Please see the following articles:

Sac Bee, Wed, 6/6:  Businesses vie for blackout exemptions:
The PUC must decide who should be spared, and the applicant list is very long

Sac Bee, Wed, 6/6: PG&E, ISO agree to court order on power bills

Sac Bee, Wed, 6/6:  Peter Schrag: Turning up the heat in Houston and
Washington  (Editorial)

SD Union, Wed, 6/6:  Is trading an insider's game?

SD Union, Wed, 6/6: Daily energy costs for state fall in past weeks

SD Union, Wed, 6/6: Five tiers sought in proposed rate boost

SD Union, Wed, 6/6:  Port budget large, but power bills loom

SD Union, Wed, 6/6: Continuous use urged for planned power plant

SD Union, Wed, 6/6: Rising energy prices threaten Poway troupe

SD Union, Wed, 6/6: Fair to use generators for midway attractions

LA Times, Wed, 6/6: 'Hi, My Name Isn't Justice, Honey,' and Shame on Lockyer
(Editorial)

LA Times, Wed, 6/6: U.S. Probes Alleged Pact Not to Build New Plants Power:
Justice officials focus on Southland operations of two firms, which deny
wrongdoing

LA Times, Wed, 6/6: Natural Gas, Power Prices Drop Sharply Energy:
More conservation, mild weather are among factors keeping costs down, experts
say

LA Times, Wed, 6/6: The State Utility Averts $1 Billion in Costs Courts:
PG&E and Cal-ISO agree to recognize Department of Water Resources as
purchaser of the power

SF Chron, Wed, 6/6: Dramatic drop in cost of electricity
LOWER BILLS: Cheaper fuel, milder weather credited

SF Chron, Wed, 6/6:  San Jose council gives green light to generating plant
VOTE REVERSAL: Officials pressured to OK project

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

SF Chron, Wed, 6/6: California conserves

SF Chron, Wed, 6/6:  L.A. power customers awash in cheap energy

SF Chron, Wed, 6/6:  PG&E doesn't want to pay for energy to avert blackouts

Mercury News, Wed, 6/6: Metcalf plant gets preliminary approval

OC Register, Wed, 6/6: Feds probe AES, Williams

Individual.com (PRnewswire), Wed, 6/6:  Calpine Begins Construction of
Peaking Energy Center in Gilroy, Calif.

Individual.com (PRnewsire), Wed, 6/6: Reliant Urges FERC to Drop or Amend
California Price
Caps to Avoid Additional Shortages and More Blackouts

Energy Insight, Wed, 6/6:  Farm-fresh biopower
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Businesses vie for blackout exemptions: The PUC must decide who should be
spared, and the applicant list is very long.
By Carrie Peyton and Dale Kasler
Bee Staff Writers
(Published June 6, 2001)
Mixes for milkshakes and frozen coffees could spoil at ice cream parlors,
sickening customers.
Seniors getting their hair done would have to leave their dryers and go home
with wet heads, risking a chill.
Mall escalators could come to a sudden halt, endangering shoppers who lose
their footing.
Those are among the health and safety risks cited by more than 10,000
businesses and government bodies asking state regulators to exempt them from
rolling blackouts.
It is a list that mixes nursing homes and grocery stores, outpatient surgical
clinics and beauty salons, dialysis centers and country clubs.
"A lot of people are treating this like a lottery," said Subodh Medhekar of
Exponent Inc., the consulting firm sorting through exemption requests for the
state Public Utilities Commission.
For many, Medhekar said, the rationale seems to be " 'I'm pretty sure I won't
get exempted, but what's the down side? Let's put in an application.' "
Amid predictions that Californians could face dozens of rolling blackouts
this summer, state regulators are trying to update a decades-old list of who
should be spared if the lights go out.
The Alta Sierra County Club in Grass Valley should be among those whose power
stays on, Sean O'Brien, the club's golf course superintendent, told
regulators in a nine-page application.
The country club telephones could go out, making it harder to phone for help
if someone has a medical problem while golfing, he said in an interview.
And if the golf course's irrigation pumps shut down, it would lose the
ability to quell small blazes -- leaving it to rely on a fire station O'Brien
said is about one-quarter mile away.
Placerville Dialysis wants an exemption, too. As many as a dozen people there
can be having their blood pumped through an artificial kidney that cleans it
when their own kidneys no longer function properly.
"When the power goes out, everything just stops," said manager Shirley
Carpenter. "There is a way to manually return the blood by hand before it
clots in the line. ... It would just be hectic."
It takes about five minutes of manual pumping to fully disconnect someone
from a dialysis machine, Carpenter said. And some patients can help by
operating their own pumps.
But, she said, "I'm sure it would be kind of frightening to have your blood
out in the line and the power off, and they're pretty much tied to the
machine."
Pam Chin, a hairdresser at the Loomis Beauty Salon, said the owner sought an
exemption because people could get overheated if the air conditioning went
out, and older customers getting their hair set could be chilled if the
dryers shut off.
With about half the state already exempt from rolling blackouts, the question
of who else should stay connected has become a delicate one for utilities,
regulators and legislators.
Carl Wood, the PUC commissioner who has taken the lead on blackout issues,
estimates that fewer than 1,000 more utility customers can be exempted before
they overload the rolling outage system designed to take stress off the
electric grid.
While about 6,000 customers are classified as "essential" by the state's two
largest utilities, keeping them out of the blackout rotation also spares
about 5 million other customers who are served by the same circuits.
That multiplier effect will have to be weighed by the consulting firm, by
utilities and eventually by PUC commissioners, who are scheduled to vote in
early August on who should be added to existing standards.
The rules will apply to the state's investor-owned utilities, Pacific Gas and
Electric Co., Southern California Edison and San Diego Gas & Electric Co.,
but not to municipal utilities.
The Sacramento Municipal Utility District already rejected pleas for special
exemptions from a medical lab, a veterinary hospital, nursing homes, medical
facilities, businesses and residents. SMUD believes they can weather
blackouts because they are not critical to public safety.
People have counted on having dependable electricity for so long that some
have widely varying ideas of who can do without it safely, Medhekar said.
Of the more than 500 Baskin Robbins ice cream parlors that dot California,
only five are listed on the PUC Web site as applicants for exemptions.
The site cautions that its list of 9,239 electronic applicants hasn't been
checked for duplicates -- or fiction. It includes hundreds of outlets of the
same drug store and supermarket chains, dozens of related nursing homes and
more than 400 dentists. Another 1,200 commercial power users have applied by
fax.
Among those who have confirmed they want out of outages are the grocery
chains operated by West Sacramento-based Raley's, which said it took the
action as part of united effort with all California grocers, who are worried
about food spoilage.
Others in the mix are Fairfield's Westfield Shoppingtown Solano, formerly the
Solano Mall, where officials sought the exemptions out of fear that shoppers
would get injured if escalators came to a sudden halt.
The Yolo County Housing Authority asked for an exemption on behalf of its 700
dwellings in the belief that the utilities offer exemptions for low-income
Californians, Executive Director David Serena said.
Serena added that many of the authority's occupants are older or disabled and
could be endangered by a blackout.
Chevron Corp. acknowledged it couldn't show that a blackout at its refineries
would present "imminent danger to public health or safety," but it asked Gov.
Gray Davis to support legislation exempting makers and transporters for
"critical fuels," saying a refinery shutdown would cut into the state's
gasoline supply.
Some businesses acknowledged that their applications are a long shot.
"It's probably a stretch," said Amanda Leveroni, who owns Bacio Catering Co.
of Chico, about her request to the PUC. "The public wouldn't be in danger.
"But we're a catering company -- somebody has planned for a year-plus for a
wedding or some big event," she added. "I would be in such a huge situation.
I'd have to send out for pizza."

The Bee's Carrie Peyton can be reached at (916) 321-1086 or
cpeyton@sacbee.com.

PG&E, ISO agree to court order on power bills
By Claire Cooper
Bee Staff Writers
(Published June 6, 2001)
SAN FRANCISCO -- Pacific Gas and Electric Co. and the operator of
California's power grid agreed Tuesday to a preliminary court order providing
that the utility will continue to receive -- but not pay -- generators' bills
for the state's purchases of the most expensive wholesale electricity.
The tab has been running at about $300 million a month.
The order, which U.S. Bankruptcy Judge Dennis Montali said he'll sign, will
specify that the Independent System Operator will not procure power except
for a "creditworthy buyer who has agreed to pay the generator."
In California, the only such potential buyer is the state Department of Water
Resources. However, the department, which has avoided PG&E Co.'s bankruptcy
proceedings by claiming sovereign immunity, will not be controlled by the
agreement. Montali pointed out that the department still could demand
reimbursement from PG&E.
Under the agreement, the ISO will not press any claims against PG&E on behalf
of generators if they are not paid.
The proposed preliminary injunction was based on an April order by the
Federal Energy Regulatory Commission, which forbade the ISO from purchasing
power on behalf of any non-creditworthy buyer, such as PG&E.
The ISO is appealing the FERC order. If the appeal succeeds, the injunction
will end.

Peter Schrag: Turning up the heat in Houston and Washington

(Published June 6, 2001)

Behind all the palaver about the predictable standoff at last week's energy
"summit" between President Bush and Gov. Gray Davis, one major political
development was missed.
Put simply, in the past month the focus of the California energy crisis, and
maybe the onus as well, has moved east: from the state's (and Davis')
handling of the mess to the generating companies, energy marketers and gas
pipeline companies that have richly profited from it, and thus to FERC, the
do-next-to-nothing Federal Energy Regulatory Commission, and the Bush
administration.
That wasn't all Davis' doing -- far from it -- though it's been at the heart
of his message about energy industry "pirates" and "profiteers." Bush's
misbegotten energy plan and the administration's political clumsiness also
contributed mightily, not least by inadvertently giving Davis the chance to
get media exposure he could only have dreamed about.
More important, there's the defection of Sen. James Jeffords from the
Republican Party and the resulting shift of control in the U.S. Senate, where
the next chair of the Energy Committee will be Sen. Jeff Bingaman of New
Mexico, a co-sponsor of Sen. Dianne Feinstein's bill capping wholesale
electric rates for the next two years. And chairing the Committee on
Governmental Affairs will be Sen. Joseph Lieberman of Connecticut, who's
already asked for an audit of energy prices.
Those changes will draw a lot more attention to recent studies showing that a
handful of big generators -- Duke Power, Reliant, Mirant, Dynegy and the huge
energy-marketing firm Enron -- have gamed the market to drive wholesale
prices to levels that, in the year 2000, sometimes reached 40 times the
prices of the year before.
The findings come not merely from economists at the California Independent
System Operator, the agency that manages the state's grid, who estimate
overcharges resulting from market power at $6.2 billion for last year alone.
They come also from Severin Borenstein and his colleagues at the University
of California Energy Institute, who "conservatively" calculate the
overcharges at $4.5 billion; from Paul Joskow, a widely respected energy
economist at MIT; and from Edward Kahn, an economic analyst in San Francisco.
In a recent paper published by the National Bureau of Economic Research,
Joskow and Kahn conclude that there's "considerable evidence that the high
prices experienced in the summer of 2000 reflect the withholding of supplies
from the market by suppliers [generators or marketers] exercising market
power." That those high prices occurred not merely during peak usage but also
at off-hours, when no one had ever seen a price spike before, makes those
spikes even more curious.
There is, in addition, the powerful suspicion that the huge increase in
natural gas prices that a subsidiary of El Paso Energy Co., now the largest
gas company on Earth, was charging on the California side of the
California-Arizona border wasn't merely the result of an innocent imbalance
between supply and demand.
None of that may be illegal. If there's no collusion, there are no violations
of antitrust laws. But it adds plenty of steam to the political argument. In
the 2000 election cycle alone, energy companies kicked in some $64 million in
political contributions, 75 percent of it to Republicans. At a time when
those companies, many of them located in the same Houston neighborhood, are
racking up astronomical profits and when their collective coziness with Bush
and the Republican Party is a lot more than rhetoric, their vulnerability to
a vigorous Senate investigation ought to be obvious.
The clincher is "Blackout," a "Frontline" program that both symbolizes the
shifting emphasis and reinforces it. (The program is scheduled to be aired at
8 p.m. Friday on Sacramento cable Channel 7.) It isn't another recital of
Californians worrying about their electric bills, or about the stupidity of
the state's deregulation scheme or how Davis dithered in addressing the
crisis. It is about those generators and marketers in Houston and North
Carolina, men (and a few women) who regard themselves as the heroes of the
new energy markets.
The piece is reported by Lowell Bergman, who in working for both "Frontline"
and the New York Times has already broken major print stories about Duke
Power's secret approach to Davis offering unspecified energy refunds in
return for an end to state investigations and lawsuits. Bergman also reported
private conversations between Enron chairman Kenneth Lay, a major Bush
supporter, and FERC chairman Curt Hebert regarding the influence that Lay
could exercise with Bush to allow Hebert to keep his chairmanship if Hebert's
supported certain decisions Enron badly wants.
None of these recent events is likely to end Davis' political woes, and they
may not produce the wholesale rate caps Feinstein wants and that most
economists think necessary -- or maybe any significant reduction in the
industry's predatory pricing. But they will surely help turn up the heat,
both in Houston and Washington. Six months ago FERC found wholesale prices
were not "fair and reasonable" as federal law requires, but did little about
them. It will now have a lot more questions to answer.

Peter Schrag can be reached at Box 15779, Sacramento, CA 95852-0779, or at
pschrag@sacbee.com.

Is trading an insider's game?

Buying, selling of electricity is a growth business, but some say deck is
stacked against consumers
By Craig D. Rose
UNION-TRIBUNE STAFF WRITER
June 6, 2001
While Californians decry deregulation's failure to deliver a competitive
market, electricity wholesalers have quietly developed a vast and rapidly
growing business of buying and selling power among themselves.
The deals take place on high-tech trading floors in Houston and elsewhere
around the country, as well as on Internet-based trading systems.
Some experts say this electricity trading is a key mechanism for raising
consumer power prices, yet it's largely unregulated.

"Electricity trading is like buying stock -- when you have ability to change
the stock price," said Frank Wolak, a Stanford University economics professor
and member of the state grid operator's market surveillance group.
Energy companies say the buying and selling of contracts to deliver power
provides risk management, allowing plant owners to presell their electricity,
lock in prices and avoid fluctuations. The rough and tumble of the free
market, they add, is the most efficient means of allocating a resource like
electricity.
But industry critics say trading is far from a competitive market paradigm.
In their view, it's a means of communication -- a way for energy insiders to
collude and raise prices under the guise of competition.
To be sure, the trading arms of major energy companies have emerged as stars
in an industry where profit surges of 300 percent or 400 percent are not
uncommon.
The transactions, shrouded in secrecy, can leave ownership of a critical
commodity in unknown hands. Consider the case of power generated by AES
Corp.'s California plants.
In 1998, AES made a bold move. Immediately after purchasing power plants that
gave it control of 10 percent of the state's electric generating capacity,
the company sold the output from its plants for the next 20 years to Williams
Cos.
Williams did not sit on this treasure trove of electrons. The Tulsa, Okla.,
company soon sold 80 percent of what it bought.
It is difficult to say who owns that power now. Some might be owned by Sempra
Trading, a sister company of SDG&E. Or some could be owned by Enron Corp.,
the nation's biggest electricity trader.
A spokeswoman for Williams conceded that Williams itself may have repurchased
some of the electricity it sold earlier. But trading companies closely guard
their positions.
This much can be said with certainty: Electricity that AES sold for less than
5 cents per kilowatt-hour to Williams changed hands perhaps 10 times in the
wholesale market and emerged at times in recent months with a price tag for
consumers that was 300 percent higher.
Williams' trading profits increased by 523 percent in the first quarter this
year.
Advance sales
All this buying and selling creates curious confluences.
In their attempt to deflect criticism over high prices, generating companies
such as Duke Energy -- operator of the South Bay Power Plant in Chula and
others in the state -- frequently note that they sell most of their
electricity far in advance. But they acknowledge less often that their
trading units may also be buying power, which could boost the company's
electricity inventory.
Duke was the fourth biggest electricity trader last year and cited its
trading activity as a prime contributor to its wholesale business profits,
which soared 324 percent in the first quarter to $348 million.
It is a company's power traders who frequently direct plant operators to
increase or decrease the generation of power in response to market
conditions.
Energy companies have little option but to turn to trading for profits. One
of the better kept secrets of electrical deregulation and its promise of
competition is that there is remarkably little competition in the production
side of the business.
For one thing, electricity is a commodity; power from one company is
indistinguishable from that generated by others.
More important, nearly all modern plants generate power from turbines built
by a handful of manufacturers. The result? Modern plants owned by different
companies produce power at nearly identical cost.
"The cost of power produced by modern plants is all within a mil
(one-thousandth of a dollar)," said Michael Peevey, an adviser to Gov. Gray
Davis and former president of Southern California Edison.
So the extraction of profit in the electricity business relies much more on
trading. Traders' profits rise when prices are volatile -- plunging, or even
better, rising sharply.
Little regulation
But despite the obvious temptation to manipulate the market, the burgeoning
electricity trading business has remained largely unregulated.
The Federal Energy Regulatory Commission does require quarterly filings from
energy traders, but these often provide incomplete information, or at least
little that has been of concern to FERC.
In fact, although the trading of electricity grew more than a hundredfold
from 1996 to 2000, FERC has taken no major enforcement action against a
trader. After the onset of the California crisis last year, FERC has acted
once. That was against Williams, which agreed to pay $8 million without
admitting guilt to resolve an allegation that it withheld supply to pump up
prices.
FERC's record of enforcement in the area of power trading stands in contrast
to a long list of enforcement actions within other markets taken by the
Securities Exchange Commission and the Commodity Futures Trading Commission.
FERC has recently added staff to its market oversight operations. But William
Massey, a FERC commissioner, says the agency's effort is still inadequate.
"Electricity can be flipped, stripped and chopped up," Massey said. "It's an
extraordinarily complicated market.
"The sophisticated marketers and traders have simply moved past us. We're
kind of horse and buggy in our approach and they're out there in rocket ships
flying around ... The problem is that sophisticated traders don't necessarily
produce reasonable prices. They produce profits."
Before deregulation, electricity trading was a low-key affair. Regulated
utilities dealt power back and forth on a reciprocal basis to fill
electricity shortfalls in their control areas. There was little trading for
profit until the mid-1990s, after federal legislation and FERC rulings opened
the market.
Major traders include large energy companies, sister companies of
California's major utilities and Wall Street firms.
Market volatility
In many ways, the trading of power is similar to that of other commodities.
But there are important differences. Because it cannot be stored and its use
is so fundamental, the price of electricity is the most volatile of all.
When supplies are tight, a single supplier can rapidly raise prices to
budget-busting levels, as evidenced by Duke Energy's recent admission that it
charged California nearly $4,000 for a megawatt-hour of power, a quantity
that probably sold hours earlier for one-tenth of that sum or less.
Wolak, the Stanford economist, and state Sen. Joseph Dunn, D-Garden Grove,
who is investigating the state power market, say trading allows companies to
collude under the guise of competition. Instead of wringing out lowest costs,
the wholesale trading market serves to raise prices, they say.
"As I trade to you and you trade to me, we communicate to each other what
price we would like to get," said Wolak. "It's not collusive. It's just
communicating price."
Mark Palmer, a spokesman for Enron, the nation's biggest power trader, said
California's problem is not the result of trading.
"It's a result of shortages," Palmer said.
Underscoring its emphasis on trading, Enron's new headquarters tower in
downtown Houston rises from a six-story block of new trading floors,
including expanded space for electricity trading.
Enron also pioneered trading in cyberspace and its Enron Online site claims
to be the most active computer-based trading market.
The Houston company argues that consumers won't fully benefit from power
trading and deregulation until they have greater choice in choosing their
power supplier. And the company says FERC has not done enough to open access
to transmission lines, which would allow traders to move power around the
country. To that end, Enron has lobbied hard for President Bush's plan for a
national electricity grid.
Palmer says the notion that the price of electricity rises each time it is
traded is mistaken.
"The market is always looking for the real price of a commodity," Palmer
said.
Dunn, the California state senator, says his investigation found a different
function for trading. At a time when supply barely meets or falls short of
demand, he noted, companies with electricity to sell have to worry only about
how high to set their price.
"The trader is a pawn in the generator's game to drive up prices," said Dunn.
"Trading develops a level of trust. You, my alleged competitor, will bid in
the same patterns and I will respond not in a competitive pattern but in a
complimentary pattern."
The state senator said his investigation found evidence that on several days,
energy companies appeared to test their ability to drive prices up, without
being undercut by competitors.
This ability to drive up prices without competitive consequence is a key test
of market power, the technical term for manipulation or price fixing.
But Dunn also conceded that antitrust violations can be hard to prove in
court. He suggested that even if the trading behavior falls short of
antitrust violations, it remains anti-competitive and devastating for the
California economy.
To Harry Trebing, a utility industry expert and professor emeritus at
Michigan State University, wholesale electricity trading is reminiscent of
what took place in the 1920s and early '30s. Back then, utility companies
created complex networks of holding companies that traded stock among
themselves, driving up prices in the process.
Undoing that scheme was a focus of President Franklin Roosevelt's
administration. Congress ended up barring national power companies and
tightening regulation of utilities, in an effort to counteract their tendency
to create markets that work only for insiders.
"The broad goals of trading are the same," Trebing said.
"The goal is to maximize profits through raising prices."

Daily energy costs for state fall in past weeks

By Ed Mendel
UNION-TRIBUNE STAFF WRITER
June 6, 2001
SACRAMENTO -- In some of the first good news of the electricity crisis, the
Davis administration said yesterday that the daily cost of power purchased by
the state for utility customers has dropped in recent weeks.
The price-drop news comes after an announcement that Californians conserved
more energy than expected last month, 11 percent, and amid Davis
administration optimism that the Legislature may finally begin to move on a
plan to keep Southern California Edison out of bankruptcy.
The developments, if they turn out to be a trend and not temporary, could be
among the first signs that Gov. Gray Davis' plan to end the electricity
crisis is beginning to work. But the administration isn't saying that.
"We have had a few good days here lately," said S. David Freeman, a Davis
power adviser. "I don't think that I want to project."
Some power-market watchers began to speculate last month that prices may have
peaked earlier this year. Platts, an energy information service, said
yesterday that spot prices for the natural gas used by power plants are
falling this month.
The governor's press secretary, Steve Maviglio, told reporters yesterday that
the daily amount spent on power is now "well below" $50 million, which was
the average cost earlier this year.
A 12-day gap in the most recent notice to the Legislature that another $500
million increment will be spent on power suggests that the daily average
during the last two weeks may have dropped down around $42 million.
Oscar Hidalgo, a spokesman for the state power purchasing agency, said that
the average cost of power was under $40 million during the first four days of
this month.
Maviglio attributed the lower cost to conservation, the phasing in of cheaper
long-term power contracts, fewer power plants off-line for maintenance, and
cooler weather.
However, he said, "The average cost is still way over what we paid last
year."
There was widespread skepticism in late April when the governor's consultants
predicted that the $346 per megawatt-hour average paid by the state for
non-contracted power from April through June would drop to an average of $195
from July through September.
"We are still very comfortable with the projection that Mr. Fichera and
company estimated," Maviglio said, referring to Joseph Fichera of Saber
Partners in New York.
During a briefing on May 21, Fichera told reporters that the amount of power
that the state would obtain under long-term contracts for May was expected to
be about 43 percent of the total required, the so-called net short.
Fichera said contracts already signed were expected to cover 66 percent of
the net short in June, 48 percent in July, and 42 percent in August. He said
contracts that had been agreed on in principle could increase those amounts
to 73 percent in June, 67 percent in July, and 60 percent in August.
"We are still on target. There are risks," Fichera said yesterday, among them
extended hot weather and power plant outages. "No one is popping the
champagne corks until Sept. 30."
The governor's consultants based their forecast of power demand this summer
on an estimate that Californians will reduce their electricity use by 7
percent.
The 11 percent reduction last month, as compared to May of last year, came
before the sticker shock of rate hikes that begin this month for customers of
Edison and Pacific Gas and Electric. And a $35 million ad campaign urging
conservation has not hit full stride.
Maviglio said the administration plans to release some detailed information
on Monday about the roughly $8 billion the state has spent buying power. The
general fund will be repaid by a bond of up to $13.4 billion that ratepayers
will pay off over 15 years.
Legislative leaders have demanded detailed information about power purchases
before proceeding with the Edison plan. Assembly Democrats are working on a
plan that de-emphasizes state purchase of the Edison transmission system and
would put most of the burden for paying off Edison's debt on businesses and
large users, not residences.

Five tiers sought in proposed rate boost

Conservation would be promoted, SDG&E says
By Karen Kucher
UNION-TRIBUNE STAFF WRITER
June 6, 2001
A proposed rate increase for SDG&E customers to cover the high cost of
electricity should be imposed in five tiers to encourage conservation, the
company is advising state utility regulators.
The more electricity a customer uses, the higher the rate would be.
SDG&E needs to raise its rates to bring in an additional $502 million
annually to pay the state for power purchases.
The state Public Utilities Commission is expected to rule on San Diego Gas &
Electric's rate-increase proposal June 28.
The rate changes would remove a cap that has shielded most SDG&E customers
from rising electricity prices for a year. The cap, enacted by state
lawmakers in September 2000 and retroactive to June 2000, set rates at 6.5
cents per kilowatt-hour.
Higher rates would mean the average SDG&E residential and small-business
customer's electricity bills would go up by 18 percent. Large commercial
users' bills would average 29 percent more.
Public hearings on the issue will be held next Monday and Tuesday in San
Diego, El Cajon, Escondido and San Clemente. These sessions will focus on
small-business and residential consumers. Hearings on large commercial users
were held last month.
Earlier this year, the PUC decided to allow the state's two largest
utilities, Pacific Gas and Electric and Southern California Edison, to charge
customers an extra $5.7 billion annually for electricity.
The state Department of Water Resources, which has been buying power for
SDG&E customers since February, asked SDG&E to generate a total of $915
million annually to cover the cost of electricity purchases.
With the proposed rate increases, SDG&E could do that.
Large commercial customers would pay about 30 percent of the overall increase
and residential and small-business customers would pay about 70 percent, said
Ed Van Herik, a spokesman for the utility company.
If the increase can be tiered, as many as 60 percent of residential customers
will see no rate increase if their electricity usage remains the same, Van
Herik said.
But customers who use more than 130 percent of their baseline -- considered
the minimum amount of electricity needed by a household -- will be billed at
increasingly higher rates.
Residential and small-business customers who use a lot of electricity could
pay as much as 17.89 cents per kilowatt hour for some power they consume.
Consumer advocate Michael Shames said he is concerned the utility's proposal
does not spread the increases evenly among different types of users. He also
called for more scrutiny of the state's request.
People should tell PUC officials "that this increase should not be a carte
blanche or blank check approval," said Shames, the head of Utility Consumers'
Action Network. "The PUC needs to ensure that the rate increase requested by
the (state) is reasonable."
The public hearings are scheduled for:
?Monday, 1 p.m., San Diego Concourse, Copper Room, 200 C St., San Diego.
?Monday, 7 p.m., El Cajon Community Center, 195 E. Douglas Ave., El Cajon.
?Tuesday, 1 p.m., Country Inn Hotel, 35 Via Pico Plaza, San Clemente.
?Tuesday, 7 p.m., Center for the Arts, 340 N. Escondido Blvd., Escondido.

Port budget large, but power bills loom

Slowing economy also cause for worry
By Ronald W. Powell
UNION-TRIBUNE STAFF WRITER
June 6, 2001
The "rock" is rolling financially, but there are indications that the blues
lurk on the horizon.
Officials of the San Diego Unified Port District -- headquartered in a
block-shaped building some employees call the rock -- are happy with a
projected 2001-2002 budget that is 5.1 percent larger than the current one.
Total revenue is expected to reach $208.7 million, $10.2 million above what
is expected in the fiscal year that ends June 30.
Port commissioners gave preliminary approval to the budget yesterday and are
scheduled to take a final vote July 10.
But a slowing economy and surging electric bills are causes for concern.
Electricity costs are expected to rise from $5 million to $8.2 million in the
coming fiscal year.
"As far as trends, we see a continuation of the growth we've experienced over
the past five years," said Bruce Hollingsworth, the port's treasurer. "But
our percentage of growth will not rise as sharply."
Port revenues have grown steadily since the 1997-1998 fiscal year, when $163
million was generated.
The proposed budget calls for adding 24 employees to the port's 730-member
work force. New hires will include three Harbor Police officers, 10 employees
in the aviation division and four in maritime services.
The port operates Lindbergh Field and administers nonmilitary tidelands along
San Diego Bay. It is landlord to more than 600 waterfront businesses and
operates two marine cargo terminals and one cruise ship terminal.
The budget calls for growth in each of the port's primary revenue centers:
aviation, real estate and maritime services.
Passenger and cargo activity at Lindbergh Field is expected to generate $90.7
million, or $5 million more than expected in the current year. Most of that
increase is expected to come from parking-rate increases at the airport and
at the port's long-term parking lot on Pacific Highway.
Rent from hotels and other businesses that are port tenants are expected to
total $63.1 million, up $1.8 million from the current budget.
Increases in cargo and cruise ship traffic are expected to boost maritime
income by $2.7 million, to a total of $18.4 million.
The port expects to spend $157 million on construction projects. They include
$8.5 million to relocate the General Services Department from Eighth Avenue
and Harbor Drive in San Diego to National City and more than $5 million for
paving and improvements at the 10th Avenue Marine Terminal.
Rent revenue could grow substantially in future years. Four hotel projects on
port property have won approval or are seeking it.
Jim Bailey, president of Manchester Resorts, told commissioners yesterday
that he expects to break ground on a second Hyatt tower of 750 rooms by June
26. Port officials said revenue from that hotel would bring in an additional
$3.7 million a year. It is scheduled to open in the summer of 2003.
Hollingsworth, the treasurer, said that if all four hotels are built the port
could receive as much as $15 million a year in new revenue.

Continuous use urged for planned power plant

Escondido facility originally proposed for peak demand
By Jonathan Heller
UNION-TRIBUNE STAFF WRITER
June 6, 2001
ESCONDIDO -- A proposed power plant in southwest Escondido that initially was
expected to run only during times of peak electricity demand probably will be
allowed to run full time.
A state energy official who recommended approval of the plant yesterday has
said the plant could operate as often as the state deems necessary.
The California Energy Commission was scheduled to vote on the project today.
CalPeak Power of San Diego has asked the commission to approve a 49-megawatt
plant on Enterprise Street near Vineyard Avenue. Referred to as a "peaker"
plant, such facilities typically are designed to supply energy only during
times of peak demand.
The state limits the number of hours some plants can operate to keep
pollution at a minimum. A 44-megawatt peaker plant being built on West
Mission Avenue in Escondido by Ramco Inc. will be allowed to operate no more
than 16 hours per day.
That plant is permitted to emit up to 5 parts per million of nitrogen oxide,
although its actual emissions are expected to be slightly lower, said Dale
Mesple, a Ramco consultant. Nitrogen oxide is a component of smog.
The CalPeak plant, if approved, would be restricted to 2 parts per million of
nitrogen oxide.
It was generally assumed that the CalPeak plant would operate under similar
time restrictions as the Ramco plant. The potential for air pollution was
among the chief concerns of residents who spoke at the City Council hearings
on the Ramco project and at the energy commission hearings about the CalPeak
plant.
But under the terms of approval recommended by Energy Commission Chairman
William Keese, CalPeak's plant would be able to operate "up to 8,760 hours
per year, typically when the demand for electricity is high." That number
equals 24 hours a day.
The actual number of hours would depend on the requirements of the state's
Independent System Operator, which manages the energy grid.
"We certainly want to have the flexibility to run whenever we're needed,"
said Mark Lyons, CalPeak's development director. "Exactly how often we will
run is anybody's guess."
Escondido Councilwoman June Rady said she was frustrated by the possibility
of the plant running full time. In Ramco's case, the city and the county Air
Pollution Control District made it clear how often the plant could operate.
CalPeak chose to bypass the city's permitting process and went through the
state Energy Commission, which offers an expedited 21-day approval put in
place by Gov. Gray Davis as an emergency measure.
"I think Escondido has been absolutely ignored and there's a total lack of
due process," Rady said. "It boils down to an issue of local control."
Although city officials objected to the commission pre-empting the city's
land-use authority, the commission maintained that Davis' order gave it the
final say on this type of project.
If the commission gives final approval today, the only remedy available to
the city would be in court. At least three council members must vote to
initiate legal action.
Keese's recommended approval did take into account several city concerns
regarding landscaping. The CalPeak plant would be built near the entrance of
a planned high-tech business park, and city officials were worried the
plant's appearance might hinder the ability to attract high-quality tenants
to the park.
Mayor Lori Holt Pfeiler said she was not surprised by the commission's
recommendation.
"I expected they would want to approve the project, and that's why it was
important for the city to weigh in with conditions we have in this
community," Pfeiler said.

Rising energy prices threaten Poway troupe

By Brian E. Clark
UNION-TRIBUNE STAFF WRITER
June 6, 2001
POWAY -- Rising electricity rates may extinguish the stage lights this summer
for the Poway Performing Arts Company.
"I'm afraid that if SDG&E gets the price increase it's asking for -- from 6.5
cents per kilowatt-hour to 8.9 cents -- that we'll go under," said Kathy
McCafferty, spokeswoman for the nonprofit theater.
The volunteer organization produces its plays in a building at a Poway Road
shopping center. It held three fund-raising performances over the weekend,
but officials were uncertain yesterday how much money was raised.
The group is not affiliated with the Poway Performing Arts Center and has
been in business for 20 years.
McCafferty said the group built up a $2,000 surplus last summer before energy
prices began to surge.
"That $2,000 was a big reserve for us," she said. "It seemed like a ton of
money, but, boy, it went fast. And we're really energy-dependent. Our lights
use a lot of power. And we're in Poway on the second floor of our building.
It gets hot here, and we have to use air conditioning."
But McCafferty acknowledged that the cost of power isn't the group's only
problem.
In a recent letter to backers, President Nan Katona said the organization
also needs new blood to keep operating.
"The truth is that lack of funding is just a symptom of the deeper problem,
which is lack of community support," she wrote. "Ironically, audiences and
reviewers recognize the Poway Performing Arts Company as one of the premier
community arts theaters in San Diego."
Katona said some new volunteers had stepped forward to take leadership roles
in the theater company since she wrote her letter last month. But she said
rising electricity prices could still bring the group down.
"If our energy bills double or triple, we could be in dire straits," she
said. "It could push us over the edge financially."
McCafferty said it would be difficult for the theater to cut costs.
"We can't run a much leaner operation," she said. "If our power prices go up
again, we may still be forced out of business."
The theater is at 13250 Poway Road, in the Lively Shopping Center. For more
information, call (858) 679-8085.

Fair to use generators for midway attractions

By Michael Burge
UNION-TRIBUNE STAFF WRITER
June 6, 2001
DEL MAR -- The Del Mar Fair will generate its own electricity for thrill
rides on the midway this year instead of using energy from SDG&E.
"In case there are planned or unplanned outages, we still will be operating,"
fairgrounds General Manager Timothy J. Fennell said.
Fennell decided to put the midway on generators because he didn't want the
fairgrounds pulling power from the grid while county residents are coping
with rolling blackouts at home and at work, he said.
And the fair does not want to take a chance that a rolling blackout will
leave some people stranded in rides high above the grounds, forcing an
evacuation.
The fairgrounds has been told it is exempt from rolling blackouts, but rather
than take such a risk it will rent 13 diesel-fuel generators and produce
electricity on the midway. The rest of the fairgrounds will use power from
San Diego Gas & Electric Co.
Fairgrounds operations manager Larry Baumann estimated it would cost the
fairgrounds $20,000 more to generate its own electricity than to buy it from
SDG&E.
Midway manager Donna Ruhm said it will be worth it.
"Rides that require evacuation have to have backup power and they do," Ruhm
said. "Now our service won't be interrupted."
It is not unusual for carnivals to generate their own power, and the
fairgrounds has done so in the past. Fair officials removed the generators 10
to 15 years ago to reduce noise on the midway.
The fair opens June 15 and ends July 4.
While the rest of the fairgrounds is on the SDG&E grid, Baumann said backup
generators can kick in during a typical 60-or 90-minute blackout, allowing
the fair to operate without serious difficulty. Those generators are not
linked to the midway.
All the generators are licensed by the state and meet emission standards,
fair officials said, so they do not expect the noise and odor to be
excessive.
The fairgrounds is taking the precaution of providing its own power despite
the fact that it probably will not go dark during a rolling blackout.
"SDG&E has assured me that .?.?. the fairgrounds and the racetrack will not
be on the curtailment (blackout) list during the fair and the races," said
Del Mar Fire Chief Jack Gosney.
The Del Mar Thoroughbred racing season begins July 18 and ends Sept. 5.
Gosney said SDG&E told him earlier this year that the fairgrounds was not
subject to a forced outage because it shared a circuit with the Del Mar Fire
Station, which is a 911 dispatch center and exempt from a blackout. But he
said recent research showed that the fairgrounds is on a separate circuit.
Nonetheless, Gosney said, SDG&E is exempting the fairgrounds and racetrack
during the busy summer season.
The fairgrounds paid $137,152.95 for its electricity usage from March 12 to
April 10. It paid $51,845.39 for electricity during the same period last year.
?

Wednesday, June 6, 2001
'Hi, My Name Isn't Justice, Honey,' and Shame on Lockyer
By TOM G. PALMER

?????Here's what California Atty. Gen. Bill Lockyer said at a press
conference about Enron Corp. Chairman Kenneth Lay: "I would love to
personally escort Lay to an 8-by-10 cell that he could share with a tattooed
dude who says, 'Hi, my name is Spike, honey."'
?????Here's why Lockyer should be removed from his office of public trust:
First, because as the chief law enforcement officer of the largest state in
the nation, he not only has admitted that rape is a regular feature of the
state's prison system, but also that he considers rape a part of the
punishment he can inflict on others.
?????Second, because he has publicly stated that he would like to personally
arrange the rape of a Texas businessman who has not even been charged with
any illegal behavior.
?????Lockyer's remarks reveal him to be an authoritarian thug, someone wholly
unsuited to holding an office of public trust.
?????But his remarks do have one positive merit: They tell us what criminal
penalties really entail.
?????Contrary to some depictions of prisons as country clubs, they are
violent and terrible places. More and more politicians propose criminal
sanctions for more and more alleged misdeeds, and as a result ever more kinds
of behavior are sanctioned by criminal penalties, perhaps now even selling
electricity. Those found guilty of such crimes are put into cages, where they
are deprived of their liberty and dignity and, as Lockyer so clearly
acknowledged, raped and brutalized. What's worse, Lockyer has indicated that
he believes that rape is an appropriate part of the system of punishments he
administers.
?????Should it matter that Lay is a businessman? Imagine the outcry if the
head of Enron were female. What would Lockyer's fellow Democrats have said to
that?
?????Should it matter that Lay is chairman of an electricity generator? Does
the nature of his business justify threats to escort him to his own rape?
Lockyer told the Los Angeles Times that he had singled out Enron's chairman
because the Houston-based company is the world's largest energy trader.
?????So apparently singling out a man for a heinous threat is OK because he's
the chairman of the world's largest energy trading company. That's according
to the man who, as a state senator, sponsored California's 1984 hate-crimes
law. Evidently the crusader against intimidation on the basis of race,
religion and sexual orientation feels no hesitation at all about intimidating
someone and threatening him with the brutal use of physical force simply
because he heads the world's largest energy trading company.
?????Lockyer and Gov. Gray Davis seem to think that the best way to keep the
lights on is to threaten electricity producers with brute force, rather than
to offer to pay competitive rates in competitive markets. Are energy
producers to blame for California's energy problems? No. Bad policies,
including rigid controls on retail prices of electricity, are the cause of
the problem, not the people who generate energy. Scapegoating producers and
threatening them with violence is an old ploy of authoritarians. Californians
should not stand for it.
?????An Enron spokesman said that Lockyer's chilling stated desire to arrange
the rape of Lay does not merit a response. The spokesman is wrong. Lockyer's
remarks merit public disgrace and removal from office. After all, rape is not
a form of legal justice in America--is it?
- - -

Tom G. Palmer Is a Senior Fellow at the Cato Institute in Washington. E-mail:
Palmert@cato.org

Copyright 2001 Los Angeles Times

California ; Metro Desk
U.S. Probes Alleged Pact Not to Build New Plants Power: Justice officials
focus on Southland operations of two firms, which deny wrongdoing.
MYRON LEVIN; NANCY RIVERA BROOKS
?
06/06/2001
Los Angeles Times
Home Edition
Page B-1
Copyright 2001 / The Times Mirror Company
The U.S. Department of Justice has launched an investigation into whether two
companies that control a large swath of Southern California 's electricity
supply agreed to limit power plant construction, potentially hindering
crucial energy production, according to federal records and interviews.
The civil antitrust probe of Williams Energy Services and AES Southland
represents the Justice Department's first foray into the activities of energy
suppliers who have reaped huge profits in California 's price-shocked market.
AES disclosed the investigation, which began last month, in a filing with the
Securities and Exchange Commission on Tuesday. In its papers, AES said the
Justice Department is focusing on whether its agreement with Williams could
constrain future power plant construction in Southern California .
The investigation comes at a time when the state is scrambling to get new
generators built and running to avoid blackouts and economic problems.
The government alleges that AES and Williams agreed to limit the expansion or
construction of new power plants near three facilities purchased by AES in
1998 from Southern California Edison under the state's new deregulation plan.
The plants--in Long Beach, Huntington Beach and Redondo Beach--are owned by
AES, but the electricity is sold by Williams. Under a 3-year-old deal, known
as a tolling agreement, Williams essentially rents out the capacity of the
plants for annual payments to AES. Williams supplies natural gas to fire the
plants and sells the electricity under long-term contracts and in the costly
spot market.
Williams and AES have similar tolling agreements at plants in Pennsylvania
and New Jersey. However, AES spokesman Aaron Thomas said the Justice
Department's investigative requests have focused only on agreements between
Williams and AES in Southern California .
Thomas would say only that the agreement at the center of the investigation
is simply a delineation of "how expansion or repowerings are done at the
facilities."
The three plants have a combined capacity of more than 3,900 megawatts,
enough to supply about 3 million homes. This summer, AES is bringing another
450 megawatts on line by reactivating two mothballed generators in Huntington
Beach.
Paula Hall-Collins, a spokeswoman for Tulsa-based Williams Cos., said she
believes that the investigation is unrelated to a recent inquiry by the
Federal Energy Regulatory Commission into whether AES and Williams
unnecessarily shut down plants to jack up prices. A portion of that
investigation was settled in April, when Williams, without admitting any
wrongdoing, agreed to pay about $8 million.
"We've always maintained that we've operated within the law, and we're
certain the investigation by the DOJ will find we are operating legally,"
Hall-Collins said.
Williams and AES are among the power plant owners and marketers that have
been lambasted by Gov. Gray Davis because of gold-plated electricity prices
that have pushed the state's biggest utilities to the edge of ruin and are
steadily draining the state's budget surplus.
State officials are asking FERC to revoke the rights of AES and Williams to
sell electricity at whatever price the market will bear. That right was
granted for three years, beginning in 1998 by federal regulators when
California 's $28-billion electricity market was opened to competition.
Under that plan, the rights of AES and Williams to sell into the market are
the first to come up for renewal.
AES Southland and Williams Energy Services are both arms of large energy
companies--AES Corp. of Arlington, Va., and Williams Cos. of Tulsa, Okla.

California ; Metro Desk
Natural Gas, Power Prices Drop Sharply Energy: More conservation, mild
weather are among factors keeping costs down, experts say.
RICARDO ALONSO-ZALDIVAR; NANCY VOGEL
?
06/06/2001
Los Angeles Times
Home Edition
Page B-1
Copyright 2001 / The Times Mirror Company
WASHINGTON -- The wholesale prices of electricity and natural gas in
California have fallen sharply in recent weeks, and experts said Tuesday that
the relief could be the harbinger of an energy turnaround.
Or it may be just a blip.
In the last couple of weeks, California power prices have plunged to the
lowest levels since April 2000, traders say, with electricity selling on some
days for less than $100 per megawatt-hour.
At night, when demand slackens, power sometimes sells for less than $20 per
megawatt-hour. That is reminiscent of the days before prices went haywire
last summer.
It is a drastically different scenario than the $500 to $800 the state paid
during a spate of hot weather last month.
Meanwhile, wholesale natural gas prices at a bellwether pipeline junction on
the Southern California -Arizona border dipped last week to their lowest
levels since November, according to a publication that tracks the industry.
Separately, Southern California Gas Co. and Pacific Gas & Electric Co.
reported June rate cuts for their residential gas customers of 16% and 38%,
respectively.
Experts credited a combination of conservation, mild weather, a burst of
increased hydroelectric generation and lower natural gas prices for the drop
in electricity costs.
"Conservation is starting to worry the generators, which is nice to see,"
said Severin Borenstein, director of the University of California Energy
Institute in Berkeley. Californians used 11% less energy last month than in
May 2000, according to the state Energy Commission.
"I'm worried that if we don't push harder on conservation, [prices] won't
stay down," Borenstein added.
On the natural gas side, experts said the price decline is due to replenished
storage within California , a nationwide drop in the cost of the fuel and
easing demand from power plants.
The number of shippers competing to get natural gas to the state has also
increased, with the expiration of a controversial contract on the El Paso
pipeline system last week.
But economists were reluctant to make sweeping predictions based on the
latest indicators.
"It's hard to draw specific conclusions," said Bruce Henning, who tracks the
natural gas markets for Energy and Environmental Analysis Inc., an Arlington,
Va., consulting firm.
How the summer turns out depends on the weather in the state, Henning said,
adding, "The weather represents the balance in the Southern California
market."
Natural gas fuels most California power plants. With wholesale prices
recently averaging three to four times the rates charged elsewhere in the
country, state and federal officials have despaired of chances for
controlling electricity costs.
Last Friday, however, the daily price for immediate delivery of natural gas
in Topock, Ariz., a pipeline junction near the California border, dipped to
$7.85 per million British thermal units.
According to Natural Gas Week, it was the first time since mid-November that
the price at that location had fallen below $8 per million BTUs. One million
BTUs is what a typical Southern California home uses in five or six days.
Considered a bellwether for other pipeline systems serving California , the
Topock price reached a record $56.54 per million BTUs on Dec. 8. It stood at
$9.36 per million BTUs at the close of business Tuesday, still below recent
weekly averages.
Other industry publications have also picked up signals of price declines.
Platts, the energy information division of McGraw-Hill Cos., reported Tuesday
that the price for monthly gas delivery contracts to California fell 22% in
June, following a nationwide trend.
But Henning said the drop in California prices is attributable to both lower
prices around the country and a decline in the high markups for shipping gas
to California . Those markups, which far exceed the cost of transporting gas,
have drawn the attention of state and federal investigators.
Henning said the markups are declining as depleted storage levels in
California are replenished. "Storage levels have been filling very rapidly,
and that fact is reflected in prices coming down," he said.
The link between natural gas and electricity prices is a hotly debated
subject. Some experts say high-priced natural gas is driving up the cost of
electricity . Others believe that record prices for power are raising the
prices that generators are willing to pay for their fuel.
Electricity prices that range from $20 to $200 per megawatt-hour--instead of
the $150 to $500 per megawatt-hour paid in recent months--are great news for
Gov. Gray Davis.
Average daily power prices in California for transactions through the
Automated Power Exchange have dropped from $149 per megawatt-hour last Friday
to $110 per megawatt-hour Tuesday. The exchange is a private company that
brings together electricity buyers and sellers and accounts for less than 10%
of the state's market.
Davis spokesman Steve Maviglio said Tuesday that average daily power
purchases by the state have recently dipped below $50 million.
The state has sometimes had to pay more than $100 million a day since it
started buying power in January through the Department of Water Resources.
The state stepped in because California 's two biggest utilities became too
financially crippled to withstand the prices being charged by generators.
Davis' plan to pay for past and future energy purchases with a $12.4-billion
bond issue hinges on an assumption that power prices will be driven down this
summer through long-term contracts, conservation and the construction of new
power plants.
UC Berkeley's Borenstein said conservation efforts have not gone far enough.
"You walk into most buildings and you still need a sweater," he said. "That
ain't the way to hit the target."
If Californians conserved an additional 10% off their peak usage on hot
afternoons, he said, "we could really break the backs of the generators, we
could really collapse the price."
Prices tend to skyrocket in California 's electricity market on hot
afternoons, when demand soars and grid operators must scramble to purchase
enough electricity . Cool weather, which reduces demand for air conditioning,
and conservation help keep the state from reaching such crisis situations.
Borenstein said he believes generators are also asking less money for their
electricity in part because of a federal order that took effect last month.
The order limits the price power plant owners can charge when California 's
supplies are strained.
Power sellers say there are more fundamental forces at work.
"There's more supply relative to demand, which is softening prices," said
Gary Ackerman, executive director of the Western Power Trading Forum. "The
market is working, and it's providing cheaper wholesale power more quickly
than any regulatory scheme could ever do."
*
Times staff writer Dan Morain in Sacramento contributed to this story.
RELATED STORY
PG&E wins: The utility averted a $1-billion bill for power buys. B6
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
A Blip or a Trend?
Daily natural gas prices at the California border with Arizona--considered a
bellwether of the state's costs--have been declining in the last two weeks.
*
Natural gas price per 1 million Btu
$9.36
Source: Natural Gas Week

California ; Metro Desk
The State Utility Averts $1 Billion in Costs Courts: PG&E and Cal-ISO agree
to recognize Department of Water Resources as purchaser of the power.
TIM REITERMAN
?
06/06/2001
Los Angeles Times
Home Edition
Page B-6
Copyright 2001 / The Times Mirror Company
SAN FRANCISCO -- Pacific Gas & Electric Co. and the state's power grid
operator reached an agreement Tuesday that insulated PG&E at least
temporarily from more than $1 billion in power purchases the state made for
its customers.
The California Independent System Operator sent $1.26 billion in invoices to
the utility for power purchases by the state Department of Water Resources
for PG&E customers from January through March.
But the utility contended in Bankruptcy Court proceedings that it was not
liable for such purchases and that continued purchases would cause annual
losses of $4 billion.
After arguments before Judge Dennis Montali, PG&E and Cal-ISO agreed that the
Department of Water Resources, not PG&E, purchased the power. Cal-ISO had
argued that it was making the purchases on PG&E's behalf.
"PG&E wants to be a utility and have obligations to serve customers, but they
don't want to pay for it," Cal-ISO general counsel Charles Robinson said
later.
If PG&E refuses to pay the invoices, Robinson said, Cal-ISO will send the
bills to the Department of Water Resources, and officials there can decide
whether to pursue claims in Bankruptcy Court. A spokesman for department,
which has authorization to sell $13 billion in bonds for power purchases,
said the agency will have no comment until the matter can be studied.
State agencies have stayed out of the bankruptcy proceedings, hoping to
preserve their immunity from suits in federal court.
The agreement will be submitted for Montali's approval Monday, but the judge
said it would not be binding on the department because no one represented the
agency in court.
PG&E's own production and contracts provide the majority of the power for its
customers. But state legislation adopted this year allows the department to
secure power contracts to serve customers of ailing utilities. When a
shortage threatens the power grid, the department purchases additional power
through Cal-ISO on the spot electricity market.
PG&E filed for Chapter 11 protection from creditors on April 6, saying it was
$9 billion in debt.

Dramatic drop in cost of electricity
LOWER BILLS: Cheaper fuel, milder weather credited
David Lazarus, Chronicle Staff Writer
Wednesday, June 6, 2001
,2001 San Francisco Chronicle
URL: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2001/06/06/MN199202.DTL

California electricity prices have plunged unexpectedly to their lowest level
in more than a year, partly as the result of a simultaneous drop in prices
for natural gas, which fuels most power plants.
Make no mistake: Gas and electricity prices could surge upward again in
months ahead.
But for the first time since California's energy markets went haywire last
summer, industry experts are beginning to ask whether the state finally may
have turned a corner in its battle with runaway power costs.
"California is not yet out of the woods," said Kelley Doolan, who tracks
natural gas prices for energy market researcher Platts. "But this is a very
significant decrease in costs."
Along with lower gas prices, the decline in electricity costs was attributed
by state and industry officials to milder weather, which reduces demand for
power. They also credited recent conservation efforts by consumers and
better-than-expected runoff at dams for hydroelectric plants.
Gary Ackerman, executive director of the Western Power Trading Forum, an
energy-industry association, said these factors came together to produce the
lowest wholesale electricity prices since April 2000.
Electricity on the spot market could have been purchased yesterday for as
little as $50 per megawatt hour, he noted, compared with more than $500
earlier this year.
"If the weather stays this way, we could have reasonable prices all summer, "
Ackerman said. "We may also have fewer blackouts."
It is tempting for Californians to be suspicious of virtually any swing in
energy prices. If power companies manipulated prices on the way up, as
critics have alleged, might they not be up to some trick as prices head in
the opposite direction?
Nettie Hoge, executive director of The Utility Reform Network in San
Francisco, speculated that generators are allowing electricity prices to fall
so they can discourage federal regulators from taking a more active role in
the dysfunctional California market.
"They're trying to take the heat off," she said.
Others cautioned that the lower prices may be nothing more than a statistical
blip.
"This was just one month's decline," said Michael Shames, executive director
of the Utility Consumers' Action Network in San Diego. "We really have to see
how this plays out in the future."
Steve Maviglio, a spokesman for Gov. Gray Davis, said the governor was very
encouraged by the lower energy prices. Davis announced Sunday that
California's power use was down 11 percent last month from a year before.
"We're not there yet," Maviglio said of whether an end to the state's power
woes is in sight. "But the trend is pointing in the right direction."
WHITE ELEPHANT
Yet this sudden drop in energy prices does have a dark side: California could
end up with a huge white elephant after spending about $40 billion in public
funds on long-term power contracts.
The logic behind the contracts, which are at an average price of $69 per
megawatt hour over 10 years, is that the state expected to pay below-market
rates for electricity for a number of years before prices came down and
California found itself paying above-market rates.
If current trends continue, though, California will find itself paying
consistently above-market rates much sooner than expected, making the long-
term contracts a sweet deal for the same power companies that profited so
handsomely during the state's darkest hours.
"The contracts look really ugly right now," said Shames at the Utility
Consumers' Action Network. "They may be way overpriced."
Maviglio, the governor's spokesman, said it is too early to conclude that the
state did poorly negotiating dozens of long-term power contracts.
"No one has a crystal ball on this," he said.
CUSTOMERS' BILLS TO DROP
In any case, Pacific Gas and Electric Co. said yesterday that customers'
average gas bills will drop 26 percent this month to $26 and should stay near
that level all summer.
Platts, which monitors average monthly spot prices, found that the wholesale
price of gas at the California-Oregon border has tumbled nearly 42 percent
since the beginning of May -- from $9.98 per million British thermal units to
$5.81.
The wholesale gas price at the California-Arizona border fell 45 percent,
from $11.91 to $6.50. This compares with a 25 percent monthly decline in
average natural gas prices nationwide.
However, California gas prices are still about 50 percent higher than they
were a year ago, whereas national prices are now below year-ago levels for
the first time since last spring.
While cooler weather nationwide helped push gas prices down overall, Doolan
attributed the especially steep drop in California to a commensurate surge in
prices last month related to fears of a long, hot summer of rolling
blackouts.
"You had state officials all but promising rolling blackouts this summer," he
said. "That created enormous demand for electricity generation.
"What has changed is that we've had weeks of mild weather," Doolan observed.
"The electricity generators have not come out of the woodwork buying up all
the gas."
This allowed utilities like PG&E to beef up gas inventories, which eased
demand and resulted in substantially lower prices, he said.
'BACK ON TRACK'
"We're back on track to be completely full for winter," said Staci Homrig, a
PG&E spokeswoman. "That's a very good thing."
Gas prices historically dip in the spring and summer and then rise again in
the winter. PG&E is forecasting that customers' average gas bills could rise
to as high as $75 in December if current trends continue.
However, the precipitous drop in gas prices in recent weeks suggests that
California's unusually high costs at last may be abating.
Individual power companies so far are reluctant to speculate on whether the
drop in gas prices will have a lasting effect on electricity costs.
E-mail David Lazarus at dlazarus@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?A - 1

San Jose council gives green light to generating plant
VOTE REVERSAL: Officials pressured to OK project
Marshall Wilson, Chronicle Staff Writer
Wednesday, June 6, 2001
,2001 San Francisco Chronicle
URL: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2001/06/06/MN167180.DTL

In a clear sign that the political landscape has shifted because of the
state's power crisis, the San Jose City Council gave a green light yesterday
for construction of a generating plant it had unanimously opposed in
November.
Yesterday's 10-to-1 vote came after months of mounting pressure for the city
to reverse course and approve the controversial 600-megawatt Calpine plant at
Coyote Valley.
That pressure -- increased by the occasional rolling blackout -- has come
from nearly every corner of the state, from elected officials to high-tech
businesses and labor unions worried the power crisis will drain away jobs,
ruin the economy and lead to voter backlash over skyrocketing energy bills.
Even the local branch of the NAACP and environmentalists pushed the council
to approve the Calpine proposal -- despite overwhelming opposition from the
plant's neighbors.
Council members did not hide their disdain yesterday for being forced to
reconsider their opposition to the so-called Metcalf Energy Center.
"I'm holding my nose to vote for this thing," said Councilwoman Linda
LeZotte.
"I'm just as unhappy as everybody else," Vice Mayor George Shirakawa said. "I
feel like no matter what happens, we can't win."
GOVERNOR OFFERED HIS SUPPORT
After the council's solid opposition in November, Calpine appealed to the
California Energy Commission, which has the final say. The controversial
plant then received a huge boost in April when Gov. Gray Davis threw his
support behind it.
San Jose officials conceded yesterday that the energy commission was likely
to override their opposition and grant approval within a few weeks. They said
the commission's likely approval was stripping them of their power to decide
local land-use issues.
"What I think has happened . . . is the governor and the Legislature at the
state level have taken this out of our hands," said Councilwoman Pat Dando.
"I don't think there's any chance at all the California Energy Commission is
going to turn down the Metcalf Energy Center," Councilman Chuck Reed said.
CONSTRUCTION MAY BEGIN SOON
If given the go-ahead by the state, Calpine could begin construction as early
as next month. The natural-gas fired plant would generate electricity by
mid-2003, company spokesman Kenneth Arbeu said.
At the urging of Mayor Ron Gonzales, the council yesterday approved a new
"cooperation agreement" with Calpine. The vote, with Councilman Forrest
Williams casting the lone nay, is preliminary while a final vote that is
scheduled for June 26.
Gonzales argued that the agreement did not amount to a flip-flop because it
differs from what Calpine proposed in November.
The agreement approved by the council calls for increased monitoring of air
pollution, the use of treated wastewater to cool the plant, which will reduce
discharges into San Francisco Bay, and a $6.5 million "community benefits"
package, with the bulk going toward parkland acquisition, Gonzales said.
"This council has not changed its decision," he said. "What we've done is
change the facility."
Critics, incensed that the city was buckling to outside pressure, vowed to
change the council at the next election.
CONCERNS OVER HEALTH RISKS
They raised concerns that boiled wastewater steam wafting over their homes
from Calpine's plant could pose health risks. Jona Denz-Hamilton said more
controls are needed to ensure the safety of neighbors like herself and her
family and argued that new, cleaner-burning technologies should be installed
at the plant.
"It's too great of a risk," she said.
Other critics said the state's energy woes will be solved and largely
forgotten by the time the plant opens in two years, while the Santa Teresa
neighborhood will be stuck with pollution for decades.
Approval seemed a given at the start of the more than three-hour hearing.
Much of the afternoon's debate focused around plans to extend a pipeline for
treated wastewater to the new plant.
Critics said Calpine was receiving a sweet deal by paying only $10 million of
the $50 million cost of extending the pipeline. Several council members asked
for a more detailed report into the financing plan before the final vote is
taken June 26.
Chronicle staff writer Bill Workman contributed to this report.
E-mail Marshall Wilson at marshallwilson@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?A - 1

Developments in California's energy crisis

Wednesday, June 6, 2001
,2001 Associated Press
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2001/06/06/state1
053EDT0177.DTL
(06-06) 07:53 PDT (AP) --
Developments in California's energy crisis:
WEDNESDAY:
* No power alerts Wednesday as reserves stay above 7 percent.
TUESDAY:
* Gov. Gray Davis' administration says the state's electricity costs are
dropping substantially, even as it asks state legislators for another
half-billion dollars for power purchases. That brings to $8.2 billion the
amount the state is paying for electricity on behalf of three financially
strapped utilities.
Spokesman Steve Maviglio says the cost to the state treasury has dropped in
the last few weeks well below the $50 million dollars the state had been
paying on a typical day. He credits cooler weather, conservation, more power
plants online and more long-term contracts with helping drive down the cost.
* A state Senate committee agrees to issue subpoenas to eight out-of-state
electricity generators demanding they hand over documents on bidding, pricing
and other aspects of power sales in the state. The subpoenas would help a
special Senate committee's investigation into whether the companies are
illegally profiteering from California's power crisis. The committee's
chairman says he expects the companies to resist, setting the stage for a
court battle.
* Oil giant Chevron threatens to cut gasoline production in California unless
it is exempted from rolling blackouts. The San Francisco Chronicle says it
has a copy of a letter sent Friday from Chevron chairman David O'Reilly to
Davis. In the letter, O'Reilly says the company will scale back gasoline
production at its Richmond and El Segundo plants, operating those refineries
only with power produced by generators at the sites.
* New U.S. Senate Majority Leader Tom Daschle, D-S.D., supports Federal
Energy Regulatory Commission price caps. "FERC must meet its obligation under
current law to ensure 'just and reasonable' prices for wholesale electricity
in the state of California. FERC has failed to meet this responsibility...,"
Daschle says in a letter to Davis. "Unless FERC acts soon, Senator (Dianne)
Feinstein's legislation should be taken up and passed to direct FERC to take
action. I will support all necessary efforts to meet that goal."
* House Subcommittee on Energy Policy, Natural Resources and Regulatory
Affairs Chairman Doug Ose, R-Sacramento, cites Electric Utility Week figures
that FERC's limited price caps helped cut California's power rates from $300
to $108.47 per megawatt hour within an hour after taking effect last week.
While he says more information is needed, Ose uses the figures to tout his
pending bill to impose the price caps around the clock and to all Western
states.
* Pacific Gas & Electric Co. asks U.S. Bankruptcy Judge Dennis Montali to
stop the manager of the state's power grid from buying electricity for
utility or charging it for any electricity bought after the utility filed for
bankruptcy on April 6. Separately, the utility's creditors support its
request to the bankruptcy court to pay out $17.5 million in bonuses to the
management team that guided the utility into bankruptcy.
* California Department of Water Resources reveals it is negotiating with
municipal utilities to buy their surplus power. Department spokesman Oscar
Hidalgo says talks began last week but no agreements are imminent.
* State lawmakers criticize a $3 million lobbying campaign by Southern
California Edison. The utility is telephoning shareholders to describe the
dire consequences if the utility goes bankrupt. The call is then transferred
to the state Capitol so shareholders can implore lawmakers to support a
controversial plan to help the utility. Legislators and their staffers say
the shareholders often are confused and scared their investments will be
degraded or wiped out.
* State Treasurer Phil Angelides joins an advocacy group for the poor in
urging the state's huge pension funds to use their economic power to leverage
power companies. The Pacific Institute for Community Organization says the
two pension funds own at least $1.2 billion in stocks and bonds in most of
the firms that sell electricity to California.
* The Assembly, by a 69-0 vote, approves a bill to spend $10 million on
environmental studies needed before Path 15, the inadequate transmission-line
group between Northern and Southern California, can be expanded. The bill
moves to the Senate.
* Pacific Gas and Electric announces a decrease in natural gas prices, down
38 percent from May's rates and 66 percent lower than January's rates. The
decline will bring the average residential gas bill to $26 when it goes into
effect June 7. Market analysts predict the rates will remain stable until
December when demand is expected to increase with winter heating loads.
* No power alerts Tuesday as electricity reserves stay above 7 percent.
* Shares of Edison International closed at $10.05, down 53 cents. PG&E Corp.
closed at $11.25, down 15 cents. Sempra Energy, the parent company of San
Diego Gas & Electric, closes at $26.91, down 43 cents.
WHAT'S NEXT:
* Davis' representatives continue negotiating with Sempra, the parent company
of San Diego Gas and Electric Co., to buy the utility's transmission lines.
THE PROBLEM:
High demand, high wholesale energy costs, transmission glitches and a tight
supply worsened by scarce hydroelectric power in the Northwest and
maintenance at aging California power plants are all factors in California's
electricity crisis.
Edison and PG&E say they've lost nearly $14 billion since June to high
wholesale prices the state's electricity deregulation law bars them from
passing on to consumers. PG&E, saying it hasn't received the help it needs
from regulators or state lawmakers, filed for federal bankruptcy protection
April 6.
Electricity and natural gas suppliers, scared off by the two companies' poor
credit ratings, are refusing to sell to them, leading the state in January to
start buying power for the utilities' nearly 9 million residential and
business customers. The state is also buying power for a third investor-owned
utility, San Diego Gas & Electric, which is in better financial shape than
much larger Edison and PG&E but also struggling with high wholesale power
costs.
The Public Utilities Commission has approved average rate increases of 37
percent for the heaviest residential customers and 38 percent for commercial
customers, and hikes of up to 49 percent for industrial customers and 15
percent or 20 percent for agricultural customers to help finance the state's
multibillion-dollar power buys.
,2001 Associated Press ?

California conserves

Wednesday, June 6, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/06/06/E
D86597.DTL
WHEN RAIN fails to fall from the sky, Californians know why there is a
drought. But when rolling blackouts suddenly appeared in the dead of winter,
many of us wondered who was responsible for and who has profited from what
now seems like an artificially created power shortage in the state.
Our skepticism proved to be right. Windfall profits were reaped by
electricity generators while natural gas importers extracted prices far above
the national average.
Timid federal overseers exact only wrist-slap penalties on the offending
energy firms. The White House scoffs at temporary controls for a
malfunctioning market. California's state government has ended up as the bill
payer for the sickly utilities, forking over $8 billion to generators. This
number may hit $40 billion by year-end.
It's an infuriating tangle. All the more remarkable, then, that skeptical
Californians have managed, within two months, to reduce their use of
electricity by 11 percent. The public's response to the governor's appeal for
energy conservation has exceeded expectations. Although many businesses have
suffered enormous losses, ordinary people have made relatively painless
sacrifices. People turned off their lights, purchased energy-efficient
lightbulbs, used air conditioning less and shut off their computers when not
in use.
Despite this remarkable civic compliance, we still face an unconscionable
lack of leadership. President Bush seems perfectly willing to allow Texas
power companies to pummel the once-powerful California economy. He repeats a
mantra about creating more supply -- which California is doing with 15 power
plants under construction -- while ignoring the outsized sums paid to a
handful of energy generators.
At the same time, Gov. Gray Davis, who has given new meaning to the word
dithering, has failed to make the tough and transparent decisions. He delayed
an inevitable rise in power rates. Davis also dragged his feet in openly
announcing new power contracts that commit California to billions in spending
over the next decade.
To Davis' credit, he has urged California to conserve by laying out an $800
million plan to cut power use and invest in energy-saving programs. The
message is getting out as higher rates take effect this month.
Despite a woefully unbalanced market and shortsighted leadership, the people
of California have demonstrated that if there is a will, there is a way.
Now it is time for our leaders to follow the wisdom of their constituents.
,2001 San Francisco Chronicle ? Page?A - 20

L.A. power customers awash in cheap energy
John Wildermuth, Chronicle Staff Writer
Wednesday, June 6, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/06/06/M
N133438.DTL
Los Angeles -- These are flush times for the city's Department of Water and
Power and the energy executives are loving every minute of it.
As are their customers.
Private power companies throughout California have been raising rates and
warning customers about a long, hot summer filled with blackouts, but the
city- owned DWP has been keeping prices stable and the lights on for 1.2
million Los Angeles customers.
"Our customers are being really nice to us," said Angelina Galiteva, the
utility's strategic planning director. "They love the DWP."
Although Gov. Gray Davis' administration announced that the state had reduced
its energy consumption 11 percent from a year ago, those in Los Angeles had
cut back less than half that -- and polls show they view the energy situation
less seriously than other Californians.
Public utilities such as Los Angeles water and power have seen their revenues
increase during the energy crunch because they can sell their excess power at
higher prices than ever before in a market tilted toward sellers.
The rest of the state doesn't always feel that same warm glow. Davis has
accused the DWP and other California public utilities of putting exorbitant
price tags on the excess electricity they sell to the rest of the energy-
starved state.
It's a charge Los Angeles utility executives deny, arguing that their excess
power is sold at cost plus 15 percent, which they say is a fair return for
their customers.
"Without our support, a million more homes (elsewhere in California) would
have suffered rolling blackouts, which is a powerful message," Galiteva said.
It wasn't supposed to be this way. When the power industry was deregulated in
the late '90s, energy giants like Pacific Gas and Electric Co. and Southern
California Edison were expected to be the big winners. Now, PG&E is in
bankruptcy and Edison is a short step away.
"When deregulation came, the experts said that the investor-owned utilities
would become lean, mean machines that would be better able to operate in the
new environment," Galiteva said. "But now public power has shown it can serve
customers more efficiently at lower rates."
While much of the state worries about electrical supply, Los Angeles
residents have been saved many of those concerns.
In a survey done last month by the Public Policy Institute of California, 48
percent of the people in the Bay Area thought that electricity cost and
availability were the most important issues facing the state. In Los Angeles,
however, only 33 percent put the energy crunch on top. When questioned about
the size of the power problem and the effect it would have on the state's
economy, Los Angeles residents were consistently less concerned than people
elsewhere in California.
People in Los Angeles have been "somewhat isolated" from the energy crisis,
concluded Mark Baldassare, who conducted the survey.
That doesn't mean the state's energy problems haven't had an effect. The DWP
has seen a 3 percent to 5 percent reduction in some uses, which officials
have dubbed "sympathy conservation." The utility also is offering its biggest
customers financial incentives to cut back on their power use.
"Our average annual load growth is about 80 megawatts," Galiteva said. "By
this summer, we expect to have saved 40 megawatts through conservation. By
December, we expect 60 megawatts in savings."
The utility also is making a major attempt to create a conservation ethic
among its customers. DWP's comfortable situation has made it possible to
offer them the carrot without the need to show them the stick.
"Conservation no longer means doing without," Galiteva said. "Beer can be
just as cold with a superefficient refrigerator. Rooms can be just as bright
with superefficient light bulbs."
A "Green Power" program also is promoting the use of renewable energy
resources such as solar, wind and hydroelectric power. About 75,000 customers
are paying an extra $3 per month to increase DWP's use of renewable power
sources.
"We're trying to give our customers a choice and a voice in determining the
mix of power they use," Galiteva said. "They know they can do (conservation)
now or see it being mandated later."
Los Angeles power officials -- and their customers -- know the DWP isn't
always going to continue as an island of tranquility in a sea of energy
turmoil. The utility's aging gas-fired plants have been affected by the
rising price of natural gas. Demand for energy continues to rise. In a debate
last month, both candidates for mayor of Los Angeles agreed that increases in
local power bills are inevitable.
But the DWP has been supplying power to Los Angeles since 1916, and its
executives believe that the state's deregulation disaster has shown the
advantages of the city-owned utility.
"It's nice to be the lean, mean, green efficient machine that no one ever
expected us to become," Galiteva said.
E-mail John Wildermuth at jwildermuth@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?A - 13

PG&E doesn't want to pay for energy to avert blackouts
DAVID KRAVETS, Associated Press Writer
Wednesday, June 6, 2001
,2001 Associated Press
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2001/06/06/state0
306EDT0102.DTL
(06-06) 00:06 PDT SAN FRANCISCO (AP) --
Pacific Gas & Electric Co. has told a bankruptcy judge it should not have to
pay for what could amount to billions of dollars in spot-market energy costs
to avert blackouts.
The company's position was one of two developments that emerged Tuesday as
the bankrupt utility tries to cope with fallout from California's power
crisis. The other development saw a group of creditors that PG&E owes
billions endorse $17.5 million in bonuses for top managers at the utility.
San Francisco-based PG&E filed for bankruptcy protection in April after
racking up an $8.9 billion debt which under state law it could not recoup
from customers.
Tuesday's court dispute centered on who pays for energy bought at the last
minute to avoid blackouts.
PG&E said an April federal regulatory decision requires that electricity can
only be sold to those with the ability to pay electricity generators. The
state is the only player with such ability, said PG&E attorney Jerome Faulk,
who argued that the utility shouldn't have to pay the $330 million in monthly
spot-market energy bills.
Judge Dennis Montali said he may craft such an order. But he said the order
would not preclude the state from suing PG&E to recover the cost.
In a separate but related development, a committee charged with devising a
payment plan for those creditors owed billions by PG&E said it will sign off
on the utility's plan to pay $17.5 million in bonuses to PG&E's management
team.
Attorney Allan Marks, who represents the committee, said such payments are
normal during large bankruptcy cases. Under the agreement, which Montali will
consider at a June 18 hearing, the company must quickly produce a debt
payment plan that passes judicial muster.
The utility said it needs the bonuses for a "management retention program."
Marks agreed. While the $17.5 million leaves less for creditors, without a
financial incentive PG&E's key top brass may not be willing to cooperate with
a payment plan, Marks said.
"The main goal for the creditors' support here is to move the bankruptcy as
quickly and smoothly as possible," Marks said.
The Utility Reform Network, a consumer watchdog group, says PG&E is simply
rewarding managers of a failed business effort.
"They're just showering money on the same people who got them in this mess,"
said TURN's Mike Florio.
The proposed bonuses would come on top of $50 million in bonuses and raises
PG&E awarded just before the April 6 bankruptcy filing.
The case is In Re Pacific Gas & Electric Co., 01-30923 DM.
,2001 Associated Press ?

Metcalf plant gets preliminary approval
Posted at 12:21 a.m. PDT Wednesday, June 6, 2001
BY MIKE ZAPLER

Mercury News

As the San Jose City Council approached its 10-1 vote Tuesday to give an
initial nod to Calpine's big power plant in South San Jose, Councilwoman
Linda LeZotte perhaps captured the body's mood best.
``I'm holding my nose to vote for this thing,'' she said. ``Without faulting
the mayor or his staff, quite frankly I think this deal stinks.''
Caught in what some members called a bind beyond their control, the council
gave preliminary approval to an agreement negotiated by Mayor Ron Gonzales
and Calpine on the company's proposed 600-megawatt Metcalf Energy Center.
Councilman Forrest Williams, who represents the Santa Teresa neighborhood
near the site, cast the lone vote against the deal.
The agreement is scheduled to come back before the council for a final vote
on June 26, but Tuesday's vote effectively shifts the battle to the courts,
where residents are expected to lodge a lawsuit in one final attempt to block
the plant.
Still, Councilwoman Pat Dando and some of her colleagues raised questions
about the deal they said they want answered before the final vote. Their
issues could be incorporated into the final deal.
Many of the concerns focused on a $50 million recycled water pipeline
Gonzales agreed to have the city build to accommodate the project, $10
million of which would be reimbursed by Calpine over 30 years.
Pipeline possibility
Dando said that a private company, Great Oaks Water, may be willing to build
the pipeline extension itself, saving the city the $50 million expense.
Officials at Great Oaks were unavailable Tuesday.
Council members peppered staff with other questions. Many were alarmed by
claims of the Silicon Valley Toxics Coalition, which said that using treated
sewage water to cool the power plant could allow dangerous chemicals to seep
into drinking water aquifers. An environmental services director said the
recycled water meets federal specifications, but that there is no protocol
for testing other chemicals not included in those standards.
Councilman Ken Yeager asked why Calpine should be allowed to spread a $3.9
million water connection fee over 10 years -- an arrangement that would
mandate an amendment to city law.
LeZotte, meanwhile, said she wants to hold Calpine accountable to install
ammonia-free technology at the plant. Ammonia is highly hazardous, and
residents say the use of the chemical to clean the plant is among their chief
concerns.
The agreement requires the company to install technology to reduce or
eliminate the use ammonia when it becomes ``technologically and economically
feasible.'' LeZotte said she wants a clear definition of ``feasible''
included in the deal.
Tuesday's vote marked a stark departure from the council's November vote to
deny Metcalf. At the time, council members said a power plant was
inappropriate for the area, and many members said Tuesday that they still
believe that.
Bowing to pressure
But with Gov. Gray Davis endorsing Metcalf in April and the California Energy
Commission widely expected to override the city's denial this month, council
members said they had no choice but to cut the best deal it could and allow
the project to proceed.
That explanation, however, didn't sit well with residents of the Santa Teresa
neighborhood adjacent to the Metcalf site, one of whom accused Gonzales and
the council of ``switching sides when the opposing team gets too close to the
goal line.''

Contact Mike Zapler at mzapler@sjmercury.com or at (408) 275-0140.

Feds probe AES, Williams
Antitrust investigation looks into allegations of manipulated energy prices
through reduced power-plant construction.
June 6, 2001
By JAMES ROWLEY
Bloomberg News
WASHINGTON - The U.S. Justice Department opened an antitrust investigation
into California's electricity shortage by probing allegations that AES Corp.
and Williams Energy Services Co. are limiting power-plant expansion to drive
up prices.
AES Corp., the biggest U.S. power-plant developer, disclosed the
investigation in a filing with the U.S. Securities and Exchange Commission.
The Justice Department is looking into a supply-and-marketing agreement
between AES' California power-plant unit and a Williams unit that supplies
natural gas.
Williams, owner of the second-largest U.S. natural-gas pipeline system, also
markets the power produced by AES' three electricity plants in the state.
The department alleges the agreement limits expansion of generating capacity
near some AES plants.
AES said it was cooperating with the Justice Department investigation, which
began last month, into possible violations of Section 1 of the Sherman
Antitrust Act.
That provision outlaws any restraint of trade that stifles competition.
A shortage of generating capacity in California has led to soaring wholesale
prices and rolling blackouts and prompted Pacific Gas & Electric, the state's
largest utility, to seek bankruptcy protection in April.
Aaron Thomas, a spokesman for AES, based in Arlington, Va., said the U.S.
investigation started "no more than a couple of weeks ago."
Williams spokeswoman Paula Hall-Collins said the Tulsa, Okla.-based company
is cooperating.
Gina Talamona, Justice Department spokeswoman, said the agency had no
immediate comment.
The investigation was opened several weeks after the Federal Energy
Regulatory Commission investigated AES plants in Long Beach and Huntington
Beach, designated "must run" under the Federal Power Act, did not produce
electricity for 10 days in April and May 2000. Williams agreed to pay the
operator of California's electric grid $8 million to settle allegations that
it overcharged for power.
FERC charged in March that the companies had a financial incentive to keep
the units out of service to force the California Independent System Operator
to buy power from AES' plant in Redondo Beach at prices close to the
FERC-imposed cap of $750 per megawatt-hour.
AES said it was complying with a Justice Department demand for documents
about the agreement between its AES Southland LLC unit and Williams Energy
Services Co. AES Southland, which operates the three power plants, was also
asked to respond to interrogatories, the company said.
The Williams unit supplies the natural gas to fuel the AES plants and markets
the power they produce.
AES and Williams jointly produce and sell about 4,000 megawatts in California
-- 6 to 8 percent of the state's power -- enough electricity to light about 3
million typical California homes.
AES shares dropped $2.05, to $42.54. Williams Cos. shares dropped $1, to
$38.20.

Calpine Begins Construction of Peaking Energy Center in Gilroy, Calif.

June 6, 2001

SAN JOSE, Calif., June 5 /PRNewswire/ via NewsEdge Corporation -
Calpine Corporation (NYSE: CPN), the San Jose, Calif.-based independent power
company, today announced that initial construction of 135 megawatts (mw) of
peaking generation capacity will begin during this week adjacent to its
existing Gilroy Power Plant in Gilroy, Calif. Through an Application for
Certification (AFC) filed with the California Energy Commission (CEC) on
April 25, 2001, Calpine proposed to add three 45-mw simple-cycle gas turbine
peaking units in the first of a two-phase process. The California Energy
Commission approved the project on May 21, 2001.
"Because the required natural gas, water and transmission infrastructure
exists at our Gilroy plant, it is an ideal site for the addition of peaking
generation, allowing for rapid installation of needed capacity. The first
three units are expected to begin generating electricity this September,"
commented Bryan Bertacchi, Calpine Vice President - Western Region.
Upon completion the two-phase build out, the Gilroy Energy Center will be a
270-mw, natural gas-fired, simple-cycle peaking generation facility located
on approximately 9.5 acres at 1400 Pacheco Pass Highway in Gilroy. Commercial
operation of Phase One is scheduled for September 2001. An additional three
45-mw gas turbine generators will be installed in Phase Two with full
build-out estimated for May 2002. Phase Two requires the filing of an
additional application with the CEC and is subject to a four-month review
process.
Initial construction will begin this week with site and civil engineering
activities occurring for approximately six weeks at which time the site will
be cleared and leveled. Foundation work and the installation of generation
equipment will follow shortly thereafter, and commissioning and testing will
take place for a two to three week period prior to commercial operation in
September 2001.
The Gilroy Energy Center web site has been created to host all information
and updates related to this project. For additional information, please visit
www.gilroypower.com.
Calpine Corporation, based in San Jose, Calif., is dedicated to providing
customers with reliable and competitively priced electricity. Calpine is
focused on clean, efficient, natural gas-fired generation and is the world's
largest producer of renewable geothermal energy. Calpine has launched the
largest power development program in North America. To date, the company has
approximately 32,200 megawatts of base load capacity and 7,200 megawatts of
peaking capacity in operation, under construction, pending acquisitions and
in announced development in 29 states and Canada. The company was founded in
1984 and is publicly traded on the New York Stock Exchange under the symbol
CPN. For more information about Calpine, visit its Website at
www.calpine.com.
This news release discusses certain matters that may be considered
"forward-looking" statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including statements regarding the intent,
belief or current expectations of Calpine Corporation ("the Company") and its
management. Prospective investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve a number of
risks and uncertainties that could materially affect actual results such as,
but not limited to, (i) changes in government regulations, including pending
changes in California, and anticipated deregulation of the electric energy
industry, (ii) commercial operations of new plants that may be delayed or
prevented because of various development and construction risks, such as a
failure to obtain financing and the necessary permits to operate or the
failure of third-party contractors to perform their contractual obligations,
(iii) cost estimates are preliminary and actual cost may be higher than
estimated, (iv) the assurance that the Company will develop additional
plants, (v) a competitor's development of a lower-cost generating gas-fired
power plant, and (vi) the risks associated with marketing and selling power
from power plants in the newly competitive energy market. Prospective
investors are also cautioned that the California energy environment remains
uncertain. The Company's management is working closely with a number of
parties to resolve the current uncertainty, while protecting the Company's
interests. Management believes that a final resolution will not have a
material adverse impact on the Company. Prospective investors are also
referred to the other risks identified from time to time in the Company's
reports and registration statements filed with the Securities and Exchange
Commission.
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SOURCE Calpine Corporation
CONTACT: media, Lisa Poelle, ext. 1285, or investors, Rick Barraza, ext.
1125, both of Calpine Corporation, 408-995-5115
Web site: http://www.gilroypower.com
Web site: http://www.calpine.com (CPN)

Reliant Urges FERC to Drop or Amend California Price Caps to Avoid Additional
Shortages and More Blackouts

June 6, 2001

HOUSTON, June 5 /PRNewswire/ via NewsEdge Corporation -
Reliant Energy (NYSE: REI) filed an emergency motion with the Federal Energy
Regulatory Commission (FERC) on Monday urging the agency to drop the
California price caps first applied May 29, or at a minimum, amend them to
reflect the true costs they are attempting to control. The current price
caps, which send inaccurate market signals, are actually decreasing supply
and increasing demand thus worsening an already dire situation.
"FERC has been publicly dedicated to an open market from the beginning of the
California power crisis. We encourage FERC to reexamine these price caps and
continue that dedication," said Joe Bob Perkins, president and chief
operating officer, Reliant Energy Wholesale Group. "Reliant is committed to
helping keep the lights on in California this summer and wants to ensure that
if caps must remain part of the picture, they actually help increase supply
and fix the problem."
Although the price caps were first imposed less than a week ago, they have
already begun to damage the market by decreasing supply. The price caps are
creating a myriad of problems:
-- Creates Misleading Signals - The price cap methodology is misleading
the public on the actual cost of power. Reported "dispatch" costs in
Southern California during emergencies is far below what the actual
financial settlements will be under the FERC's final market mitigation
order. This confusion results from the "proxy" price used for
dispatch utilizing an extremely distorted blended fuel cost index.
This index averages gas costs in northern and southern parts of the
state, an impossibility in the actual market. This authorizes the
California Independent System Operator (ISO) to require that
generators dispatch power at reported market clearing prices well
below actual cost when back-up generation capacity begins to dip below
7.5 percent.
-- Depletes Power from Peaking Plants - The price caps distort dispatch
signals on peaking plants, which in some cases may be run only a few
days of the year because of emission regulations. The current FERC
price controls encourage the ISO to purchase power from emergency
peaking plants before it is really needed, even in the absence of a
stage three emergency. This depletes supplies that will, by law, run
out when blackout season intensifies later this summer. This power
from peaking units should only be purchased when blackouts are
imminent -- not in stage one or two emergencies.
-- Eliminates Price Signals for Retail Customers - Price caps remove
price signals for retail customers. Customers, particularly
industrial companies, which should be encouraged to curtail during
shortages, are not encouraged to conserve power when dispatched price
caps keep prices below the actual cost to produce electricity.
-- Discourages Supply from Out-of-State - Suppliers outside of
California, who are under no legal obligation to dispatch power during
an emergency in the state, are not encouraged to increase available
production when reported market clearing prices are below their cost
to produce. During times of emergencies, utilities across the Western
region are not likely to take on additional risks and costs if they
don't believe they will be fully compensated - a situation the current
price caps create.
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SOURCE Reliant Energy
CONTACT: Maxine Enciso of Ketchum Public Relations, Los Angeles,
310-444-1303, for Reliant Energy; or media, Richard Wheatley of Reliant
Energy, 713-207-5881
Photo: NewsCom: http://www.newscom.com/cgi-bin/prnh/20000309/DATH030 AP
Archive: http://photoarchive.ap.org PRN Photo Desk, 888-776-6555 or
212-782-2840
Company News On-Call: http://www.prnewswire.com/comp/419090.html or fax,
800-758-5804, ext. 419090
Web site: http://www.reliantenergy.com (REI)

By Kathleen McFall
kmcfall@ftenergy.com
President George W. Bush's energy package encourages the use of biomass fuels
for both transportation purposes and electricity generation. "They can
provide a reliable source of energy at a stable price, and they can also
generate income for farmers, landowners and others who harness them," his
administration's report said.

Despite this warm and fuzzy language, however, the administration offered no
tangible funding for the fledgling biofuels industry*other than an extension
of an existing ethanol tax credit that was not due to expire until 2007*a
significant disappointment, and surprise, to advocates of renewable
transportation fuels.

The report did recommend expanding tax credits for biomass energy projects to
include forest-related and agriculture fuel sources and threw its weighty
support at a new credit for electricity produced from biomass co-fired with
coal. These recommendations are already included in the president's 2002
budget.

"We are pleased that the administration included expansion of the biomass tax
credit and hope that, with congressional leadership, we will see this
expanded provision signed into law this year," said Katherine Hamilton,
co-director of the American Bioenergy Association (ABA).

Unlike other portions of the recommended energy policy, biomass energy
probably will not suffer under the recent change in Senate composition, given
Senate Majority Leader Tom Daschle's (D-S.D.) agricultural constituency and
his previous support of the biofuels industry.

According to the National Energy Policy Development report, biomass accounts
for about 76% of non-hydropower renewable electricity generation,
representing a total of about 1.6% of total U.S. electricity supply.

Biopower advocates, however, envision an even greater market penetration in
the coming decades and point to its environmental and ancillary advantages.
For example, given that biomass combustion can be carbon dioxide-neutral (if
the growth and use cycle is managed sustainably), environmental groups
support an expanded role. Farmers with marginal lands that could grow biomass
fuel could enjoy economic benefits. With large amounts of wood residue, the
forest industry also stands to benefit from wider use of wood as a power
source.

Renewable energy offers a particular advantage to the lumber and paper
industry, and many analysts project that the industry may soon become a net
seller of electricity.

"In the lumber and paper industries, wood scraps are sometimes directly fed
into boilers to produce steam for their manufacturing processes or to heat
their buildings. For that reason, renewable energy offers a particular
advantage to the lumber and paper industry, and many analysts project that
the industry may soon become a net seller of electricity," said the energy
policy report.

Co-firing with coal
Biomass*usually wood or wood residue*has traditionally been burned directly
in the industrial sector for heat or on-site electricity generation.
According to the U.S. Department of Energy (DOE), the existing 10 GW of
installed capacity are based on this direct-combustion technology.

For utilities and power-generating companies with coal-fired capacity,
however, biomass co-firing may represent one of the least-cost renewable
energy options, said the DOE. The process involves blending different
materials in varying amounts with coal.

Not only does mixing biomass with coal reduce emissions, it is likely to be
cost-effective. Southern Co. estimates that a biomass plant alone could
generate power, depending on its location, at 4 to 11 cents/kWh. Given that
the lower range of this corresponds to coal generation costs, there are
clearly circumstances where biomass-coal co-firing would be economically
attractive today. Plus, the environmental public relations benefit for
utilities with coal-fired capacity would be valuable.

Domestic biomass generation capacity could reach 20-30 GW by the year 2020 by
co-firing at existing U.S. coal-fired power plants.

According to a recent report prepared by five National Laboratories, domestic
biomass generation capacity could reach 20-30 GW by the year 2020 by
co-firing at existing U.S. coal-fired power plants.

A recent report by the United Nations Intergovernmental Panel for Climate
Change (IPCC) also cites the potential of coal co-firing with biomass. The
IPCC report concludes that co-firing in coal boilers results in the lowest
cost and least technical risk of the examined approaches for biomass
conversion to electricity.

Working out the technical kinks
Already, said the DOE, six power plants in the U.S. are currently co-firing
coal and wood residue products on a regular basis. Another 10 plants have
successfully tested co-firing over the last decade, and at least six more
plants are now conducting or planning tests.

For example, Southern Co. is working with DOE, the Southern Research
Institute and the Electric Power Research Institute to study ways to grow and
harvest switchgrass to blend with coal as a fuel for power generation.
Ideally suited for the southeastern U.S., switchgrass is a rugged grass that
can be grown on marginal agricultural land. Reaching heights of up to 12
feet, it requires little fertilization and herbicide and can be harvested
twice a year.

Harvesting methods, co-milling of switchgrass and pulverized coal,
pilot-scale co-firing tests, and a full-scale demonstration of co-firing at
Alabama Power Co.'s Plant Gadsden are part of Southern Co.'s collaborative
project.

The U.S. Agriculture Department is also taking a role in exploring the
potential of biomass and coal co-firing as a means to give farmers new
markets, especially for currently idle land. The agency recently authorized
funding for three co-firing demonstration projects.

In Iowa, the Chariton Valley Biomass Project is a cooperative effort to
develop warm and cool season grasses (such as switchgrass) to co-fire with
coal at Alliant Energy's Ottumwa Generating Station. The project is designed
to generate a sustained supply of 35 MW of biomass energy. Eventually, the
grass could substitute for as much as 5% of the coal currently burned at the
plant.

In addition to reducing coal emissions, the Chariton Valley Biomass Project
will support the local farm economy.

In addition to reducing coal emissions, the project will support the local
farm economy because the grass and trees will come from acreage taken out of
production under the Agriculture Department's Conservation Reserve Program
(CRP). CRP land is generally marginal land that the government subsidizes
farmers to leave idle to both prevent erosion and protect commodity prices
from product surpluses.

The Pennsylvania Switchgrass Energy and Conservation Project will produce
switchgrass on CRP land for sale to a local cooperative's coal-fired
fluid-bed combustors.

In New York, the Agriculture Department project will fund willow biomass
crops and switchgrass on CRP acreage in the central and western part of the
state. The primary markets for the willow biomass are two coal-burning power
plants and a small university central heating facility.

Land conflicts, transportation may be obstacles
As these pilot projects illustrate, biomass conversion efforts may have the
most significant potential in rural areas. "Since biomass is widely
distributed it has good potential to provide rural areas with a renewable
source of energy. The challenge is to provide ( conversion and delivery of
bioenergy to the marketplace in the form of modern and competitive energy
sources," said the IPCC report.

A potential drawback to co-firing is transportation. Transportation of
wood-based energy products is more costly, per unit of energy, than coal, for
example, and most analysts believe it will prove most economical to site
generation plants near biomass sources.

"The generating plant or biorefinery must be located near to the resource to
minimize transport costs of the low-energy-density biomass as well as to
minimize impacts on air and water use," the IPCC report said. However, notes
the report's authors, economies of scale may be significant enough to offset
the transport costs involved.

A potential drawback over the long term, however, for biomass conversion is
land use conflicts. The IPCC report notes that by 2100, the global land
requirement to feed the growing world population will increase substantially.
"Up until this time there may well be sufficient land to supply all demands
for food, fibre and energy, but at some stage after that, land-use conflicts
could arise and before that, competition for water and irrigation may be a
constraint."