive Robert Glynn to employees. The payments cover about a third
of the company's 19,000 workers, ranging from nonunion clerical staff to all
but the very top management.
?????On Friday, hours after PG&E had filed for reorganization of its debts
under Chapter 11 bankruptcy laws, a San Francisco judge approved the
company's overall employee compensation plan. But PG&E officials said the
ruling did not specifically cover the bonuses or merit raises.
?????Harvey Rosenfield, president of the Foundation for Taxpayer and Consumer
Rights, said the bonuses should not be allowed.
?????"Talk about manipulating the corporate finances to benefit management
prior to bankruptcy," he said. "It is the kind of arrogant mismanagement that
is responsible for the ruin of this company."
?????Richard Levin, a Los Angeles bankruptcy attorney, said such payments to
employees are not unusual, especially after the filing of bankruptcy.
?????"A company trying to reorganize has to take pretty strong action to keep
employees," he said. "If they did not do it, who is going to keep the
electricity flowing?"
?????PG&E, the state's largest utility, declared in its filing for bankruptcy
protection that it is more than $9 billion in debt--several times more than
cash on hand--and was getting nowhere in negotiations with the governor for
state purchase of its power lines and other assets. The filing, which
includes a list of creditors, allows the company to continue to operate while
it reorganizes its financial affairs. A judge, working under federal
bankruptcy law, will determine who will be paid and in what order. The first
hearing is scheduled for Monday.
?????Company officials defended the payments, which were reported in
Saturday's San Francisco Chronicle, and fired back at Davis. "Instead of
focusing all his attention on solving the state's yearlong and ever-worsening
energy crisis, the governor has launched a campaign-style attack on our
company," PG&E said in a statement Saturday.
?????The payments, officials said, are awarded each year to employees who
meet the company's performance goals and objectives. "They are smaller this
year because of the larger financial crisis the company is going through but,
it is safe to say, more deserved this year than in years past because of the
challenges facing our employees this year," said PG&E spokesman John Nelson.
?????The payments came after the company began reversing some of the
cost-cutting measures imposed early this year after its finances worsened,
PG&E officials said.

?????PUC Orders End to Some Cutbacks
?????Among other things, PG&E had suspended projects involving the
underground placement of power lines, prompting cities and residents to
protest to state regulators. The company also eliminated about 325 jobs
earlier this year and was planning layoffs of almost 700 more. But the
California Public Utilities Commission last month blocked the layoffs and
ordered the company to rescind any cutbacks affecting service.
?????Company officials said that, thanks in part to a tax refund of $1.1
billion, the company now has about $2.5 billion to $2.8 billion on hand.
?????"We are now in a position to start relaxing some of those
cash-conservation measures," Nelson said Saturday. "About a week ago we
started doing undergrounding again and [performing] new installations of
electrical service" in business parks and elsewhere.
?????"This compensation package was one of those measures reinstated," he
said.
?????Officials said the payments exempted the company's 25 officers, as well
as about 12,000 union workers who received raises in January.
?????They said the total of the bonuses, estimated roughly at more than $50
million, is substantially lower than the $83 million in payments suspended in
January when the utility announced cost-cutting measures.
?????That $83 million included bonuses for employee performance and a bonus
based on the company's success.
?????"As we close the books for 2000, we have determined that we are unable
to make [that] portion of the incentive payment due to the negative financial
impact of the ongoing California energy crisis," CEO Glynn said in his e-mail.
?????He said the incentive bonuses were awarded along with merit increases
averaging 3% for all employees, effective April 1. Bonuses commonly are about
four weeks of salary, officials said, but can vary according to performance
and other factors.
?????Mike Florio, senior attorney at the Utility Reform Network, said, "That
is going to be a little hard for the public to swallow. . . . I feel better
that the 25 [top executives] are not included. Those are the people that have
run this company into the ground."
?????On Saturday, Davis administration negotiators redoubled efforts to keep
the same fate from befalling Southern California Edison.
?????Davis hopes for a state takeover of the massive system of electricity
transmission lines owned by PG&E, Edison and San Diego Gas & Electric.
However, the bankruptcy complicates that effort, which already has proved to
be daunting. A federal bankruptcy judge will have to approve any deal that
involves PG&E.
?????Edison executives and Davis' aides met in San Francisco in an effort to
strike a deal by which the state would purchase Edison's share of the
transmission system for $2.76 billion. The company would use the money to
restructure its debt.
?????Edison has agreed in principle to sell the state its transmission
system. However, the company is seeking relief from some PUC regulations that
could later undermine aspects of the deal and could jeopardize the company's
future financial stability.
?????On Saturday, Burton reiterated his call for the governor to "commandeer"
two or three power plants owned by out-of-state producers. "These people have
us by the throat and are making more money than God," he told a news
conference here. "You have to fight back."
?????Steve Maviglio, the governor's press secretary, said Davis has not ruled
out such a seizure.
---
?????Times staff writer Dan Morain in Sacramento contributed to this story.

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NEWS ANALYSIS
Shifting Action to Neutral Arena May Be Bankruptcy Filing's Upside

Court might be a forum in which the state, PG&E and creditors could break
impasses. But there are many uncertainties.

By MICHAEL A. HILTZIK, Times Staff Writer

?????By forcing almost all the deadlocked parties in California's energy
crisis to meet in a neutral public forum, the bankruptcy filing by Pacific
Gas & Electric Co. on Friday may actually help clear the path to a solution,
some experts say.
?????But along that path lie numerous uncertainties, including questions
about the powers of the Bankruptcy Court that have never been resolved in
practice. Among the most serious booby-traps confronting PG&E is that its
financial books will be placed under a microscope.
?????"When you initiate a bankruptcy," said Daniel J. Bussel, a bankruptcy
specialist at UCLA School of Law, "you don't have compete control over what
happens."
?????The bankruptcy filing removes many of the thorniest questions revolving
around the energy crisis from an arena that has been hard-pressed to deal
with them: the political. Because utility policy is important to so many
constituencies--including taxpayers, ratepayers, consumer activists,
regulators, and legislators--solving the crisis in a way that is not only
equitable but meets everyone's political goals has been a daunting task.
?????That is especially so because the crisis actually encompasses two
separate problems. One is how to restructure the state's energy program so
that deregulation can be made to work and costs and rates can be brought into
line; the second is what to do about the billions in debt PG&E and Southern
California Edison accrued last year from the purchase of wholesale power at
prices higher than they were permitted to pass on to customers.
?????The attempt to settle both issues in concert has confounded the state's
leaders--especially since the question of whether the state should bail the
utilities out of their debts at all is itself a contentious one.
?????"I've thought for quite some time that our primary focus ought to be on
how you solve the [long-term] problem, as opposed to how you adjudicate a
dispute between the utilities and the generators," said state Treasurer Phil
Angelides in an interview. "Too much time in Sacramento is being spent trying
to figure out how to ransom the generators' bill. In some ways, the
[bankruptcy] filing takes those past debts off the table."
?????Angelides said the court might represent a forum where the state, the
utility and its creditors could examine and challenge those generators'
bills. That is something that federal regulators, who have jurisdiction over
wholesale power rates, have been loath to do, despite complaints from PG&E
and Edison that they have been overcharged billions by profiteering power
plant owners.
?????There is no question that the filing does complicate matters for many
participants in the drama over California's energy supply.
?????PG&E's filing, in which it sought protection from creditors under
Chapter 11 of the federal Bankruptcy Code, could place more pressure on
Southern California Edison, the state's second cash-strapped utility, to
enter bankruptcy as well. That's because electricity generators will be more
assured of getting paid for their post-bankruptcy sales to PG&E, for which
all pre-bankruptcy debts are temporarily in abeyance. By contrast, Edison
creditors have no guarantees that the utility will be able to pay them.
Edison executives said Friday they had no plans to file for bankruptcy
protection.
?????On the other hand, it might also inspire Gov. Gray Davis to rapidly
reach a bailout agreement with Edison, as though to prove that PG&E's move
was unnecessary or premature. Davis has been hinting that a deal is near. The
state would buy Edison's electric transmission grid, providing the utility
with desperately needed cash, but there have been few public signs of
progress. PG&E had been balking at such a resolution.
?????Among the most serious perils of the bankruptcy filing are those facing
PG&E itself. Although company executives clearly hope to limit the Bankruptcy
Court's jurisdiction to the utility alone, that may not be possible, experts
say. It is likely that the utility's creditors will insist on examining its
controversial relationship with its holding company, PG&E Corp.--a scrutiny
that might drive that company into bankruptcy too.
?????Although PG&E had long threatened to resort to bankruptcy, the
abruptness of the utility's filing at 9:04 a.m. Friday took aback almost
everybody involved with the energy crisis, coming as it did less than 15
hours after Davis delivered a statewide television and radio address
proposing a program to bring rates into line with wholesale energy costs.
?????Even normally well-connected professionals were caught short. The
research department of the investment bank Goldman Sachs told clients Friday
morning that PG&E and Edison were on the way to a "return . . . to financial
health" and hinted their parent companies' shares were poised to more than
double in price. The research report was released Friday by Davis' office.
?????Instead, PG&E filed for bankruptcy. By the end of the day both companies
had lost more than 35% of their value.
?????By giving PG&E's creditors legal standing to directly scrutinize its
finances, the filing leaves the utility's recent business decisions open to
challenge.
?????Chief among these is the utility's record of "upstreaming" to its parent
revenues it received from ratepayers in the first two and a half years of
deregulation. Critics have argued that those payments left the utility
starved for cash when wholesale rates soared beginning in May 2000.
?????In announcing the bankruptcy filing Friday, PG&E Chairman Robert Glynn
laid nearly all the blame for his company's perilous condition at the feet of
the Public Utilities Commission, the governor and other state officials.
?????The company had been "raising the crisis flag [about high wholesale
power prices] since last summer," he said.
?????Yet an independent audit of PG&E commissioned by the PUC and released in
January documented that the utility did not implement any cash conservation
measures until December. The utility even paid a cash dividend to its parent
company for the third quarter of 2000, covering the months of July through
September, of more than $200 million.
?????In all, PUC documents show, Pacific Gas & Electric disbursed $9.6
billion to PG&E Corp. from January 1998 through September 2000. That money
benefited shareholders, from whom some $2.8 billion in shares were
repurchased and who received another $1.5 billion in dividends; and
bondholders, for whom $2.8 billion in debt was paid off.
?????Glynn insisted Friday that the company has "assiduously complied" with
PUC rules governing the relationship between the utility and the holding
company. But creditors are sure to give the transactions another look.
?????"Those transactions will now certainly be scrutinized," said Bussel.
Bankruptcy court represents "a forum to bring a lawsuit to unwind those
transactions and get a full airing of circumstances of the transfers."

?????Filing Could Threaten Parent Company
?????While PG&E executives took pains to note that the holding company and
its unregulated subsidiaries are not subject to the bankruptcy filing,
experts say that could change if Bankruptcy Judge Dennis Montali is persuaded
that the transactions were improper and the money should be returned to the
utility.
?????"There will be a lot of sophisticated lawyers looking at this," Bussel
said. "If distributions to the parent are deemed fraudulent transfers and are
voidable, the holding company would have a huge liability and would probably
have to file" for bankruptcy.
?????A broader threat to PG&E and the state's energy future is that state
regulators and Montali might be unable to agree on the rates to be charged by
the utility. A provision of the bankruptcy law requires that any rates that
are part of a recovery plan for a regulated utility must be approved by that
utility's regulators.
?????Although that provision would leave rate-setting authority in the hands
of the California PUC, in practice the the commission will have to negotiate
with the judge. Any failure of those negotiations would raise issues that
have never been resolved by higher courts.
?????"The judge doesn't have the power to set rates [unilaterally]," said
Kenneth Klee, a prominent Los Angeles bankruptcy lawyer, "but there are only
a handful of cases on this."
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Monday, April 9, 2001
Shock's Silver Lining

?????That California's power crisis has been dealt another huge shock is not
all bad. The bankruptcy of Pacific Gas & Electric has legal scholars puzzling
over how federal court supervision of the debt-ridden utility will affect
rate-setting, sale of assets such as the transmission system and the state's
role in the crisis. And that's apart from figuring out how it affects
Southern California Edison, the chief private utility in the southern part of
the state. Despite executives' denials of any bankruptcy plans, will Edison
be forced into the same boat? Even with all these questions, a good shake can
have benefits.
?????There's no doubt that a federal bankruptcy judge has the power to sort
out at least some of the befuddling problems of the state's energy crisis.
Few tears will be shed, for instance, if a court-ordered restructuring of
PG&E's debt trimmed some of the outlandish profits reaped by private
generating companies that sold power to the utility over the past six months.
Federal involvement could also force the Federal Energy Regulatory Commission
to abandon its hands-off stance on regulating wholesale prices. There is
bipartisan support in Congress for FERC to conduct a thorough investigation
of the price spikes that pushed the utilities into default and forced the
state to spend billions as the power purchaser of last resort.
?????And what of the utilities themselves? PG&E's award of more than $50
million in employee bonuses the day before it filed for bankruptcy was a
terrible political move, but it is not the jackpot issue. The utility's
transfer of billions of dollars to its parent company even as cash flow
problems worsened will be a more likely and fitting target of scrutiny by
bankruptcy overseers.
?????Not least, the shock of the bankruptcy may also convince Californians to
take urgent conservation action before the hot summer months. The state must
also expedite a $1-billion conservation program passed by the Legislature
late last week. No matter who is at fault, summer blackouts are a certainty
unless both business and residential customers take energy savings much more
seriously.
?????The bankruptcy certainly pulled the rug out from under Gov. Gray Davis,
who had been trying without success to make a deal with PG&E, Southern
California Edison and San Diego Gas and Electric to buy their transmission
systems in exchange for state assistance with debts. Just Thursday night,
Davis had bowed, in a television address, to the necessity for big rate
increases. He no doubt meant to assure Californians that he was taking strong
action to solve the crisis and keep the utilities from bankruptcy, but he
disappointingly offered no new initiatives. In the clearest possible slap at
Davis, PG&E was at the steps of the Bankruptcy Court the next morning.
?????However embarrassed Davis must have been by the sideswipe, he should not
allow anger to dictate his response. He needs to demonstrate he's above such
pettiness and perhaps even acknowledge that his snail's-pace progress was
part of the problem. Davis redoubled efforts over the weekend to strike a
deal with Edison for its part of the transmission system, but PG&E's
bankruptcy certainly complicates the transaction.
?????Perhaps it was never possible to deal with the utilities' past debts and
restructure the state's power at the same time. Bankruptcy is a rough but
effective tool for dealing with debt, one that might help legislators and the
governor focus more sharply on future reforms.
?????Much now depends on the federal bankruptcy judge, Dennis Montali, who is
known as an effective mediator able to persuade reluctant parties to settle.
California's economy has survived the power crisis so far, but it is not
endlessly resilient. If PG&E's bankruptcy speeds debt resolution and focuses
the governor and Legislature on reforming the state's power generation,
transmission and pricing systems, business will welcome any increase in
predictability.
?????Californians are starved for answers. The federal court's involvement,
despite the grave circumstances, could provide some.
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Monday, April 9, 2001
Use Eminent Domain as a Power Tool
By MICHAEL J. AGUIRRE

?????Gov. Gray Davis should follow Pacific Gas & Electric's example and admit
that his electricity program is also bankrupt. The governor's primary
objective was to keep the utilities from bankruptcy. He has failed. He should
admit his failure and reformulate his policy. Whatever he does must be based
on a clear understanding of the problem.
?????The people of California have a right to buy electricity at fair prices.
Producers of electricity are entitled to a fair return on their investment.
Before 1998, a balance between these two points was struck by the Public
Utilities Commission using cost-of-service pricing. Utilities presented their
production bills, the PUC reviewed them, determined a reasonable rate of
return and set a rate high enough to cover both. California became the second
most efficient user of electricity in the country under this system, and its
utilities prospered.
?????In 1996, the electric power industry, with promises of lower prices,
induced Gov. Pete Wilson, the PUC and the Legislature to reduce the
commission's power to ensure just and reasonable electricity prices. Under
the power industry's system competition, not regulation, would set prices,
and prices would go down. PG&E head Robert Glynn represented it to be a "huge
opportunity for consumers to lower their energy costs." PG&E, San Diego Gas &
Electric and Southern California Edison, with PUC approval, then sold
California's most significant generation plants, its gas-fired units, to five
multinational corporations.
?????These five companies led the onslaught on California consumers, raising
electricity prices from $7 billion in 1999 to a projected $70 billion in
2001. California authorities have determined that 98% of the price bids
submitted by these five companies--some 25,000--were based on monopoly, not
competitive, pricing. Gov. Davis is right: "California's deregulation scheme
is a colossal and dangerous failure."
?????No one--not Wilson, the PUC or the Legislature--provided an exit
strategy if deregulation did not work. Davis has been unable or unwilling to
come up with one. He failed to get on top of the problem when he took office,
despite clear warning signs. He failed to see that he cannot finance ever
higher prices with public funds, and he lacks the resolve to do what he must
to stop them. His one effort to use tax funds to keep the utilities out of
formal bankruptcy has failed, with PG&E's filing for Chapter 11 last week.
?????There are no good choices now. However, we cannot continue down the road
Davis has chosen. It leads to financial ruin. We cannot rely on private
companies building new generation plants because the same price gougers will
control how the new electricity gets priced. We cannot rely on the Federal
Energy Regulatory Commission or President Bush. California can only rely on
California to solve this problem.
?????As a first step, Gov. Davis should do what he threatened to do in his
State of the State address: use the power of eminent domain to recover the
gas-fired generation plants that the price manipulators are using to set
monopoly prices. He can pay "just compensation" to the owners but not one
dime more.
?????The governor should now recognize California's vital interest in
protecting itself from these prices. Eminent domain is a reasonable tool to
use to achieve that goal. It has been used in less compelling circumstances.
For example, eminent domain was used in the early 1980s for George W. Bush's
investment team to assemble the land on which the Texas Rangers' stadium is
built, from which he and his partners profited handsomely. If eminent domain
can be used for private profit, it can be used to protect the vital interests
of the state of California. The plants should be divested to private
ownership, but only to companies that are under PUC jurisdiction.
?????The PUC also should be used to plan how California can move forward to
an improved cost-based system of regulation. What we cannot do is to continue
on with the current plan, which is to have the governor set electricity
prices behind closed doors, working with the very people who are suspected of
unlawful price fixing. PG&E's bankruptcy provides the governor with a new
opportunity to move to a more effective program.
?????The governor should now stop using public funds to buy electricity. He
should urge Edison to join PG&E in reorganizing under bankruptcy court
protection. This will allow all parties to contest the unpaid billions of
dollars of receivables owed to the power producers and their associates. This
will send a message to Wall Street to stop funding such outrageous and
predatory practices because they don't pay.
?????The state attorney general should conduct a criminal grand jury
investigation into the alleged wrongdoing by the power generators. He should
also join in the private litigation that asserts that the power producers
violated the state's antitrust laws. He should follow the investigative trail
to Houston, Tulsa, Atlanta and wherever else it leads.
?????Finally, Californians are going to have to make a short-term sacrifice
to get a long-term gain. The governor's call last week for conservation does
not go far enough. Each city council and mayor and all boards of supervisors
should be required to come up with an emergency conservation plan. We need to
cut consumption to the point where we can meet it with current supply. We
cannot put an unfair burden on business because this will cost jobs. People
with lower incomes and fixed incomes need to be protected.
?????PG&E's bankruptcy filing removes the foundation of the governor's plan.
He should remember the example of FDR, who likened himself to a football
quarterback who tries one play and, if it did not work, then tries another.
But for heaven's sake, try something. We must show our fellow citizens that
we know how to act effectively in solving this crisis.
- - -

Michael J. Aguirre Has Filed a Private Attorney General's Lawsuit Against the
Major Power Producers

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Governor, Utility In War Of Words
Davis furious as PG&E defends bankruptcy filing
David Lazarus, Chronicle Staff Writer
Monday, April 9, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/04/09/M
N223519.DTL
California's energy mess took an ugly turn yesterday as Gov. Gray Davis and
Pacific Gas and Electric Co. traded barbs over who is to blame for the
bankruptcy of the state's largest utility.
In a series of tit-for-tat statements, each side laid claim to the moral high
ground while insisting that the other had been dealing in bad faith.
The governor spent part of his time yesterday giving television interviews in
response to The Chronicle's report Saturday that PG&E awarded $50 million in
bonuses and raises to 6,000 employees just hours before Friday's bankruptcy
filing.
"PG&E's management is suffering from two afflictions: denial and greed,"
Davis said in a brief statement Saturday night.
In a testy reply, PG&E countered that "instead of focusing all his attention
on solving the state's yearlong and ever-worsening energy crisis, the
governor has launched a campaign-style attack on our company."
PG&E said Davis was criticizing "thousands of men and women who have worked
tirelessly and professionally through this crisis" and concluded that
"California would be far better served if the governor turned his attention
to the crisis at hand."
Steve Maviglio, a spokesman for the governor, fired back yesterday: "PG&E
waged a public relations war on Friday. If they're looking for somebody to
blame, they should look in the mirror."
Maviglio also said the governor was concentrating on reaching a final accord
with Southern California Edison Co. for the state to purchase the cash-
strapped company's power lines for nearly $2.8 billion.
A last round of talks was scheduled to be held last night.
"There are a few remaining details to be worked out, but it seems pretty
close," Maviglio said, adding that an announcement of the deal could come as
early as today.
"The governor is spending his time negotiating with a responsible utility,"
he said.
Along with the Edison deal, Davis spent the weekend huddling with energy
advisers and lawyers trying to come up with an appropriate response to PG&E's
bankruptcy bombshell.
Efforts to stabilize California's dysfunctional electricity market suddenly
have become much more complex.
NOT MUCH CHANGED
Nevertheless, while PG&E's bankruptcy is by far the most sensational aspect
of California's long-drawn-out energy mess, at the end of the day, it doesn't
really change a thing.
Consider:
-- PG&E's financial woes stem from a rate freeze that prevented the utility
from passing along to customers runaway wholesale power costs. That rate
freeze and sky-high electricity prices remain in place.
-- California's energy shortage is primarily the result of the state not
having built any major power plants for the past 12 years. PG&E's bankruptcy
does nothing to affect that precarious situation.
-- PG&E's foray into bankruptcy court does not alter the fact that
electricity demand is outpacing available supply. California consumers still
face a threat of daily blackouts when power usage spikes this summer.
"The crux of the problem is still the same," said Loretta Lynch, president of
the state Public Utilities Commission. "We face the same challenges we did
before PG&E filed for bankruptcy."
She added, however, that PG&E's bankruptcy "increases the uncertainty."
The utility doesn't see it that way.
PG&E spokesman Ron Low said California's energy woes are no more uncertain
now than they were when the company ostensibly was negotiating with Davis to
find an equitable solution to the state's troubles.
"California remains in an energy crisis," he said. "As we head toward summer,
resources are going to be very tight."
WHAT COULD HAPPEN
In the short run, consumers will notice no change whatsoever. Bankruptcy
protection will allow PG&E to continue operating as usual while the company's
creditors line up to receive at least partial payment of outstanding bills.
Longer term, there is a very real possibility that electricity rates will
soar if the bankruptcy judge agrees with PG&E that conditions for lifting the
rate freeze were met a year ago and that $9 billion in subsequent expenses
must be borne by consumers.
How much people's bills would rise depends on how the rate increase is
structured. It would probably come in the form of a surcharge on existing
fees,
but the monthly hit to consumers could be limited by spreading the total cost
over a number of years.
The big question mark now is how PG&E's bankruptcy will affect various
political and legislative measures intended to keep California's lights on.
The state's attempt to purchase PG&E's power lines is obviously finished,
although a new deal could be negotiated in bankruptcy court.
Meanwhile, the governor is pressing ahead with plans to purchase the
transmission systems of Edison and Sempra Energy's San Diego utility --
although what the state would do with only a partial power grid has yet to be
determined.
"Does it make any sense to have the transmission lines of Edison and Sempra
and not PG&E?" asked state Senate President Pro Tem John Burton, D-San
Francisco. "I don't know the answer to that."
A final accord with Edison this week would validate PG&E's apparent concerns
that it would have had a harder time limiting backlash to its bankruptcy
filing if the utility had acted after a breakthrough with Edison was
unveiled.
The Chronicle quoted PG&E insiders yesterday as saying that the decision to
file for bankruptcy had been made early last week, even though senior company
officials said the move followed the governor's Thursday night speech on
solving California's energy issues.
One reason PG&E opted to file on Friday morning was because a final deal with
Edison was expected at any time, observers said.
Paul Patterson, an analyst at Credit Suisse First Boston, noted that if PG&E
had filed for bankruptcy after Edison came to terms with the state, "they
would be seen as a spoiler."
ENSUING CONFUSION
In any case, PG&E's surprise filing has left all concerned scrambling for
footing in the changed political landscape.
Consumer advocates watched with dismay yesterday as the state's political and
corporate powers slugged it out for supremacy.
Nettie Hoge, executive director of The Utility Reform Network in San
Francisco, said all this finger-pointing will do nothing to ensure that
Californians have ample supplies of electricity this summer.
"These guys should grow up and come up with a situation that works for the
public," she said.
E-mail David Lazarus at dlazarus@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?A - 1
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Power Grab -- Some Democrats Favor Seizing Plants
Bernadette Tansey, Chronicle Staff Writer
Monday, April 9, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/04/09/M
N122655.DTL
With the prospect that state power buyers could burn through more than $2
billion a month this summer, some state Democratic leaders are pushing for a
takeover of private power plants to get soaring prices under control.
Lawmakers concede that sending state agents to grab the keys of power
generating plants would be an extraordinary measure.
But now that Pacific Gas and Electric Co. has limited the state's options
with Friday's bankruptcy filing and with little hope for stronger federal
price controls, state Senate leader John Burton and others say seizing power
plants makes financial and political sense.
They say they've done the math: Since January, California has spent more than
$4 billion buying power. That's about $1 billion more than private energy
firms paid for the power plants PG&E and California's two other
investor-owned utilities were
forced to sell under California's botched deregulation plan. At those rates,
California could soon look like a renter paying the full value of the house
several times a year.
Profits of 300 percent are not uncommon for large private generators, which
provide about 40 percent of the state's power needs. The state could seize
the assets, compensate the companies and then sell the electricity to
consumers at cost, advocates of the plan say.
"We have to do something," said Burton, D-San Francisco, one of a group of
legislators who urged Davis at a meeting last week to condemn some of the
plants. "These people have got us by the throat. They're making more money
than God, and we've got to fight back -- not with words, but with actions."
Davis himself raised the specter of using his emergency powers to take over
power plants with a fiery flourish during his State of the State address
earlier this year.
"If I have to use the power of eminent domain to prevent generators from
driving consumers into the dark and utilities into bankruptcy, then that's
what I will do," he said in January.
Davis still hasn't ruled out the possibility, but he says it's not high on
his list of tactics.
Generators say they would fight tooth and nail against such a grab, and state
GOP lawmakers oppose condemnation, saying it smacks of underdeveloped
countries' nationalizing key industries.
But Burton and other Democrats, including state Senators Don Perata, D-
Oakland, and Jackie Speier, D-Hillsborough, say the governor's strategy so
far has left giant energy firms holding all the cards -- and a mounting pile
of the state's cash.
Davis had been trying to restore the financial stability of PG&E and Southern
California Edison after their combined $14 billion debt for electricity
purchases so damaged their creditworthiness that the state had to take over
buying power.
But now that PG&E has sought bankruptcy protection rather than accept Davis'
plan to buy its transmission lines, the state may be stuck with the role of
power buyer for years.
POWERS OF EMINENT DOMAIN
Sacramento lawyer Richard Desmond, an expert on state powers of eminent
domain, said California could seize generating plants by demonstrating that
it would put the properties to "a higher and more necessary use."
"The government has almost unlimited power of eminent domain to acquire
property," Desmond said. "The only thing the state has to do is pay 'just
compensation,' as defined under the constitution."
The state could file a formal suit for eminent domain, a time-consuming
procedure if the owner mounts a fierce resistance over the transfer price,
Desmond said. If the state wants to take immediate possession, it can deposit
an estimate of the just compensation and fight it out later in court. But if
the state loses, it could be stuck for interest, litigation costs and
damages.
Condemnation of power plants would raise a number of unknowns, such as
figuring out who would manage and operate the facilities. The state might
also be put into the position of having to seize contracts between the
generators and natural gas providers.
Davis spokesman Roger Salazar said the governor's first priority was building
new plants to increase supply, rather than condemning existing plants.
State Sen. Jim Battin, R-Palm Desert, said he thought seizing plants was a
horrible idea.
"We would become a third world country and start nationalizing things,"
Battin said. "Nobody would ever build a power plant in California again. I
think that would be a really bad play."
COMPANY WOULD FIGHT
Tom Williams, a spokesman for Duke Energy, said the company would fight
vigorously to protect its multimillion-dollar investment in four California
plants, including Morro Bay and Moss Landing.
"We would defend our interest and seek a fair market value," Williams said.
Duke spent $611 million to buy or lease the four plants since 1998, and has
embarked on a $1.6 billion program to upgrade and expand them.
Some power companies, however, may find their claims for the fair market
value of their plants undercut by their own tax filings. Energy firms,
including Duke, told county assessors last year that the utility plants they
bought were worth hundreds of millions of dollars less than they paid for
them.
Private companies including Duke, Dynegy, Southern Energy, AES Corp and
Calpine spent a total of $3.2 billion to buy divested utility power plants
that can produce as much as 20,000 megawatts.
UNDERLYING PROBLEM UNSOLVED
Williams said taking over the property of private companies would not solve
the underlying problem behind California's high energy prices: rising demand
and an inadequate supply of energy to fill it.
Even if Davis seized only one plant, the move might spur other power
generators to drop their prices, said Doug Heller of the Foundation for
Taxpayer and Consumer Rights.
"As soon as the generators recognize we're ready to go to a public power
system and take their plants, they may start selling power at reasonable
rates,
and we won't have to go down that road," Heller said.
Chronicle staff writers Tyche Hendricks, Patrick Hoge and Greg Lucas
contributed to this report. / E-mail Bernadette Tansey at
btansey@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?A - 1
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Davis Could Still Show Courage
ROB MORSE
Monday, April 9, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/04/09/M
N61997.DTL
This is Gray Davis' last chance. He can be remembered for something other
than his vows that there would be no electricity rate hikes and no
bankruptcies. But he has to show some guts, take his finger out of the wind,
form it into a fist and stand up to PG&E.
Go for it, Gray. Seize a power plant.
That may discourage private investment in new plants, but if the state can
build those institutions of darkness called prisons, it can build
institutions that create light.
PG&E Corp. Chairman Robert Glynn slapped Davis and all Californians in the
face by saying Friday that PG&E would file for bankruptcy protection. Glynn
supposedly took it personally a couple of weeks ago when the governor called
his company "immoral."
So he went out and proved he wasn't immoral by giving bonuses to 6,000
employees, mostly managers, just before he made the bankruptcy announcement.
Glynn probably considers that loyalty. But unlike many of the great men who
guided PG&E in the past, he has shown no loyalty to California or its
citizens.
Compare Glynn's behavior with that of Frank G. Drum, who was president of
PG&E during the company's great financial crisis of 1907, when San Francisco
was in ruins and PG&E was millions in debt. Lawyers told Drum that PG&E
needed time to recover and should ask for the protection of the courts by
being put in receivership.
"There will be no receiver," said Drum. He then pulled PG&E through its
financial crisis by levying a $10 assessment on each share of the company's
stock, issuing bonds and using every means he could to keep the company
afloat.
Unfortunately, times are different and definitions of honor, morality and
loyalty have changed. Is Glynn immoral? I don't know. But he isn't a worthy
successor to Frank G. Drum.
GROSS & Egregious: Chris Burns says that he remember's Herb Caen calling PG&E
"Pigs, Greed and Extortion." Burns and others wrote their checks that way,
and they all cleared.
Patrick Driscoll says that during the '80s he paid his PG&E bills with checks
made out to "Piggy." Says Driscoll, "They kept my power turned on anyway."
You can call them anything, just don't call them to fix a gas leak.
dept.: Karyn Hunt says that after hearing tirades about all the things people
do while driving their cars, she's seen the ultimate. "I actually saw a woman
adjusting her tongue piercing while driving down Folsom near Seventh Street,"
she says. "Ick."
here: A biker parked his Harley outside the venerable Western Saloon in Point
Reyes Station. Barroom conversation ensued. The biker complained about all
the numbers in his life: his Social Security number, phone number, license
number, e-mail address and passwords. "You can't have just one password,"
said the biker, "because some passwords require four numbers and some require
five."
Ah, for the days when the only password you needed was on the back of a
sleeveless denim jacket.
tunes: Maggie Lynch, magnificent Muni spokeswoman, was on the scene when an
M-line car derailed last week. She heard one of the unsung heroes of the
Metro Rail track crew say to another: "If you can drive that train back onto
the tracks right away, I will kiss your (butt) right here in St. Francis
Circle." Train back on tracks, but no busses on backside.
Cool car: The Peter Witt Italian streetcar has a platform in the rear that
really deserves a bar, and all the car's signs are still in 1920s Italian.
The other day a young Italian marveled at "Vietato Fumare," "Vietato Sputare"
and "Fermata Prenotata." He said the latter had something to do with "a bus
stop and trying to make a reservation at a restaurant."
success: Success magazine presents "Success 2001" at the Cow Palace in June.
Among the successful speakers will be Larry King (numerous successful
marriages) and Jeff Garcia (successful nonembarrassment to humankind). Bill
Clinton also will appear, on tape, I presume from the low admission fee.
"Reg. $225, now only $39." Includes pardon.
Newspaper recounts are in, and hang the chads. Bush won and there's no chance
of bringing in Al Gore to negotiate with the Chinese in a language they
understand, English. You can get rid of those bumper stickers that say "Re-
elect Gore."
up: Last week I mentioned former San Francisco school board president JoAnne
Miller, who was helping her friend Carol Schilling try to get her son Jeffrey
Schilling released by terrorists in the Philippines.
Miller called to say that Sen. Dianne Feinstein rose to the occasion, putting
Carol in touch with the secretary of defense, helping her make a radio appeal
to the young man's captors and arranging a conference call with the president
of the Philippines.
"We're keeping our fingers crossed," said Miller.
Rob Morse's column appears Mondays, Wednesdays, Fridays and Sundays. His
e-mail address is rmorse@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?A - 2
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Governor, bankrupt utility blame each other for power woes
GARY GENTILE, AP Business Writer
Monday, April 9, 2001
,2001 Associated Press
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2001/04/09/nation
al0504EDT0447.DTL
(04-09) 02:04 PDT LOS ANGELES (AP) -- Gov. Gray Davis and Pacific Gas &
Electric executives traded acrimonious barbs -- but no solutions -- as the
state's largest utility headed into bankruptcy court claiming $9 billion in
debts.
On Sunday, Davis appeared on two nationally televised news programs to berate
PG&E for awarding an estimated $50 million in bonuses and raises to about
6,000 midlevel managers and support staff on the eve of its filing for
bankruptcy protection Friday.
``Management at PG&E is just focused upon padding their own pockets, not in
discharging their duty to serve their many customers in California,'' Davis
said on ABC's ''World News Tonight.''
Earlier, Davis had issued a statement saying PG&E ``management is suffering
from two afflictions: Denial and greed.''
In response, PG&E defended their employee bonus package and took a swipe at
the governor.
``Instead of focusing all his attention on solving the state's yearlong and
ever-worsening energy crisis, the governor has launched a campaign-style
attack on our company,'' a PG&E statement read.
The rancor came at the start of a hectic week. A San Francisco bankruptcy
judge was to hold PG&E's first bankruptcy hearing Monday or Tuesday to
determine, among other priorities, which creditors will be paid and in what
order.
Davis, meanwhile, was still locked in faltering negotiations with Southern
California Edison, the state's second-largest utility, which also claims the
state's flawed 1996 deregulation law is the cause of its financial woes.
Davis is hoping to strike a deal to buy Edison's share of the power
transmission system for $2.76 billion, which would provide Edison with a
much-needed cash-flow to restructure its debt.
SoCal Edison executives have said they would continue negotiations with
Davis, but weekend talks in San Francisco failed to resolve any of the
outstanding issues on the table, said Davis' spokesman Steven Maviglio.
Edison was to file an update on its financial condition with the Securities
and Exchange Commission on Monday.
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---------------------------------
Negotiations continue between state and SoCal Edison
GARY GENTILE, AP Business Writer
Monday, April 9, 2001
,2001 Associated Press
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2001/04/09/financ
ial0008EDT0200.DTL
(04-09) 06:44 PDT LOS ANGELES (AP) -- California failed to keep its largest
utility from bankruptcy but the state isn't giving up efforts to keep the
second-biggest afloat.
Talks were scheduled to resume Monday on California's bid to buy Southern
California Edison's share of the power transmission system for $2.76 billion.
That would provide the company with a much-needed cash-flow to restructure
its debt.
Weekend negotiations in San Francisco failed to resolve the ``few remaining
issues,'' according to Steven Maviglio, a spokesman for Gov. Gray Davis.
Edison also was expected to file an update on its financial condition with
the Securities and Exchange Commission.
Gov. Gray Davis' administration also had intended to buy power lines from
Pacific Gas & Electric.
The companies say they have lost more than $13 billion since June because of
skyrocketing wholesale power prices they cannot pass on to customers under
the state's 1996 deregulation law.
On Friday -- in a political embarrassment to the governor -- PG&E filed for
Chapter 11 federal bankruptcy protection from creditors. The company said the
move wouldn't disrupt power for its 13 million customers.
A San Francisco bankruptcy judge was to hold PG&E's first bankruptcy hearing
Monday or Tuesday to determine, among other priorities, which creditors will
be paid and in what order.
PG&E has other legal challenges. Companies who sold electricity to the
utility have filed at least a dozen lawsuits, seeking to be released from
contracts so they can sell power elsewhere.
The bankruptcy also may have an impact on the state's tax base. It wasn't
immediately clear whether PG&E would meet its Tuesday deadline to pay $80
million in property tax payments to 49 counties. PG&E and Edison annually pay
more than a quarter-billion dollars in taxes. Edison has said it intends to
meet the deadline.
Meanwhile, the governor and PG&E traded barbs over the utility's decision to
award more than $50 million in bonuses and merit raises to about 6,000
midlevel managers and other workers the day before filing for bankruptcy
protection.
Davis issued a statement Saturday saying PG&E's management suffered from
``denial and greed,'' and the company replied in kind.
``Instead of focusing all his attention on solving the state's yearlong and
ever-worsening energy crisis, the governor has launched a campaign-style
attack on our company,'' a company statement read. ``Unfortunately, he has
chosen to aim at the thousands of men and women who have worked tirelessly
and professionally through this crisis to deliver gas and electric service to
our millions of customers.''
Davis then went on two nationally televised news programs to blast the
utility.
``Management at PG&E is just focused upon padding their own pockets, not in
discharging their duty to serve their many customers in California,'' Davis
said Sunday on ABC World News Tonight.
The rancor comes at the start of a busy week, as federal and state officials
plan hearings on the California's growing power crisis.
Representatives of 11 Western states will gather in Boise, Idaho on Tuesday
to discuss regional energy issues. The gathering is sponsored by the Federal
Energy Regulatory Commission.
In Sacramento on Wednesday, the state Senate starts hearings in its inquiry
into allegations that electricity suppliers illegally withheld power to drive
up California's wholesale prices. Wholesalers deny such accusations.
Meanwhile, no power alerts were in effect Monday morning as power reserves
stayed above 7 percent.
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SAN FRANCISCO
PUC General Manager To Leave S.F. Post

Monday, April 9, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/04/09/M
N1054417.DTL
John Mullane, general manager of the San Francisco Public Utilities
Commission for the past 15 months, has told Mayor Willie Brown he is
retiring, even though Brown hasn't yet named a successor to lead the agency
that could play a vital role in helping the city through the energy crisis.
Mullane, a 37-year city employee, was director of the Water Department before
he took the post at the PUC, which runs the city's vast Hetch Hetchy water
and electric power system. He initially agreed to serve as acting general
manager for only six months, succeeding Anson Moran, who also retired.
But the PUC has not identified a candidate for the general manager's post who
is acceptable to Brown. The mayor has said he wants to use the PUC's
hydroelectric dams and vast land holdings as a basis for building more power-
generating capacity and creating a regional power authority.
,2001 San Francisco Chronicle ? Page?A - 12
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Gov. Davis, bankrupt utility blame each other for power woes
Posted at 6:38 a.m. PDT Monday, April 9, 2001
BY GARY GENTILE

AP Business Writer

LOS ANGELES (AP) -- Gov. Gray Davis and Pacific Gas & Electric executives
traded acrimonious barbs -- but no solutions -- as the state's largest
utility headed into bankruptcy court claiming $9 billion in debts.
On Sunday, Davis appeared on two nationally televised news programs to berate
PG&E for awarding an estimated $50 million in bonuses and raises to about
6,000 midlevel managers and support staff on the eve of its filing for
bankruptcy protection Friday.
``Management at PG&E is just focused upon padding their own pockets, not in
discharging their duty to serve their many customers in California,'' Davis
said on ABC's ''World News Tonight.''
Earlier, Davis had issued a statement saying PG&E ``management is suffering
from two afflictions: Denial and greed.''
In response, PG&E defended their employee bonus package and took a swipe at
the governor.
``Instead of focusing all his attention on solving the state's yearlong and
ever-worsening energy crisis, the governor has launched a campaign-style
attack on our company,'' a PG&E statement read.
The rancor came at the start of a hectic week. A San Francisco bankruptcy
judge was to hold PG&E's first bankruptcy hearing Monday or Tuesday to
determine, among other priorities, which creditors will be paid and in what
order.
Davis, meanwhile, was still locked in faltering negotiations with Southern
California Edison, the state's second-largest utility, which also claims the
state's flawed 1996 deregulation law is the cause of its financial woes.
Davis is hoping to strike a deal to buy Edison's share of the power
transmission system for $2.76 billion, which would provide Edison with a
much-needed cash-flow to restructure its debt.
SoCal Edison executives have said they would continue negotiations with
Davis, but weekend talks in San Francisco failed to resolve any of the
outstanding issues on the table, said Davis' spokesman Steven Maviglio.
Edison was to file an update on its financial condition with the Securities
and Exchange Commission on Monday.

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Cheap, abundant coal eyed with new interest
Published Monday, April 9, 2001, in the San Jose Mercury News
BY JIM PUZZANGHERA

Mercury News Washington Bureau

WASHINGTON -- The skyrocketing price of natural gas, a major factor in
California's electricity problems, is sparking renewed national interest in
coal -- and the Golden State has a major stake in its potential comeback.
Although California's small, coal-fired power plants account for less than 1
percent of its electricity production, about 20 percent of the state's total
power comes from coal-burning plants, mostly elsewhere in the West.
More coal plants are on the drawing board in the region as abundant and
inexpensive coal has become increasingly enticing when compared with natural
gas. Gas burns cleaner but is more than four times as expensive and is in
short supply.
The nation is hungry for options as the energy crisis threatens to spread.
But coal's potential to produce more and cheaper power is offset by the
impact that increased coal burning could have on the environment, from
thicker haze to more mercury emissions to accelerated global warming.
Coal, the fuel that powered the Industrial Revolution, fell out of favor over
the past 30 years because of those environmental concerns. But President Bush
has touted it as a key to solving the nation's energy woes. In the budget he
sends to Congress today, Bush is expected to propose spending more money to
research cleaner-burning coal. Some of the money for the 10-year, $2 billion
program will come at the expense of research into renewable energy and energy
efficiency.
Optimism about the new administration and the high prices of other fossil
fuels has led companies to announce plans for 23 new coal-fired power plants
across the nation in recent months. That's more than were proposed in the
past decade. The announcements, along with a more than doubling of coal
prices, has fed surging stock valuations of coal companies. One of the
leading producers, Peabody Group, is planning an initial public offering next
month.
None of the new plants are in California, although 10 are in the West. Those
plants would add at least 4,800 megawatts of electricity to the Western power
network in the next four years, enough to power 3.6 million homes.
``To the extent that they expand capacity anywhere in the Western grid right
now, it's going to help,'' said Severin Borenstein, director of the Energy
Institute at the University of California-Berkeley. ``But before coal can
make a claim that it can be the energy source we can depend on, it's going to
have to prove that it can be more environmentally friendly.''
Pollution concerns
Environmentalists are highly skeptical. They, along with some taxpayer groups
and the U.S. General Accounting Office, have criticized the Department of
Energy's existing Clean Coal Technology Program as ineffective and wasteful.
Although technological advances have nearly eliminated the characteristic
black smoke of coal, burning it still releases large amounts of carbon
dioxide, which contributes to global warming, and other chemicals that
pollute air and water, environmental groups say.
``Coal is not part of our long-term future, unless our long-term future has
San Jose underwater,'' said Carl Pope, executive director of the Sierra Club,
alluding to the rising oceans predicted if global warming continues. Pope
added that truly clean-burning coal ``is about as likely as cold fusion.''
Although there is much debate about the environmental ramifications of
burning coal, there is no debate about one thing: The United States is the
coal capital of the world.
Coal is the nation's most abundant fossil fuel. There are about 250 billion
tons of recoverable coal in the country's soil, a figure equal to the entire
reserve of oil in the world. At the present rate of consumption -- coal
supplies about 51 percent of U.S. electricity today -- there's enough coal in
the country to last 250 years.
Backing from Bush
``For the United States to ignore coal as an integral part of its energy
policy is the equivalent of OPEC ignoring oil,'' said Jack Gerard, president
of the National Mining Association, which represents the coal industry.
The Bush administration doesn't plan on ignoring it.
``My job and the job of others will be to convince many in the country who
don't believe we can have a clean air policy and burn coal at the same time.
I believe we can,'' Bush said in a February speech in the coal country of
West Virginia.
Critics charge Bush is selling out to the coal industry. It contributed $3.8
million to federal candidates in the 2000 election cycle, with 88 percent of
that for Republicans. The industry flexed its muscle last month when it
pushed Bush to revoke a campaign promise to support requiring power plants to
reduce carbon dioxide emissions.
``They seem to have the ear of important people in the White House and the
Energy Department. It remains to be seen whether they're going to be able to
fool the public,'' said David Hawkins, director of the air and energy program
at the National Resources Defense Council and a former environmental official
in the Carter administration.
California's stricter air-quality laws have made building coal plants in the
state unfeasible, industry officials said. Instead, California has looked to
coal plants outside the state for power. Los Angeles officials last month
urged that between 500 and 1,000 megawatts of generating capacity be added to
the coal-fired Intermountain Power Plant in Utah, which already provides the
city with a third of its power.
No in-state supply
Utah has an in-state supply of coal, as do Arizona and several other Western
states. Lack of such a supply in California has made coal-fired plants a less
enticing option here, said California Energy Commissioner Suzanne Garfield.
Coal industry officials counter that their product is shipped across the
country. About 3.3 million tons of coal travels by rail each year to Los
Angeles, where it is shipped to Asia and other foreign destinations.
A coal-fired power plant would face great opposition in California, even
during this energy crisis, coal industry officials concede. But coal does
have the potential to help solve the country's energy problems, Borenstein
said.
``Coal, if it can be burned cleanly, is a very abundant source of power,'' he
said. ``I hope that they can come up with a clean coal technology.''

Contact Jim Puzzanghera at jpuzzanghera@
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Leaders threaten to seize power contracts, plants
Published Monday, April 9, 2001, in the San Jose Mercury News
BY BRANDON BAILEY

Mercury News

While the governor's office continued talks aimed at preventing a second
major utility from going into bankruptcy, other California political leaders
said Sunday that it's time for drastic action to bring wholesale power prices
down.
With little prospect for federal price caps, some state officials are saying
California must seriously consider such steps as seizing power contracts or
even taking over the generating plants themselves.
``To this date, we haven't done enough'' to persuade suppliers that they need
to lower their prices, Democratic state Treasurer Phil Angelides said Sunday.
State Senate President Pro Tem John Burton, D-San Francisco, suggested
seizing two or three power plants to ``send a shot across their bows.''
Angelides agreed it may be time to slap wholesale power providers with a
windfall profits tax -- ``or take a couple of their plants, to give them a
little dose of reality.''
Legislative leaders are also discussing a proposal for the governor to seize
wholesale electricity contracts if federal regulators refuse to impose a
regional price cap on power trading in the West.
In effect, that would let the state buy some lower-priced power that
generators had already promised to energy traders, who would otherwise resell
the same juice on the spot market for higher prices.
Shift in focus
If the state goes forward with any of those efforts, analysts said it would
mark a shift in focus. Rather than concentrating on bailing out the
cash-strapped utilities, officials would be addressing the larger issues of
what many consider to be a dysfunctional power market in which a handful of
large, independent companies have earned huge profits by selling power to the
utilities that provide energy to individual consumers.
Attorneys for the state's largest utility, Pacific Gas & Electric Co., and
its creditors are expected to appear in a federal courtroom in San Francisco
this morning for a hearing on the bankruptcy petition that PG&E filed Friday.
It is the third largest bankruptcy filing in U.S. history.
PG&E says it has amassed $9 billion in debt, primarily because of a rate
freeze that has prevented utilities from passing their wholesale costs on to
California energy consumers.
PG&E bonuses
A spokesman, meanwhile, defended PG&E's decision to pay out millions of
dollars in performance bonuses to about 6,000 non-union employees last week,
before the bankruptcy petition was filed. Though critics said the utility
shouldn't be making such payments at a time when it is crying poverty, PG&E
spokesman John Nelson said the bonuses went to workers who weren't eligible
for a pay increase that other workers received earlier this year under their
union contract.
The company had planned to award about $80 million in bonuses, but Nelson
said that was reduced by an unspecified amount in part because PG&E decided
not to include its top officers in the group receiving the awards.
Also over the weekend, aides to Gov. Gray Davis continued negotiating details
of a bailout plan for the state's other major utility, Southern California
Edison. Under a tentative agreement announced a few weeks ago, the state
would give Edison nearly $3 billion. In exchange, California would take over
Edison's portion of the transmission grid.
The governor had hoped to acquire both Edison's and PG&E's share of the
statewide grid.
``It would be much easier if we could get the whole system, clearly,'' said
Steve Maviglio, the governor's press secretary. But he said the state could
still submit a proposal to acquire PG&E's portion as part of a court-approved
plan to reorganize the utility's debts.
Power producers have criticized the state's effort to acquire the
transmission grid, and argue that raising taxes or seizing power plants would
only discourage new plant construction. Spokesmen for several major
generators have argued that the state should concentrate on reducing barriers
to new plants or allowing utilities to raise their rates so they can pay off
their debts.
But adding to the calls for strong action, Assembly Speaker Pro Tem Fred
Keeley, D-Santa Cruz, said Sunday that he doesn't believe the state's economy
can survive what he called ``an undisciplined wholesale energy market'' for
much longer.

Contact Brandon Bailey at bbailey@sjmercury.com or (408) 920-5022.

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Monday, April 9, 2001

Blackouts this summer?
Perhaps the timing was coincidental, but Friday's announcement by Pacific Gas
& Electric that it will seek Chapter 11 bankruptcy protection served as a dim
comment on the industry's confidence that California Gov. Gray Davis really
has a handle on the state's looming electricity crisis. Unfortunately, Gov.
Davis' speech Thursday evening, while a bit more realistic than previous
statements in that he acknowledged the need for rate increases, suggests the
governor is not considering a sensible way out of the problem.

In a conference call with journalists Friday morning the governor fleshed out
some of the bare bones he offered the public the night before. His proposed
rate increase is slightly smaller than one the Public Utility Commission
proposed last week and will hit heavy users harder. He promised that a
revenue bond his office is still assembling would repay the general fund
money the state government has spent and pay some utility debts too. He
emphasized that increasing supply is the only long-term answer and said his
office is working "at warp speed" to get permits for new plants approved.
Four small ones should be online this summer.

But he still sees state control rather than a freer market as the proper
approach. He said the state would stop buying electricity directly in 2003
but would set up a new regulatory structure to supervise those who do. He
acknowledged the need for rate increases but wants rates set by regulators
rather than by buyers and sellers.

We might eventually get stability under such a system. But it would be a
needlessly expensive stability.

Looming over all is the near-certainty of summer blackouts.

The latest summer projections by California's Independent System Operator,
the bureaucratic agency through which most energy transactions in the state
are funneled, are more pessimistic and more realistic than previous
estimates. But even these latest projections might understate the severity.

The 2001 CAISO summer assessment forecasts resource deficiencies for June
through September ranging from almost 3,700 megawatts in June down to about a
600 MW shortfall in September. The cover memo notes that "Given this
forecast, the CAISO expects that load curtailments (blackouts) will occur
this summer."

Republican state Sen. Tom McClintock pointed out to us, however, that the
governor took over the ISO board with a flurry of new appointments. Sen.
McClintock says his staff has heard rumblings of political pressures to
minimize doom-and-gloom projections.

Last December the ISO estimated a different "peak power demand" (what's
demanded with millions of air conditioners running) for each summer month -
49,462 MW for June, 48,759 for July, 50,829 for August and 47,047 for
September.

The March 22 report applies the same maximum peak load to every month "since
the CAISO cannot accurately forecast when the system summer peak will occur."
And the figure is at the low end of the previous estimates at 47,703 MW.

The ISO says that "potential demand reductions and possible new supply
resources are not considered," so conservation measures and price increases
haven't been included. The report expects the new plants Gov. Davis mentioned
to come online in June and later.

Robert Michaels, the Cal State Fullerton energy economist, told us there are
so many variables and so many reasonably valid forecasting models that the
variances between the two reports might not be all that significant. "In any
event, this report is plenty scary. Consumers, especially large industrial
operations, are going to have to make big adjustments in how they use
energy," he told us.

A report from the respected consulting firm Cambridge Energy Research
Associates (CERA), headed by author Daniel Yergin, estimat es 20
blackout-hours during the summer. Only four such blackouts have happened so
far.

A newspaper article by Mr. Yergin and Lawrence Markovich, after analyzing
flaws in the misnamed 1996 "deregulation" scheme says, "Instead of fixing
these flaws, the current policies from Sacramento are moving California down
the road to an expensive public power setup and higher prices for consumers
and businesses."

Robert Michaels thinks industries are already making adjustments and will
make more when they see the bills they get in May.

By now almost all the reputed experts say there are likely to be significant
power shortfalls and rolling blackouts this summer. Businesses that don't
already have backup generators might do well to get them, and to adjust the
hours in which they use power most intensively. This could be, as Mr.
Michaels put it, "a summer like we've never seen before."

CERA thinks it will take California two or three years to re-establish
something resembling reliable energy. It just might take suffering in the
summer to get state officials to revise their statist plans.
Nobody welcomes suffering. But at this point it's prudent to expect the
electricity situation to be worse rather than better this summer.

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Pacific Gas Files for Chapter 11

By MICHAEL LIEDTKE
AP Business Writer
SAN FRANCISCO (AP) via NewsEdge Corporation  -
Pacific Gas and Electric, California's
largest utility, filed for Chapter 11 bankruptcy protection Friday
despite months of efforts by state officials to bail out the
cash-starved company.

The utility's 13 million customers probably will be among the
least affected, since bankruptcy proceedings allow companies to
continue operating while trying to dig out of their financial hole.

But lenders, bondholders and power generators may have to write
off billions advanced to the utility as losses. And the company's
financial reputation could be damaged for years, making it more
difficult to raise money to upgrade transmission lines and plants.

``The regulatory and political processes have failed us, and now
we are turning to the court,'' company chairman Robert D. Glynn Jr.
said. ``We expect the court will provide the venue needed to reach
a solution, which thus far the state and the state's regulators
have been unable to achieve.''

The company, a subsidiary of PG&E Corp., had run up an $8.9
billion deficit buying electricity as of Feb. 28. Like other
California utilities, it has been pinched by skyrocketing wholesale
power costs and the state's 1996 deregulation law barring rate
increases.

As of March 29, the utility had $2.6 billion in cash and
outstanding bills of $4.4 billion. Shares of PG&E Corp. were halted
on the New York Stock Exchange, where they last traded at $11.36,
down 2 cents.

The company provides natural gas and electric service across
Northern and Central California. It has 21,500 employees.

The bankruptcy filing came one day after Gov. Gray Davis, in a
statewide address, proposed relieving utilities' debts by giving
them a share of a record rate increase approved last week and by
continuing to negotiate the state's purchase of their transmission
lines.

PG&E Corp., however, said those negotiations were ``going
nowhere.''

Davis spokesman Steve Maviglio said the bankruptcy filing was a
complete surprise. He said aides were meeting with the attorney
general's office and bankruptcy lawyers to discuss the
implications.

Consumer activists were quick to pounce on the news as more
evidence that the utility is not getting enough help from its
parent company, which has profited during California's energy
crisis.

``The parent company has $30 billion, much of which it has
siphoned out of the utility coffers. It would have bailed the
utility out,'' said Harvey Rosenfield of the Foundation for
Taxpayer and Consumer Rights.

PG&E Corp. said its subsidiary was forced into bankruptcy
because of ``unreimbursed energy costs, which are now increasing by
more than $300 million per month,'' state regulatory decisions that
are hurting the company and ``the now unmistakable fact that
negotiations with Gov. Gray Davis and his representatives are going
nowhere.''

Southern California Edison, the state's second-largest utility,
was not affected by the filing. Officials at parent Edison
International were meeting Friday to discuss the situation.

Edison International's stock was down $3.63, or 29 percent, to
$9.01 in trading on the New York Stock Exchange.

The stock of Sempra Energy, the parent company of San Diego Gas
& Electric that serves 3 million customers in the San Diego area,
was down $2.17, or 9 percent, to $21.98 per share.

The three utilities say they have lost more than $14 billion
since June because of soaring wholesale costs. SoCal Edison and
Pacific Gas & Electric are barred under the state's deregulation
law from raising rates to recover the costs and are having trouble
buying power and natural gas because of poor credit.

In his five-minute televised speech Thursday evening, Davis said
rate increases are needed to help pay for power purchased by the
state on behalf of the utilities. The purchases have cost taxpayers
$4.7 billion since January.

Davis said his tiered rate plan would mean no increase for most
residents and an average increase of 26.5 percent for the rest. The
Public Utilities Commission has already approved rate increases of
up to 46 percent for customers of SoCal Edison and Pacific Gas &
Electric.

The power crisis led to rolling blackouts in January and earlier
this month as electricity supplies dwindled to nearly nothing.

On Thursday, state power grid managers said California will see
more than a month of rolling blackouts for as many as 5 million
people at a time if residents use as much power this summer as last
summer.

The crisis is blamed a number of factors, including high demand,
high wholesale costs and a tight supply worsened by scarce
hydroelectric power in the Northwest and maintenance of aging
California power plants.

The governor has signed contracts and agreements in principle to
secure the state's long-term power needs, committing $53 billion
that eventually must be paid back by taxpayers and utility
customers.
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Davis endorses rate hikes, defends handling of energy crisis

By JENNIFER COLEMAN
Associated Press Writer
SACRAMENTO (AP) via NewsEdge Corporation  -
Gov. Gray Davis for the first time endorsed
rate increases for customers of two strapped utilities, while
urging conservation and defending his handling of the state's
energy crisis.

Davis, addressing Californians in a televised speech Thursday,
also lashed out at federal regulators for refusing to cap soaring
wholesale electricity prices that have pushed the state's two
largest utilities toward bankruptcy.

``In January, with the feds still refusing to do their job,
California stepped in to purchase the power the utilities could no
longer afford to buy,'' Davis said. ``We didn't take over to save
the utilities. We took over to keep the power on and the economy
strong.''

California has been hit by severe electricity shortages and
rolling blackouts the past few months. The problem is blamed on a
variety of factors, including deregulation of California's electric
industry which does not allow utilities to pass on to customers
sharply increased costs.

Davis, who repeatedly has said the state can resolve the power
problems without rate hikes, told viewers he now thinks rate
increases are necessary.

His new stance comes after the state Public Utilities Commission
last week approved rate increases of up to 46 percent for customers
of Southern California Edison and Pacific Gas & Electric Co.

Davis said he will propose a tiered rate plan that will mean a
26.5 percent rate increase for the average Edison or PG&E customer.
Under the governor's plan, the heaviest power users would see an
average 34.5 percent rate increase.

``The more you use, the more you pay,'' he said. ``Conservation
is our best short-term weapon against blackouts and price
gouging.''

Davis said the state's power crunch and high wholesale costs are
the result of a ``flawed deregulation scheme'' signed into law in
1996 by then-Republican Gov. Pete Wilson.

Davis urged Californians to help cut power use 10 percent to
fend off rolling blackouts this summer, when residents will turn on
their air conditioners and demand will rise sharply.

The Legislature on Thursday afternoon sent Davis proposals that
would spend dlrs 1.1 billion on conservation programs for consumers
and businesses. Davis said he plans to sign the measures.
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Sempra Energy And SDG&E Reaffirm Strong Financial Position in Response to
PG&E Bankruptcy

SAN DIEGO--(BUSINESS WIRE)--April 6, 2001 via NewsEdge Corporation  -
Sempra Energy and San
Diego Gas & Electric (SDG&E) officials took the opportunity of today's
Chapter 11 bankruptcy announcement by Pacific Gas & Electric (PG&E) to
reaffirm their companies' strong financial position and the
significant regulatory and legislative differences between SDG&E and
PG&E.

"We want to reassure our customers and shareholders that Sempra
Energy and SDG&E remain very strong and financially viable companies,"
said Stephen L. Baum, chairman, president and chief executive officer
of Sempra Energy, the parent company of SDG&E. "SDG&E is continuing
its record of providing safe and reliable gas and electric service for
our 1.2 million customers today, tomorrow and for years to come. There
are several significant financial, legislative and regulatory
differences that distinguish Sempra Energy and SDG&E from PG&E."

SDG&E is covered under Assembly Bill 265, a law signed by the
Governor last September which guaranteed that SDG&E will be able to
collect the difference between the capped price of electricity and the
wholesale cost of power, providing the power was prudently purchased.
PG&E is not covered by AB 265 and that guarantee. At the end of
February, the under-collection in the balancing account was $681
million. Since the state's power procurement agency, the California
Department of Water Resources (DWR), has been purchasing power for
SDG&E, the growth of the company's balancing account has slowed
significantly.

Unlike PG&E, SDG&E has been able to pay its wholesale electric
bills to the DWR, the California Independent System Operator, the
California Power Exchange and Qualifying Facilities that cogenerate
power for the utility. Additionally, the Sempra Energy companies have
no significant credit exposure to PG&E.

"Sempra Energy and SDG&E have long advocated that the Federal
Energy Regulatory Commission institute temporary regional wholesale
price caps to help stem the financial problems such as those
experienced by PG&E," Baum added. "We are also committed to promoting
and instituting comprehensive energy conservation programs for all
customers to help control bills and decrease the chances of rotating
outages this summer."

Sempra Energy (NYSE: SRE), based in San Diego, is a Fortune 500
energy services holding company with 12,000 employees and annual
revenues of $5.4 billion. Through its eight principal subsidiaries --
SoCalGas, SDG&E, Sempra Energy Solutions, Sempra Energy Trading,
Sempra Energy International, Sempra Energy Resources, Sempra
Communications and Sempra Energy Financial -- Sempra Energy serves
more than 9 million customers in the United States, Europe, Canada,
Mexico and South America.