Please see the following articles:

Bay City News, Wed 3/21: "Blackouts Not Expected
Today"

Dow Jones Newswire, Wed 3/21: "Calif State Controller:General Fund Surplus Dn
To $3.2B"

CBS.MarketWatch.com, Wed 3/21: "Davis says regulators will act to pay QFs
Electricity providers insist they need to be paid"

Long Beach Press, Wed 3/21: "Rash power bill may need fix"

SF Chron, Wed 3/21: "PUC considers rewarding producers that sign long-term
contracts"

Sac Bee, Thurs, 3/22:  "State claims $5.5 billion overcharge: Refunds by
wholesale generators sought"

Sac Bee, Thurs, 3/22:  "Power solution eludes Davis: Lawmakers grow edgy as
crisis drags on"

Sac Bee, Thurs., 3/22:  " Legislators learn some details of power contracts"

San Diego Union, Thurs, 3/22:  "Federal judge orders major power wholesaler
to sell to California"

San Diego Union, Thurs., 3/22:  "Controller: State's power spending imperils
its financial health"

San Diego Union, Wed, 3/21:  "Governor says utilities must pay in advance for
some power"

LA Times, Thurs, 3/22:  "Energy Overcharge of $5.5 Billion Is Alleged"

LA Times, Thurs, 3/22:  "Power Strain Eases but Concerns Mount"
LA Times, Thurs, 3/22:  Graphics: Overcharges Alleged

San Fran Chron, Thurs, 3/22:  "Net Complex A Dilemma For San Jose
SERVER FARM: Plant would tax grid"

San Fran Chron, Thurs, 3/22:  "Contracts Won't Meet Summer Demands
DETAILS: 2004 before full impact felt"

Mercury News, Thurs, 3/22:  "California overcharged $5.5 bln for wholesale
power"

Orange Cty Register, Thurs, 3/22:  Commentary:  "If the Power Goes Off"

Orange Cty Register, Thurs, 3/22:  Commentary:  "Socialized Electricity"

San Fran Chron, Thurs, 3/22:  "Bush's Energy Policy Will Backfire,
Feinstein Warns / She wants federal price controls now"

Dow Jones Newswires, Thurs, 3/22:  "Reliant Still In Power Pact Talks With
Calif. DWR"

Dow Jones Newswires, Thurs, 3/22:  "CPUC Must Address Rates In QF Repayment
Order - SoCal Ed"

Dow Jones Newswires, Thurs, 3/22:  "Calif Small Pwr Producers To Shut Plants
If Rates Capped"

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Blackouts Not Expected
Today

Bay City News

Following two consecutive days of rolling blackouts, California's power
picture looks much brighter today, but conservation is still needed.
The California Independent System Operator is urging consumers to continue
conservation measures during today's Stage One Electrical Emergency.
"The conservation efforts of Californians, particularly Tuesday evening, were
significant and helped to reduce the duration and impact of yesterday's
blackouts,'' according to officials. "The California ISO asks customers to
continue their voluntary reductions during this time of tight supply."
More than 11,500 megawatts of in-state generation remain unavailable with
power plants completing repairs and needed maintenance. However, several
generating units returned to service today and the level of imported power
has increased, boosting the supply.
"The ISO is cautiously optimistic that customer outages will be avoided
today,'' according to officials.
Today's Stage One alert is in effect through midnight tonight.
Stage One Emergencies are declared when power reserves fall below 7 percent.
Stage Two kicks in when reserves fall below 5 percent. Stage Three is
initiated when reserves drop to below 1.5 percent.
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Calif State Controller:General Fund Surplus Dn To $3.2B

03/21/2001
Dow Jones Energy Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)

LOS ANGELES -(Dow Jones)- California State Controller Kathleen Connell
Wednesday said the state's general fund surplus has dropped to $3.2 billion
from $8.5 billion in January, mostly because of electricity purchases made by
the state's Department of Water Resources, a press release said.
Connell also denied Gov. Gray Davis' request to transfer an additional $5.6
billion from the general fund to the Special Fund for Economic Uncertainties,
the release said.
Connell noted that, given the rapid depletion of the general fund on power
purchases, the state would need to borrow $2.4 billion in order to tranfer
the $5.6 billion from the general fund to the special fund.
"We started this year with a generous budget surplus. The energy crisis has
taken much of that away, and this transfer on top of the electricity
purchases would put the fund at risk," Connell said.

Connell called on Davis to ensure that the CDWR completes by the end of May
2001 the revenue bond sales that will be used to buy power and repay the
general fund.
She also asked that the CDWR notify her of all power purchases made and
contracts negotiated thus far and requested that she be told within 7 days of
any purchases and contracts negotiated in the future.
Connell also said she wanted to be told within 24 hours of any power buys
that exceed $55 million and asked that the Department of Finance be directed
to prepare new general fund cash flow estimates for the next 30 and 60 days,
and for the end of the fiscal year.
The state's Department of Water Resources has been buying power since January
in lieu of Edison International (EIX) utility Southern California Edison and
PG&E Corp (PCG) utility Pacific Gas and Electric Co, because suppliers
refused to sell to the nearly-bankrupt utilities.
-By Jessica Berthold; Dow Jones Newswires; 323-658-3872;
jessicaberthold@dowjones.com

Gov. Davis' office said, in response to Connell's comments, that the state
budget was solid and the economy remained strong.
"We will be getting the money back we've paid for energy and it should have
no significant effect on the state's finances from the Wall Street
perspective," said Davis press secretary Steve Maviglio.
-By Jessica Berthold; Dow Jones Newswires; 323-658-3872;
jessicaberthold@dowjones.com
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Davis says regulators will act to pay QFs
Electricity providers insist they need to be paid
By Russ Britt, CBS.MarketWatch.com
Last Update: 9:45 PM ET Mar 20, 2001
LOS ANGELES (CBS.MW) - California Gov. Gray Davis said regulators will act
Tuesday on a plan to guarantee that independent power generators are paid.
Independent power producers provide about 30 percent of California's
electricity from a variety of sources including wind, solar and other
sources. Because many of the companies, known as Qualifying Facilities, or
QFs, haven't been paid they've begun to withhold power, contributing to
blackouts in the state Monday and Tuesday.
"We are anxious to pay the QFs because they're falling like flies," Davis
said at a news conference late Tuesday. "If they don't get paid, the lights
will go out."
Davis said the state's PUC order will require the state's nearly bankrupt
utilities to enter five-year contracts with the QFs at rates of 7.9 cents per
kilowatt hour, or 10-year contracts for lower rates. The structure is similar
to rates Davis claims he was able to negotiate for long-term power contracts
from out-of-state generators.
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Rash power bill may need fix
By Will Shuck
From our Sacramento Bureau
SACRAMENTO Even as lawmakers lament the slow pace of solving California's
energy crisis, the cost of haste has cropped up in their first major act, a
multibillion dollar measure that put the state in the power-buying business.

AB1X, the highly touted bill that put California in the power-buying
business, may have been so rashly crafted that it will take another piece of
legislation to fix it, an influential senator said Tuesday.
At issue is vague wording that makes it unclear when and to what extent
Southern California Edison and other utilities have to repay the state for
buying power.
State Sen. Debra Bowen, chairwoman of the Senate Energy, Utilities and
Communications Committee, said the bill apparently has left room for utility
lawyers to argue that their companies needn't repay the state until they have
covered other costs.
But Bowen, a Redondo Beach Democrat who represents downtown and western Long
Beach, said "the legislative intent is crystal clear" that the state wanted
to be repaid directly for supplying about a third of the power utility
companies deliver to their customers.
"We need a cleanup bill" to set the matter straight, she said.
Although AB1X illustrates the flaws that come with speed, Bowen said, the
Legislature can't afford to delay.
"I think we are much too slow in our response," she said. "But that has to be
balanced against things we've done in a tearing hurry and then have had to
fix later."
No matter what the Legislature does in the coming weeks, she said, California
is in for a tough summer, and only determined conservation efforts will put
much of a dent in a precarious supply-demand equation.
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PUC considers rewarding producers that sign long-term contracts
Greg Lucas, Lynda Gledhill, Chronicle Sacramento Bureau
Wednesday, March 21, 2001
,2001 San Francisco Chronicle
Sacramento -- Some cash-strapped producers of wind, solar and other
alternative forms of energy will get long-delayed financial relief under a
proposed order by state regulators, Gov. Gray Davis said yesterday evening.
A proposed order by the Public Utilities Commission is designed to reward
energy producers who sign long-term contracts with utilities at lower rates.
Alternative energy producers that voluntarily enter such contracts, which
would start on April 1, would be paid within 15 days, said Davis, who
requested the order. Those that do not would have to wait until the utilities
that buy their power return to solvency.
Davis blasted Pacific Gas & Electric Co. and Southern California Edison for
not paying the alternative generators -- know as qualified facilities, or
"QFs" -- even though the companies have been collecting money through rates.
"It is wrong and irresponsible of the utilities to pocket and withhold the
money designed to compensate the QFs," Davis said. "It's immoral and has to
stop."
Alternative producers -- ranging from massive co-generation facilities at oil
refineries to tiny biomass plants -- produce about a third of the state's
supply of electricity. But many are shutting down because utilities have not
paid them since November.
The loss of some 3,000 megawatts from tapped-out alternative energy producers
contributed to the blackouts that snarled California yesterday and Monday,
according to the Independent System Operator, which manages the state's power
grid.
The PUC's proposed order -- which will be considered at the board's Tuesday
meeting -- offers the generators a choice of agreeing to a five-year contract
at $79 per megawatt or a 10-year deal at $69 per megawatt, Davis said.
The order does not address the more than $1 billion already owed to the more
than 600 alternative energy producers around the state. Davis said to favor
one creditor over another in past debt could bring on bankruptcy proceedings
from other creditors.
The Legislature would also need to act to make the order work.
"It is critical to keep these facilities up and online," said Sen. Debra
Bowen, D-Marina del Ray, who estimates that Edison has $1.5 billion in cash
on hand, and PG&E $2.5 billion. "The utilities owe it to the people of the
state to pay them."
Edison said yesterday that it opposed any attempt to place alternative
producers ahead of their other creditors.
But Tom Higgins, a senior vice president for Edison International, which owes
alternative producers some $835 million, said his company was talking to the
governor's office about possible payment structures.
Alternative energy producers, particularly those that use high-priced natural
gas to fire their generators, say that without an immediate infusion of cash
they must close their plants.
"We've been obsessed with the health of the utilities and (have) forgotten
the health of everyone else," said V. John White, legislative director of the
Clean Power Campaign, which lobbies for alternative energy producers.
CalEnergy Operating Corp., which operates eight geothermal plants in the
Imperial Valley producing 268 megawatt hours for Edison has sued the utility
asking to be paid and to be temporarily released from their contract with
Edison which has paid them nothing since November.
CalEnergy has a court hearing tomorrow on its Edison contract. Edison owes
the company $75 million, and the debt increases by $1 million a day.
"We've lived up to our end of the bargain but Edison hasn't. We're now not in
a position to make a property tax payment on April 10 and we're the largest
employer in the county," said Vince Signorotti, CalEnergy's property manager.
Unlike Edison, PG&E is paying its creditors 15 cents on the dollar.
"We have offered over the past five days to prepay for future power not yet
delivered to keep as many of them operating as possible, but the state needs
to decide how its going to divvy up the limited money under the frozen
rates," said John Nelson, a PG&E spokesman.
The PUC's sudden attempt to recast the rates paid to alternative generators
comes after several months of inaction, partly a result of waiting for
legislative negotiations on the issue to conclude. Those negotiations
eventually failed to move forward.
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State claims $5.5 billion overcharge: Refunds by wholesale generators sought
By Dale Kasler
Bee Staff Writer
(Published March 22, 2001)
In its boldest attempt yet to extract refunds from wholesale power
generators, the state's grid operator accused the generators Wednesday of
overcharging Californians by $5.5 billion for electricity since last May.
The state's Independent System Operator, which manages the state's
transmission grid, plans to tell a federal regulatory agency today that power
generators consistently took advantage of their stranglehold on the
California market to ratchet up prices.
The federal agency, the Federal Energy Regulatory Commission, recently
threatened to order generators to refund $134.8 million for overcharges,
mostly covering January and February. But those refunds amounted to just a
fraction of what the grid operator was seeking. The ISO, which has been
complaining about market abuses for several months, says FERC must do more.
"We're happy that (FERC) took this first step, but we think there's a long
way to go," said Anjali Sheffrin, the ISO's director of market analysis. "As
far as I'm concerned, it's been too little, too late. ... The refunds they
have acted on (so far) have been minimal."
She said the report covers five major power suppliers and 16 other power
importers.
FERC Commissioner William L. Massey said it would be improper for him to
comment on a report that has not yet been filed. But when told of the $5.5
billion total, Massey told the Los Angeles Times: "That doesn't shock me in
any way."
"Prices over the past 10 months in California have greatly exceeded the
federal standards of just and reasonable prices, and I think they have
exceeded the standards by possibly billions of dollars," he said.
However, most FERC critics are skeptical that the federal agency, which is a
strong believer in letting free markets run their course, would order a
refund anywhere near as large as $5.5 billion -- even though it has found
that California prices at times have been "unjust and unreasonable."
The big power generators, saying their charges were reasonable, are disputing
the $134.8 million refunds proposed so far and have vowed to fight the ISO's
latest effort.
If the ISO were to prevail, the $5.5 billion in refunds could go a long way
toward remedying California's energy mess.
They could help restore the financial health of Pacific Gas and Electric Co.
and Southern California Edison, which have nearly been bankrupted by the
prices charged by the power generators. They also could ease the strain on
the state treasury, which is spending billions to purchase electricity for
Californians because PG&E and Edison can't.
Sheffrin said her department studied sales made by the power generators to
ISO, which makes last-minute power purchases to balance supply with demand,
and the California Power Exchange, the now-bankrupt entity where most of
California's wholesale electricity was bought and sold until December.
She said the study made "very generous" allowances for natural gas expenses,
costly air-pollution credits and other factors, including the scarcity of
electricity. The result was $5.5 billion worth of charges "in excess of
competitive costs," she said.
In many cases, the companies used their market clout to submit bids that were
"way beyond their costs," she said.
"It was insufficient competition," Sheffrin said. "They got away with a lot."
She said the refund request isn't just a shot in the dark. FERC, she noted,
"has already found that prices in the California wholesale energy market have
been unreasonable. We took it upon ourselves ... to show FERC how they got to
be so high."
FERC proposed refunds totaling $124 million for January and February sales,
declaring that generators' prices were too high.
In a separate case the federal agency, for the first time, accused two
generators last week of taking plants offline to force prices up.
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Power solution eludes Davis: Lawmakers grow edgy as crisis drags on
By Emily Bazar and Amy Chance
Bee Capitol Bureau
(Published March 22, 2001)
Gov. Gray Davis likes to compare the state's energy crisis to a complicated
"three-cornered" billiard shot.
But as California plunged into another round of power blackouts this week,
Davis has yet to line up the angle on an ultimate solution.
The state's short-term power bill is nearing $4.2 billion, and legislators
are balking at the administration's requests for additional money.
Getting even the least controversial pieces of the puzzle through the
Legislature is taking weeks longer than expected.
While the Democratic governor has insisted secrecy about details of his power
purchases is necessary to protect the state's bargaining position, other
state officials are complaining vigorously about the lack of information.
And critical deals the governor hoped to reach with energy suppliers and
utility companies are proving difficult to close.
"I think we all got lulled into a little complacency a few weeks ago. All
these things seemed to be going along, and the governor was making all these
warm and fuzzy comments," said Assemblyman John Campbell, R-Irvine.
"But it only takes one deal to go sideways and we're all blacked out," he
added. "The governor is running around basically saying, 'Trust me.' I'm not
sure he's deserving of the trust at this point."
Davis and his aides insist they are working around the clock on plans to
boost power generation, encourage conservation and reach an agreement with
utilities that will keep them out of bankruptcy.
The utility plan, they say, is the equivalent of a large corporate merger
that simply can't be accomplished overnight. Davis notes that earlier
deregulation efforts might have benefitted from a little more time.
Although the state has reached a broad "agreement in principle" with Southern
California Edison to obtain its power transmission lines in exchange for help
paying off its debts, a final, detailed deal has not been reached. The
initial agreement with Edison was announced Feb. 23.
And the governor has yet to achieve a tentative agreement with Pacific Gas
and Electric Co., which is driving a harder bargain over price and other
elements of a potential rescue plan.
Joseph Fichera, one of several consultants receiving more than $11 million
from the administration for advice on the energy crisis, said many people
don't realize the complexity of the deal they're brokering.
In their bid to achieve a public takeover of the investor-owned utilities'
transmission lines, he said, negotiators have to pore over thousands of
documents related to the transmission lines alone.
"We are doing what is normal in a transaction of this magnitude, which is
investigate, document, circulate, redocument, agree, move forward," said
Fichera, an investment banker with Saber Partners in New York City. "The
governor has put a 'I want this yesterday' fire" under his negotiating team.
The negotiator, however, declined to say when he expects final agreements to
be reached with the companies.
"It could be days, it could be weeks," he said.
There were signs, meanwhile, of trouble brewing on another front: the giant
bond sale the state must make to repay the money it has spent so far on
electricity and to finance future long-term contracts for energy.
State Treasurer Phil Angelides said Wednesday the utilities are appealing a
ruling by the state Public Utilities Commission that essentially ensures the
state will be repaid, a move that he said threatens to delay the sale
indefinitely.
"If the utilities have decided to adopt a scorched earth policy until they
get what they need and want, then it will be a significant problem,"
Angelides said.
PG&E spokesman Ron Low said the governor is simply placing too many demands
on a rate structure that doesn't compensate the utilities for their current
costs.
"Political rhetoric is not going to change the math," he said.
In the Legislature, lawmakers are growing grumpier. Most were taken by
surprise Monday when blackouts were ordered across the state, weeks before
summer temperatures were expected to set in and strain the power system.
"I'm more worried than ever," said Assemblyman Bill Leonard, R-San
Bernardino. "A lot of the elements we thought we had a handle on in January
are unraveling."
A deal the governor said had been worked out weeks ago between the state and
more than 600 small alternative energy suppliers collapsed last week.
The alternative generators have not been paid by the utilities for months,
and state leaders attempted to bargain down the price utilities pay those
generators for power.
But administration officials complained privately that lawmakers instead
sweetened the pot for the suppliers to the point that the measure no longer
helped solve the overall financial situation pushing the utilities toward
bankruptcy. Under a proposal announced Tuesday by Davis, the Legislature
would authorize the PUC to require the utilities to pay the alternative
suppliers at prices more closely resembling the original deal.
But the governor ran into immediate opposition, as some suppliers said said
he would not pay them enough to cover their fuel costs.
"We would go from not being paid, to losing money," said Hal Dittmer of
Wellhead Electric, a Sacramento-based supplier that has been shut down for
more than a month. "Almost everybody who burns natural gas is going to shut
down. (Davis) got it wrong."
Democrats outside the Davis administration, meanwhile, are complaining about
the amount of money the state Department of Water Resources is spending on
expensive, last-minute power purchases. Within a week, $4.2 billion will have
been committed.
State Sen. Steve Peace, D-El Cajon, chairman of the joint Legislative Budget
Committee, is warning the Davis administration that he will block additional
funds for last-minute purchases of power until the PUC makes progress
recovering money that already has been spent. He intends to hold a hearing on
the issue this morning.
On Wednesday, state Controller Kathleen Connell told Davis she will refuse to
make a routine budget transfer he had requested, saying she is concerned that
there is "no outside check and balance" on the money the administration is
spending to buy electricity on the spot market.
As the statewide elected official who pays the state's bills, Connell said
she has yet to receive information from the Department of Water Resources
about how much it is spending.
"We really need an accounting as to the total amount of liability they have
accumulated," she said. "I understand they're in an emergency situation ...
but it begins to imperil the state's ability to manage its cash flow."
Meanwhile, a bill to provide $1 billion for conservation programs, aimed at
reducing power needs this summer, also has languished for several weeks in
the state Senate. While Davis has focused his attention elsewhere, Republican
lawmakers have opposed the measure as too expensive. Democrats argue that
each two-week delay prevents the state from saving as much energy as one
"peaker" plant will produce this summer. Peaker plants are designed to help
meet the peaks of electricity demand.
"I'm the eternal optimist, but we have to keep working on all fronts," said
Sen. Byron Sher, D-Palo Alto, who hopes to take his energy conservation bill
up for a vote in the Senate again today. "It's a formidable challenge."
Bee staff writer Dale Kasler contributed to this report.
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Legislators learn some details of power contracts
By John Hill
Bee Capitol Bureau
(Published March 22, 2001)
The veil of secrecy surrounding the state's electricity contracts lifted
Wednesday -- a little.
Gov. Gray Davis gave state legislators a report laying out some of the
details of long-term contracts designed to help the state pull out of its
energy crisis. But the report left legislators and others clamoring for more.
"The information raises more questions," said Assemblyman George Runner,
R-Lancaster. "I liken it to watching a parade through a knothole in a fence.
You get to look at one float, but you're not sure about what's coming up and
what you've missed."
Davis had previously disclosed that the state had signed or was close to
signing 40 long-term contracts, at an average price over 10 years of $69 per
megawatt-hour.
The contracts are part of the state's strategy for trying to avoid a fiscal
shellacking in the energy spot market while making sure there's enough
electricity to avoid more blackouts.
Davis also previously disclosed that the contracts were for an average of
about 9,000 megawatts a year, and that the total cost exceeded $40 billion.
But Davis has resisted telling more, saying the state would jeopardize its
ability to get the best prices if electricity generators knew what their
counterparts were getting.
On Wednesday, the governor's office released a March 15 report from S. David
Freeman, general manager of the Los Angeles Department of Water and Power, to
the state Department of Water Resources. The state agency has been given the
responsibility of making power purchases, and Freeman was brought in to lead
the negotiations.
As of March 15, the state had signed 19 contracts with seven suppliers for
periods ranging from 14 months to 20 years, with many for three or five
years, the report says. Some of the contracts are for electricity to meet the
state's everyday power demand, while others are only for times of peak use,
such as hot summer days.
The state had "agreements in principle" for an additional 25 contracts.
Runner said he has been told that two of these contracts have since been
finalized.
The amount of power provided reaches a peak in 2004 of more than 10,000
megawatts. As the long-term contracts start to expire around then, the state
is hoping that demand can be met with new contracts or spot purchases at
prices expected to be much cheaper.
The report says nine more long-term contracts were under discussion.
Some of the contracts are with power generators, while others are with
marketers who may get the power from a number of sources.
In some cases, the state may supply the natural gas used to generate the
electricity, or power costs may be pegged to the going rate for the fuel.
Some suppliers can cancel if the state fails to sell bonds by a certain date
to cover power costs or fails to maintain an investment grade credit rating.
Some depend on the construction of power plants, but Freeman said they were
firm commitments.
"We were pretty careful not to put a hope and a dream in the portfolio," he
said.
More contracts will have to be signed to meet summer demand, and these
agreements will probably be more expensive, the report says.
One item not in Freeman's report was a secret deal to relieve several major
generators from having to pay for polluting the air beyond allowable limits.
The long-term power contracts include language that would have the state pay
the costs of "pollution credits" that allow power plants to exceed their
permitted levels of smog-forming pollutants, the governor's office confirmed
Wednesday. Spokesman Steve Maviglio said that several generators are being
relieved from having to pay those costs.
V. John White, a Sierra Club lobbyist close to the negotiations, said Dynegy
Inc., which has power plants in El Segundo, Encina and Long Beach, is one of
them. Dynegy officials did not return calls to The Bee on Wednesday.
Freeman said that generators were demanding hefty premiums for having to deal
with air quality regulators in the summer and he figured it would be cheaper
just to pay for the pollution credits.
In other energy-related developments:
With more power plants back online, grid operators dropped down to a Stage 1
electricity alert. The state Independent System Operator was expecting
supplies to gradually increase over the next few days.
The state Public Utilities Commission issued a revised draft decision that
would impose the prices outlined Tuesday by Davis for power produced by
alternative energy companies -- $79 a megawatt-hour for five-year contracts
or $69 a megawatt-hour for 10 years. The proposal is scheduled for a PUC vote
March 27.
A federal judge ruled that one of the nation's major electricity generators
must continue supplying California with emergency power.
In imposing an injunction on Reliant Energy Services Inc., U.S. District
Judge Frank C. Damrell Jr. noted the "rolling blackouts (that have) darkened
the California landscape" and said the loss of Reliant's production "poses an
imminent threat."
Bee staff writers Carrie Peyton, Chris Bowman and Denny Walsh contributed to
this report.
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Federal judge orders major power wholesaler to sell to California

By Don Thompson
ASSOCIATED PRESS
March 21, 2001
SACRAMENTO ) A federal judge issued a preliminary injunction Wednesday
ordering a major electricity wholesaler to continue selling to California
despite its fear that it will not get paid.
U.S. District Judge Frank C. Damrell Jr. said Californians were at risk of
irreparable harm if Reliant Energy Services stopped selling power to the
Independent System Operator, which oversees the state's power grid. The ISO
buys last-minute power on behalf of utilities to fill gaps in supply to try
to fend off blackouts.
Damrell dismissed Reliant's attempt to force the state Department of Water
Resources to back the ISO's purchases for the state's two biggest utilities.
The state has been spending about $50 million a day on power for Pacific Gas
and Electric Co. and Southern California Edison, both denied credit by
suppliers after amassing billions of dollars in debts.

Controller: State's power spending imperils its financial health
Governor says utilities must pay in advance for some power
?

The judge said he had no authority to force the DWR to pay for that power.
Gov. Gray Davis has said the state isn't responsible for purchasing the
costly last-minute power ISO buys for Edison and PG&E, despite a law
authorizing state power purchases on the utilities' behalf.
ISO attorney Charles Robinson said the ruling gives ISO operators "a tool to
assist them in keeping the lights on in California."
"Had the decision gone the other way, one could expect other generators to
simply ignore emergency orders," Robinson said.
Damrell's preliminary injunction will remain in effect until the Federal
Energy Regulatory Commission rules on the matter.
Damrell denied the ISO's request for preliminary injunctions against three
other wholesalers, Dynegy, AES and Williams, who agreed to continue selling
to the ISO pending the FERC ruling.
The ISO went to court in February after a federal emergency order requiring
the power sales expired. The judge then issued a temporary restraining order,
requiring the sales, but dropped it after the suppliers agreed to continue
sales to California, pending his Wednesday ruling.
The ISO said it would lose about 3,600 megawatts if the suppliers pulled out,
enough power for about 2.7 million households. One megawatt is enough for
roughly 750 homes.
Grid officials said Reliant's share alone is about 3,000 megawatts. Reliant
said the amount at issue actually is less than a fourth of that, because most
of the power is committed under long-term contracts.
Reliant, which provides about 9 percent of the state's power, worries it
won't get paid due to the financial troubles of PG&E and Edison.
PG&E and Edison say that together they have lost about $13 billion since June
due to soaring wholesale electricity costs that California's 1996
deregulation law bars them from passing onto customers.
At the same time, the state has faced a tight electricity supply, due in part
to California power plant shutdowns for maintenance and to a tight
hydroelectric supply in the Pacific Northwest.
Managers of the state power grid imposed rolling blackouts across the state
Monday and Tuesday as supply fell short of demand. Wednesday, cooling
temperatures and the completion of repairs at several power plants allowed
the state to avoid blackouts.
State Controller Kathleen Connell said Wednesday that the energy crunch also
imperils California's financial health.
Connell said the state's power-buying on behalf of Edison and PG&E is is
gutting its budget surplus. Since the state started making emergency power
buys in January, the surplus has fallen from $8.5 billion to about $3.2
billion, she said.
Connell ordered an audit of the state's power-buying, saying Davis is
withholding key financial information from her office and the Legislature.
She is refusing a request by Davis and the Legislature to transfer $5.6
billion into a "rainy day fund" she said was set up to impress Wall Street as
the state prepares to issue $10 billion in revenue bonds to cover its
power-buying.
Transferring the money would leave the state general fund $2.4 billion in
debt, Connell said.
Sandy Harrison, spokesman for the state Department of Finance, and Keely
Bosler of the Legislative Analyst's Office, said such transfers are routine
and required by law.
They put the state's budget surplus at $5.6 billion.
"The law says she has to do it. The law does not give her the power to demand
that kind of audit information," Harrison said.
He said the state's budget isn't in danger because it will be repaid with the
$10 billion in long-term debt.
Wells Fargo & Co. chief economist Sung Won Sohn said he sees little progress
in efforts to fix the state's power problems and end state electricity
purchases.
"If we're going to pour money into a bottomless pit, I would worry about the
state's finances," he said. "At some point we're going to run out of money."
The controller's criticism of fellow Democrat Davis won support from Assembly
Republicans and Secretary of State Bill Jones, a Republican considering
challenging Davis next year.
Jones said he wants to announce his own plan to solve the state's energy
woes, but can't unless Davis releases more financial details.
Davis spokesman Steve Maviglio dismissed the criticism.
"Political grandstanding doesn't generate one more kilowatt of energy for
California in this time of emergency," he said.
Maviglio said the administration has released the financial information it
can without jeopardizing negotiations for long-term power contracts with
wholesalers.

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Controller: State's power spending imperils its financial health

By Don Thompson
ASSOCIATED PRESS
March 21, 2001
SACRAMENTO ) California's power-buying on behalf of two strapped utilities is
gutting its budget surplus and putting the state at financial risk, the state
controller said Wednesday.
The surplus dropped from $8.5 billion in January, when the state began buying
electricity for Pacific Gas and Electric Co. and Southern California Edison,
to $3.2 billion now, Kathleen Connell estimates.
Connell ordered an audit of the state's power-buying, saying Gov. Gray Davis
is withholding key financial information from her office and the Legislature.
Wednesday marked the first time in three days the state avoided rolling
blackouts. Power grid officials credited cooling temperatures and the
completion of repairs at several power plants.
Connell said the energy crunch now imperils the state's budget as well as its
electric grid.
California has been spending about $45 million a day ) $4.2 billion so far )
to buy power for Edison and PG&E, both denied credit by electricity
wholesalers.
The two utilities, California's largest, say they are nearly $14 billion in
debt due to soaring wholesale power costs the state's deregulation law blocks
them from recovering from customers.
Meanwhile, the state has faced high natural gas costs and a tight power
supply driven in part by power plant repairs in California and scarce
hydroelectric power in the Pacific Northwest.
Standard & Poor's has put the state on a credit watch due to its power
purchases and chastised Davis, the Legislature and state regulators for not
taking more aggressive steps to assure the utilities can pay their bills.
On Wednesday, Connell said she is refusing a request by Davis and the
Legislature to transfer $5.6 billion into a "rainy day fund" she said was set
up to impress Wall Street as the state prepares to issue $10 billion in
revenue bonds to cover its power-buying.
Transferring the money would leave the state general fund $2.4 billion in
debt, Connell said.
Sandy Harrison, spokesman for the state Department of Finance, and Keely
Bosler of the Legislative Analyst's Office, said such transfers are routine
and required by law.
They put the state's budget surplus at $5.6 billion.
"The law says she has to do it. The law does not give her the power to demand
that kind of audit information," Harrison said.
He said the state's budget isn't in danger because it will be repaid with the
$10 billion in long-term debt.
Connell said the scope of the proposed transfer is unprecedented and amounts
to a "shell game" that disguises the power purchases' impact on the state
budget.
Wells Fargo & Co. chief economist Sung Won Sohn said he sees little progress
in efforts to fix the state's power problems and end state electricity
purchases.
"If we're going to pour money into a bottomless pit, I would worry about the
state's finances," he said. "At some point we're going to run out of money."
The controller's criticism of fellow Democrat Davis won support from Assembly
Republicans and Secretary of State Bill Jones, a Republican considering
challenging Davis next year.
Jones said he wants to announce his own plan to solve the state's energy
woes, but can't unless Davis releases more financial details. He said his
plan may involve giving the utilities low-interest loans with their
transmission lines held as collateral.
Davis spokesman Steve Maviglio dismissed the criticism.
"Political grandstanding doesn't generate one more kilowatt of energy for
California in this time of emergency," he said.
Maviglio said the administration has released the financial information it
can without jeopardizing negotiations for long-term power contracts with
wholesalers.
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Governor says utilities must pay in advance for some power

By Jennifer Coleman
ASSOCIATED PRESS
March 21, 2001
SACRAMENTO ) The state's two largest utilities will be ordered to pay
environmentally friendly power generators in advance, a move Gov. Gray Davis
hopes will bring a quick end to the power blackouts that darkened California
this week.
The statewide blackouts that stretched from San Diego to Oregon on Monday and
Tuesday were caused in part by the failure of Southern California Edison and
Pacific Gas and Electric Co. to pay millions of dollars they owe "qualifying
facilities" or QFs, Davis said.
Such suppliers use cogeneration ) steam from manufacturing plus natural gas )
or solar, wind and other renewable energy to generate electricity. This week
California lost about half the power those generators normally provide.

Controller: State's power spending imperils its financial health
?

Several of them said they hadn't been paid by Edison and PG&E in weeks and
can't afford to keep operating their plants.
Davis accused the utilities of taking in money from customers while failing
to pay the QFs. The state has been spending about $45 million a day since
January to buy power for customers of Edison and PG&E, which are so
credit-poor that suppliers refuse to sell to them.
"It's wrong and irresponsible of the utilities to pocket this money and not
pay the generators," the governor said at a Capitol news conference Tuesday
evening. "They've acted irresponsibly and immorally and it has to stop."
PG&E called the governor's statements "inappropriate and unjustified," adding
that it was negotiating a payment plan with the QFs. Edison said it is intent
on paying creditors and working with the California Public Utilities
Commission to pay QFs for future power sales.
Controller Kathleen Connell warned Wednesday that the state's $2
billion-a-month power purchases are jeopardizing California's budget.
The state's budget surplus dropped from $8.5 billion in January, when the
power purchases began, to $3.2 billion now, Connell estimates. She blamed
Davis for withholding key financial information, and ordered an audit of the
state's power spending starting next week.
She blocked a request by the Legislature and Davis administration to transfer
$5.6 billion from the state's general fund into a special "rainy day" fund,
saying that would have left the general fund $2.4 billion in debt.
The Legislative Analyst's Office said such transfers are routine; Connell
agreed, but said the size of the transfer is unprecedented.
"We started this year with a generous budget surplus," Connell said. "The
energy crisis has taken much of that away and this transfer on top of the
electricity purchases would put the fund at risk."
Meanwhile, keepers of the state's power grid were optimistic California would
get through Wednesday without another day of rolling blackouts. Two plants
down for repairs returned to service.
Several power plants that were taken down for repairs are also expected come
online by the end of the week, reducing the likelihood of blackouts, said Jim
Detmers, ISO vice president.
Power may flow to homes and businesses, but it could soon cost consumers
more, said Assemblyman Fred Keeley, one of the Legislature's leaders on
energy issues.
"I think it's intellectually appropriate and honest to tell people as soon as
it's apparent" that a rate increase is warranted, the Boulder Creek Democrat
said Tuesday, indicating that time had come.
He estimated that the state Public Utilities Commission may soon have to
raise rates by about 15 percent to cover the state's costs and its utilities'
bills.
"My sense is that people will appreciate having some certainty and being able
to plan for it," he said. "They don't have to like it but I think they'll
appreciate it."
Davis said he is confident the utilities and the state can pay their bills
without further rate increases for Edison and PG&E customers.
In the meantime, the Independent System Operator, keeper of the grid, is
counting on continued conservation by residents and businesses to avoid more
blackouts. Conservation accounted for about 300 megawatts in savings during
Tuesday's peak usage, enough to power 300,000 homes.
Roughly a half-million homes and businesses were affected by Tuesday's
blackouts, which snarled traffic and plunged schools and businesses into
darkness across the state.
The outages began at 9:30 a.m. and continued in 90-minute waves until about 2
p.m., when the ISO lifted its blackout order. They were blamed for at least
one serious traffic accident.
Two cars collided at an intersection in the Los Angeles suburb of South El
Monte where the traffic lights were out. Two people were seriously hurt, said
California Highway Patrol Officer Nick Vite.
In San Francisco's Chinatown, souvenir shops normally bustling with visitors
were forced to shut down. Nearby, irritated customers waited for a bank to
reopen.
The blackouts, like Monday's, were caused by a combination of problems,
including unseasonably warm weather, reduced electricity imports from the
Pacific Northwest and numerous power plants being shut down for repairs.
Adding to those troubles, the state lost about 3,100 megawatts from the QF
plants.
Senate Energy Committee Chairwoman Debra Bowen, D-Marina del Rey, estimated
Tuesday that Edison has amassed more than $1 billion and PG&E more than $2
billion that they have not paid to generators.
Davis said the PUC planned to issue an order next week directing the
utilities to pre-pay their future QF bills.
PG&E said its prepayments hinge on an upcoming PUC decision on whether the
utility's rates are sufficient to pay its bills and cover the state's power
purchases on its behalf, which amount to $4.2 billion since early January.
Edison and PG&E say they have lost more than $13 billion since last June to
climbing wholesale electricity prices, which the state's 1996 deregulation
law prevents them from passing on to ratepayers.
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Energy Overcharge of $5.5 Billion Is Alleged

Power: Money should be refunded to taxpayers and utilities, the state grid
operator says, citing evidence of market manipulation. Suppliers deny the
accusation.

By TIM REITERMAN and NANCY RIVERA BROOKS, Times Staff Writers

?????Wholesale electricity suppliers overcharged California by about $5.5
billion between May and last month, and that money should be refunded to the
state's taxpayers and financially strapped utilities, the state power grid
operator said Wednesday.
?????Generators engaged in market manipulation and consistent patterns of
bidding far above costs in the deregulated energy market, the California
Independent System Operator found in a study of pricing data. The findings
support the widespread belief that these suppliers reaped massive additional
revenue by manipulating the market.
?????Spokesmen for the companies denied the accusation.
?????The study, prepared for a filing with federal regulators today, is
central to Cal-ISO's efforts to seek reimbursement for what it considers
excessive charges by electricity suppliers during the state's energy crisis.
?????"This might be the first time we told them the total impact and
magnitude [of the overcharging]," said Anjali Sheffrin, Cal-ISO's director of
market analysis. "We think the entire amount deserves consideration for
refunds."
?????Using confidential bidding data on tens of thousands of electricity
sales, Cal-ISO found that five companies that together supply about 30% of
the power delivered to customers of the state's investor-owned utilities
engaged in two types of behavior that tended to push up prices:
?????* They effectively withheld supplies by bidding at excessive prices,
even though they could have made some money selling more electricity.
?????* Less frequently, they had power generation available but did not bid
at all.
?????The study concluded that energy suppliers commonly offered their
electricity at twice their cost. For example, Sheffrin said, the average
markup in August was 100% during peak hours.
?????A spokeswoman at the Federal Energy Regulatory Commission, which
oversees wholesale electricity pricing across the country, declined to
comment Wednesday, saying, "This is part of an ongoing proceeding."
?????FERC member William L. Massey, who has considered previous commission
actions on refunds to be inadequate, said it would be improper for him to
comment on a report that has not yet been filed. But when told of the
$5.5-billion total, Massey said: "That doesn't shock me in any way."
?????"Prices over the past 10 months in California have greatly exceeded the
federal standards of just and reasonable prices, and I think they have
exceeded the standards by possibly billions of dollars," he said.
?????Cal-ISO, which oversees grid operations and an emergency energy market,
previously detailed $550 million in alleged overcharges for December and
January and asked FERC for refunds. But the commission has proposed refunds
of only a tiny fraction of that amount.
?????The study covered five major in-state power suppliers--Reliant Energy,
Dynegy, Williams/AES, Duke Energy and Mirant, formerly Southern Energy--plus
16 power importers, all of which deliver power to customers of Pacific Gas &
Electric Co., Southern California Edison and San Diego Gas & Electric Co.
?????"All [21] overcharged, but some excessively and some by moderate
amounts," Sheffrin said.
?????Cal-ISO's public filing will quantify the alleged overcharging by each
company, but the companies will be identified only by a number. The code will
be provided to FERC, Sheffrin said, and Cal-ISO lawyers will determine how
much information about the companies will be made public.

?????State, U.S. Investigations
?????California electricity markets and the companies that buy and sell power
in the state have been the subject of several investigations by state and
federal authorities since wholesale electricity prices first skyrocketed in
May.
?????Electricity suppliers have repeatedly denied manipulating the California
market in any way, whether through above-cost bidding in spot markets or
through physical withholding of electricity to drive up prices.
?????Reliant Energy is cooperating with FERC's requests for more data and is
confident the commission will conclude that prices charged by Reliant were
justified, said Joe Bob Perkins, president of the Houston-based company.
?????Perkins also bitterly disputed charges that Reliant has shut down units
so that it can earn bigger profits on the power sold by the remaining plants.
These charges have been leveled against all of the power-plant owners in the
state.
?????Reliant Vice President John Stout said Cal-ISO's calculations typically
don't include such fixed costs as salaries, taxes and the interest on bonds
they sold to finance their power plants, which they acquired under terms of
the state's landmark 1996 deregulation law.
?????In addition, he said, many high-priced power days have resulted from
buyers bidding against each other for scarce supplies rather than sellers
charging excessive amounts--like a house price being driven far above the
listing price in a hot real estate market.
?????Williams Energy Services, a trading company that markets most of the
power produced by plants owned by AES, also says it will be exonerated by
FERC once the commission examines documentation being submitted, said Paula
Hill-Collins, spokeswoman for the Tulsa, Okla., company.
?????"FERC has the obligation to investigate when these accusations are
made," Hill-Collins said. "This is just a process of justification, not
necessarily proof of guilt."
?????Williams/AES was recently ordered by FERC to prove that it did not take
generating units out of service last year to drive up electricity prices, or
refund $10.8 million to California utilities.
?????During the period studied, suppliers sold electricity in the California
Power Exchange to Southern California Edison, PG&E and San Diego Gas &
Electric Co. and in a backup market for last-minute electricity operated by
Cal-ISO. But sky-high prices plunged Edison and PG&E deeply into debt, and
most suppliers stopped selling to them in January, forcing the state
Department of Water Resources to step in as the primary electricity buyer for
the three big utilities' 27 million customers.
?????The Cal-ISO study, first summarized at an energy conference last week at
UC Berkeley but not otherwise publicized, concluded that the companies
exercised so-called market power to pump up electricity prices.
?????Severin Borenstein, director of the Energy Institute at Berkeley, said
Cal-ISO's study is consistent with his research examining pricing practices
in 2000.
?????"We found several billion dollars . . . in departures from competitive
pricing," he said. "When the market was tight this summer, they were able to
push up prices, and they did."
?????The early warning signs of electricity price spikes, the study found,
appeared in May after two years of relatively stable prices of $30 to $40 per
megawatt-hour under deregulation. Prices went up during the summer, dipped in
September and October with lower demand, then took off in November and
December as weather turned cold and the price of natural gas, which is used
to generate much of the state's electricity, reached record levels.
?????"There were plant outages, and demand and supply became close," Sheffrin
said. "Whatever price they bid had to be taken, and market power asserted
itself."
?????Cal-ISO found that $3 billion of the alleged overcharges occurred
between May and November.
?????On Friday, federal regulators ordered six wholesale power suppliers to
refund $55 million to California if they cannot justify prices charged in
February. The refund was limited to power sold that month in excess of $430
per megawatt-hour during Stage 3 power alerts, when supplies are so tight
that rolling blackouts are threatened. (One megawatt-hour is enough
electricity to supply 750 typical homes for an hour.)
?????The previous week, FERC ordered 13 suppliers to justify or refund $69
million for power sold in January at prices above $273 per megawatt-hour.
?????Massey opposed the potential refunds as too low because they were
limited to hours in which a Stage 3 power emergency was in place and because
the benchmark price set for each month was too high--combining to exempt more
than 70,000 transactions from scrutiny.
?????"We're still looking for our lost wallet under the lamppost, which is
Stage 3 alerts," said Massey, one of three commissioners on the five-member
board (two seats are vacant).
?????Generators "have been given the free and clear," he said.
?????"These tinkling little refunds they have come out with recently are
almost a joke," said Cal-ISO board member Mike Florio, senior attorney at the
Utility Reform Network.

?????Resisting Price Caps
?????Cal-ISO contends that the last 10 months have proved that generators can
no longer be allowed to receive electricity prices that are dictated by what
the market will bear.
?????"FERC granted market-based rate authority on each of these suppliers'
own showing that they could not manipulate prices, yet their actions have
shown the contrary," Sheffrin said. "We feel FERC needs to look at the
premise of allowing these generators to continue selling at market-based
rates."
?????The commission is responsible for ensuring just and reasonable
electricity rates. Although it has called California's power market
dysfunctional and vulnerable to manipulation, the agency has resisted setting
firm price caps sought by California's congressional delegation.
?????Chairman Curt L. Hebert Jr. strongly opposes caps, while Massey wants to
use caps across the West as a "temporary timeout."
?????Energy Secretary Spencer Abraham, in a New York news conference
Wednesday, reiterated his opposition to electricity price caps as a way to
cope with California's energy crisis.
?????"If we put price caps in place, there will be more blackouts, and
they'll be worse," Abraham said.
?????Cal-ISO is filing its market study as part of its comments on FERC staff
recommendations on ways to thwart market manipulation. FERC's proposal
includes strict coordination of power plant outages by Cal-ISO with reporting
of suspicious closures to FERC, and generator-by-generator bid caps tied to
costs.
---
?????Reiterman reported from San Francisco, Rivera Brooks from Los Angeles.
Times staff writer Thomas S. Mulligan in New York contributed to this story.
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Power Strain Eases but Concerns Mount

Energy: Officials say summer prices will be high, and a state report shows
that contracts with generators are far short of goals.

By DAN MORAIN and JENIFER WARREN, Times Staff Writers

?????SACRAMENTO--California's fragile electricity system stabilized
Wednesday, but a Davis administration report suggested troubles ahead because
the state could be forced to buy most of its power for the coming summer on
the costly and volatile spot market.
?????After two days of statewide blackouts, power plants that had been shut
down were cranked up. Unseasonable heat tapered off. The operators of the
statewide power grid relaxed their state of emergency.
?????But plenty of ominous signs remained. Many small producers remained shut
down, skeptical about Gov. Gray Davis' plan for utilities to pay them.
?????State Controller Kathleen Connell issued a sharp warning about the high
cost of the state's foray into the power business and announced that she will
block an administration request that she transfer $5.6 billion into an
account that could be tapped to pay for state purchases of electricity.
?????And a report from the administration summarizing contracts between Davis
and independent power generators showed that the state has signed contracts
for only 2,247 megawatts of electricity, significantly less than the 6,000 to
7,000 megawatts previously claimed.
?????While there are agreements in principle for the full amount, the report
notes that generators can back out of the contracts for a variety of reasons,
including the state's failure to sell bonds to finance power purchased by
July 1. The Legislature has approved plans to sell $10 billion in bonds, but
none have yet been issued.
?????"We are exposed enormously this summer," Senate Energy Committee
chairwoman Debra Bowen (D-Marina del Rey) said after looking at the report.
"We owe the people the truth about how difficult this summer is going to be.
We don't have a power fairy."
?????Perhaps most significant, the report suggests that the contracts fall
significantly short of Davis' stated goal of buying no more than 5% of the
state's summer needs on the spot electricity market, where prices can be many
times those of long-term contracts.
?????After reading the report, Frank Wolak, a Stanford University economist
who studies the California electricity market, said the numbers suggested
that the state's long-term contracts will cover less than half of what the
state will need this summer.
?????"We're definitely short this summer, next summer and the summer of
2003," he said.
?????California was forced to start buying electricity in December--at a cost
of $50 million a day--because producers refused to sell to Southern
California Edison and Pacific Gas & Electric. The two utilities amassed
billions of dollars in debt when prices for wholesale power soared on the
spot market.
?????Vikram Budhraja, a consultant retained by Davis to negotiate deals with
generators, said the report represents a "work in progress." He said the
state may yet sign new contracts.
?????However, Wolak said the contract figures confirm what he and others have
been dreading: that summer is going to be rife with rolling blackouts unless
serious steps to cut demand are taken immediately.
?????Wolak and other experts say large industrial customers must be switched
to real-time meters and pricing to persuade them to use the bulk of their
energy at times of low demand.
?????The head of the Energy Foundation, a San Francisco-based nonprofit that
promotes sustainable sources of power, made the same proposal to Davis on
Wednesday.
?????"The government need not ask customers to swelter in the dark this
summer," foundation President Hal Harvey argued in a letter.
?????He also proposed a crash campaign to boost sales of efficient appliances
and lightbulbs. He said the state needs to take over the utilities' contracts
with alternative energy providers to ensure they stay in business, and sign
new contracts for 1,500 megawatts of new wind power--the cheapest, fastest
and cleanest source of new supply.
?????Davis had proposed a formula Tuesday to force private utilities to pay
the alternative producers, some of which have not been paid since November.
But some of them warned Wednesday that Davis' plan offers them little
incentive to turn on their generators.
?????Alternative energy producers supply more than a quarter of the
electricity consumed in California.
?????Many producers generate electricity from wind, sun and geothermal
sources. But most of them generate power using natural gas--and the cost of
natural gas has been soaring. Several natural gas users said Davis' plan,
which caps rates, won't cover their fuel costs.
?????Davis assumes that the price of natural gas will fall. But small
generators say they don't have sufficient purchasing power or sophistication
to gamble on future prices.
?????The Public Utilities Commission is expected to approve Davis' proposal
next week. It offers producers two choices: 7.9 cents a kilowatt-hour if they
agree to supply power for five years, or 6.9 cents a kilowatt-hour over 10
years.
?????"The price of natural gas is higher than that," said Marty Quinn,
executive vice president and chief operating officer of Ridgewood Power LLC,
which owns three natural gas-fired co-generation plants. "If we operate,
we'll lose money."
?????Ridgewood is not operating, having been cut off by gas suppliers. The
company sued PG&E last month seeking overdue payments and release from its
contracts with the utility.
?????A hearing is scheduled in El Centro today in another lawsuit filed by a
small energy producer, an Imperial Valley geothermal producer that sued
Edison for refusing to let it break its contract and sell on the open market.
CalEnergy says Edison owes it about $140 million for energy sold since
November.
?????A company spokesman, Jay Lawrence, said CalEnergy was going ahead with
its suit despite Davis' proposal. "We've had promises before," he said.
?????In other developments:
?????* A federal judge in Sacramento on Wednesday ordered Reliant Energy of
Houston, a major producer, to continue selling power to California during
emergencies, despite the company's argument that it may not be fully
reimbursed. The order will remain in effect for 60 days or until the U.S.
Federal Energy Regulatory Commission decides a related case.
?????* Connell said the state budget surplus has shrunk to $3.2 billion
because the state has spent roughly $2.8 billion on electricity. She
criticized the administration for withholding basic information about state
finances, and said she will begin an audit on Monday of the Department of
Water Resources, which is responsible for purchasing power.
?????Davis' aides said Connell took her action because the Democratic
governor endorsed one of Connell's foes this week in the race for Los Angeles
mayor, former Assembly Speaker Antonio Villaraigosa. A Connell aide scoffed
at the notion.
?????* Sen. Dianne Feinstein (D-Calif.) said she "never has had a response"
from President Bush after writing him last month for an appointment to
discuss the California energy crisis.
?????In a wide-ranging lunch talk with reporters in Washington, she deplored
the fact that "huge, huge profits are being made" in the California crisis,
and said "an appropriate federal role" would be to guarantee a reliable
source of power until the state can get nine new generators online.
---
?????Times staff writers Mitchell Landsberg in Los Angeles and Robert L.
Jackson in Washington contributed to this report.
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Net Complex A Dilemma For San Jose
SERVER FARM: Plant would tax grid
David Lazarus, Chronicle Staff Writer
Thursday, March 22, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/03/22/M
N236772.DTL
San Jose, while trying to block construction of a new power plant, is set to
approve a vast computer complex that could overwhelm California's already
strained power grid.
City officials gave preliminary approval last week to what would be the
world's largest "server farm." The sprawling facility to handle Internet
traffic would drain about 150 megawatts of power from the state electricity
grid.
If granted final authorization on April 3, the $1.2 billion project would add
the equivalent of about 150,000 homes to California's power system, which was
hit this week by rolling blackouts as demand for juice outstripped available
supply.
The server-farm issue highlights a vexing dilemma for the state.
On the one hand, Gov. Gray Davis is calling for widespread conservation to
help California overcome its current troubles. On the other, no one wants to
curtail growth of the high-tech industry, which is an engine for economic
vitality.
"San Jose will make a lot of money from this project," said Craig Breon,
executive director of the Santa Clara Valley Audubon Society. "But to not
help the state out of its energy situation, there's a fair amount of
hypocrisy going on."
The server farm would be owned by U.S. DataPort, a San Jose data-management
firm. As planned, it would occupy 10 buildings on more than 170 acres in the
city's Alviso area.
Total projected energy use would be 180 megawatts. About 30 megawatts would
be generated by a small on-site facility, and the rest would have to be
provided by Pacific Gas and Electric Co.
"We're confident that the DataPort project will be approved because it's very
important to San Jose and to the local economy," said San Jose Mayor Ron
Gonzales.
But PG&E already is saying that its power cupboard is bare. The utility "does
not have sufficient existing electric infrastructure" to meet U.S. DataPort's
needs, it said in a recent letter to San Jose officials.
John Mogannam, U.S. DataPort's senior vice president of operations, countered
that it could take as long as five years for the server farm to grow big
enough to require the full 150 megawatts from the state grid.
"Hopefully, by then the whole energy crisis will pass by, and we won't have a
problem," he said.
Mogannam stressed the positive aspects of the project, such as its ability to
handle about 15 percent of global Internet traffic, the 700 jobs it would
create, and the $70 million over 10 years it would generate for San Jose in
property and utility taxes.
"That's why the city likes it," he said.
Indeed, San Jose officials are so enamored with such developments that they
have all but turned a deaf ear to warnings that the server farm will
exacerbate California's already dire power shortage.
Andrew Crabtree, the city's senior planner, said the planning commission had
barely touched the question of energy supply when it approved the server farm
last week.
"It wasn't incumbent on the commission to solve the state's energy-supply
problems," he said.
Rather, San Jose city planners focused on the environmental ramifications of
the proposed facility, including air pollution from diesel generators and the
impact on nearby wildlife.
How it would affect dozens of burrowing owls in the area was a key topic of
discussion.
"We all recognized that there's a power shortage," Crabtree said. "But we
couldn't do anything about that with this project."
Except to make things tougher, of course.
Server farms run 24 hours a day, seven days a week. They are an aspect of the
high-tech boom that was never foreseen by energy experts, and which are now a
major contributor to California's surging electricity demand.
A server farm essentially is a large building filled with computers. Each
computer handles the Web site or Internet traffic for hundreds of corporate
clients that do not have the technical resources to look after such things
in- house.
Most server farms consume between 10 and 60 megawatts of power. At 180
megawatts, the U.S. DataPort facility is billed as the most extensive data
center on the planet.
"There won't be another this size anywhere in the world," said Mogannam, the
company's senior vice president. "This will be the biggest."
With such a vast scale, however, comes additional concerns. For example, all
that hardware will generate huge amounts of heat, requiring powerful air
conditioners running around the clock to keep things cool.
Patrick Dorinson, a spokesman for the Independent System Operator, which
oversees California's electricity network, said server farms had "a big
impact" on the state's tight energy supply.
"We have an economy that's increasingly based on delivery of information," he
observed. "We certainly need to make sure we're building adequate generation
and transmission to get it there."
As it stands, no major power plants have been built in California for the
past 12 years, while dozens of server farms have sprung up throughout the
state.
The Yankee Group, a Boston consulting firm, estimates that the amount of
space taken up by server farms nationwide rose to 9 million square feet from
1999 to 2000.
By 2003, it expects that figure to increase to 25 million square feet, or
enough room for more than a hundred 10-story office buildings.
San Francisco may be the exception. Supervisor Sophie Maxwell proposed
interim zoning controls last week that would require server farms to receive
special permission from City Hall to operate.
San Jose, for its part, has no such reservations. It does, however, draw the
line at big, fat power plants in the backyard of the city's leading corporate
citizen.
Gonzales is spearheading opposition to a proposed 600-megawatt generating
facility in Coyote Valley because of its proximity to a residential area at
the site of a planned Cisco Systems office complex.
"There's plenty of opportunities to generate power in the city," he said.
"This project is just in the wrong site."
The matter is now in the hands of the California Energy Commission, which is
expected to issue a ruling by May.
Cisco, critics say, twisted the mayor's arm to fight the plant because it did
not want a generating facility in its neighborhood. The area will be home to
thousands of well-heeled tech workers.
"It's politics," said Breon at the Audubon Society. "City officials are
making political decisions rather than good planning decisions."
Ted Smith, executive director of the Silicon Valley Toxics Coalition, a
grassroots organization, is calling for a moratorium on construction of all
new server farms in the South Bay until sufficient power can be found to keep
them running.
"Until they figure out how to build these things without draining the
electricity grid even dryer it is, they shouldn't build them," he said.
"The Internet industry is creating unintended consequences that will really
screw up our future," Smith added. "They are so busy focusing on next
quarter's profits that they don't stop and think about the consequences." .
.
SOME FAST FACTS ABOUT 'SERVER FARMS'
.
-- What are they? "Server farms" are facilities dedicated exclusively to
housing powerful computers for Internet use.
-- Who uses them? Companies and individuals pay server farms to maintain
their Web sites, handle Net traffic and store vast amounts of data --
functions that otherwise would require extensive hardware and technical
support.
-- Why do they use them? As Internet use explodes, server farms play an
increasingly vital role in managing data and keeping information moving.
-- What's the problem? Server farms drain considerable amounts of electricity
to keep running.
E-mail David Lazarus at dlazarus@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?A - 1
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Contracts Won't Meet Summer Demands
DETAILS: 2004 before full impact felt
Lynda Gledhill, Chronicle Sacramento Bureau
Thursday, March 22, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/03/22/M
N230640.DTL

Sacramento -- Long-term power contracts negotiated by the state won't cover
California's entire demand for electricity until 2004, according to newly
released details about the agreements.
The information suggests that California might have to scrounge for
electricity on the high-priced spot market for a couple more years even as it
continues to push conservation efforts and construction of more generating
plants.
Details of the agreements released by Gov. Gray Davis' administration show
that the contracts will provide for just over a third of the state's demand
for power this year. Energy secured by the contracts will grow to meet the
expected demand in three years.
Short-term purchases of power have at least temporarily depleted the state's
budget surplus and have raised the possibility of sharp rate increases
sometime in the future for electricity customers.
Davis administration officials are banking on the hope that conservation
efforts and increased generating capacity will cover the shortfall along with
purchases of electricity on the spot market.
"We're facing an extreme challenge still this summer," said Severin
Borenstein, head of the University of California at Berkeley Energy
Institute. "Signing contracts doesn't create more electricity."
The information released did not include the names of companies that the
state has signed contracts with or the purchase prices.
The sketchy details did not satisfy frustrated lawmakers, who said many
questions remain, especially how much the state will end up paying under the
terms of the contracts.
"The fundamental question is how much is it costing the state of California
to keep the lights on," said Assemblyman Tony Strickland, R-Thousand Oaks.
"What we really need is total disclosure."
The state started buying power in January, after generators began refusing to
provide electricity to the state's investor-owned utilities. Pacific Gas and
Electric Co. and Southern California Edison say they have more than $13
billion in past debt.
The state has been spending $49 million a day on power purchases since Jan.
17, according to documents obtained by The Chronicle last week.
Those documents said the average price of the contracts across 10 years is
$69 per megawatt hour, including summer peak. The five-year average price is
$79 per megawatt hour.
According to one chart provided by the governor's office yesterday, the
long-term contracts will fall about 35 million megawatt hours short in 2002.
Based on the average price per megawatt hour the state has been paying since
January, that could end up costing between $6.6 billion and $13 billion.
The law creating the state purchasing authority allowed purchases up to $10
billion and extends until 2003.
The governor's office said 21 contracts have been signed and another 23
agreements that have been reached but not yet signed.
Several generators have said that they will not sign contracts with the state
until the back debt by the utilities has been taken care of.
"We have some real potential problems," said Senate President Pro Tem John
Burton, D-San Francisco.
Strickland and several media outlets, including The Chronicle, have filed
public information requests to get more information about the prices of the
contracts from the administration.
Releasing the information would jeopardize the negotiations for future
contracts, said Steve Maviglio, Davis' spokesman.
Lawmakers, also frustrated by the lack of information given out by the Davis
administration, were not given notice that the information was coming, and
many said it was lost in their mail pile.
The cover letter was on Los Angeles Department of Water and Power letterhead,
not that of the administration. The letter was written by S. David Freeman,
head of the Los Angeles system who was on leave for the month of February to
help the state negotiate the contracts.
Assemblyman George Runner, R-Lancaster, said the "ambiguity of the
information raises more questions than it answers."
"It's like watching a parade through a peephole," he said. "He's showing us
another float, but I don't know what the parade looks like."
Blaming the state's purchases of electricity, Controller Kathleen Connell
said yesterday that the state's cash on hand had fallen from $8.5 billion in
January to $3.2 billion. Connell ordered an audit of the state's power
buying.
Connell said she would block a transfer sought by the Davis administration of
$5.6 billion from the general fund to the state's emergency reserve account,
claiming it would lead to a ''serious cash flow crisis."
The transfer, however, is not related to the energy crisis. The sum
represents a routine rollover of unspent money from the previous fiscal year.
State law requires that money to be sent to a special reserve account for
emergencies.
Davis officials acknowledged that $3.7 billion in energy purchases have had
an impact on state coffers, but they say the state will be repaid once bonds
are issued in the coming weeks. They also said the state typically has its
lowest cash reserves at this time of year. That changes in mid-April when a
flood of income tax revenue pours in.
"The transfer has nothing to do with energy purchases," said Sandy Harrison,
a spokesman for the Department of Finance.
"It's not helpful to ratepayers, taxpayers and people who want their lights
to stay on to have the issue muddied with this sort of inaccurate innuendo,"
Harrison said.
In other developments yesterday:
-- After two days of statewide rolling blackouts, power grid managers avoided
outages. Demand was lower because of cooler temperatures around the state and
supply increased as several power plants completed repairs.
-- A federal judge in Sacramento ordered a major power generator to continue
supplying power to California. Reliant Energy Services Inc. had insisted that
it should not be forced to sell to debt-heavy utilities unless the state
guaranteed the bills.
Chronicle staff writer Greg Lucas contributed to this story. / E-mail Lynda
Gledhill at lgledhill@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?A - 1
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California overcharged $5.5 bln for wholesale power
SACRAMENTO, Calif. (AP) -- Electricity wholesalers overcharged California
$5.5 billion over the past 10 months, according to a report by managers of
the state's power grid.
The five companies, among other things, frequently offered electricity at
prices double what it cost them to produce, concludes the California
Independent System Operator study, which was published Thursday in the Los
Angeles Times.
``All overcharged, but some excessively and some by moderate amounts,'' said
Anjali Sheffrin, the ISO's director of market analysis.
The Times said the ISO planned to file the study with federal regulators
Thursday and are demanding that the money be paid back.
The companies denied the allegations, adding they expect the Federal Energy
Regulatory Commission will determine their prices were justified.
The commission has recently stepped up its scrutiny of power companies'
behavior during California's power crisis, asking suppliers to justify $124
million in sales during the first two months of the year or refund the money.
Critics claim thousands of additional questionable sales are not being
challenged.
The ISO study alleges the wholesalers manipulated the market by bidding at
excessive prices, effectively withholding supplies, or by not bidding at all
when they had generation capability available.
California has been spending about $45 million a day -- $4.2 billion since
January -- to purchase power for Pacific Gas and Electric Co. and Southern
California Edison. Both utilities, the state's largest, have been cut off by
electricity wholesalers because their credit is almost worthless.
State Controller Kathleen Connell said Wednesday that the state's
power-buying is gutting its budget surplus. Since the state started making
emergency power buys, the surplus has fallen from $8.5 billion to about $3.2
billion, she said.
A federal judge issued a preliminary injunction Wednesday ordering a major
electricity wholesaler, Reliant Energy Services, to continue selling to
California despite its fear that it will not be paid.
U.S. District Judge Frank C. Damrell Jr. said Californians were at risk of
irreparable harm if Reliant stopped selling power to the ISO, which buys it
at the last minute on behalf of utilities to bolster supplies and try to fend
off rolling blackouts.
Such blackouts hit the state twice this week. On Wednesday, cooling
temperatures and the completion of repairs at several power plants allowed
the state to avoid blackouts.
Standard & Poor's has put the state on a credit watch due to its power
purchases and chastised Gov. Gray Davis, the Legislature and state regulators
for not taking more aggressive steps to make sure the utilities can pay their
bills.
Edison and PG&E say they are nearly $14 billion in debt due to soaring
wholesale power costs. The state's deregulation law blocks them from
recovering the costs from customers.
Connell ordered an audit of the state's power-buying, saying Davis is
withholding key financial information from her office and the Legislature.
She said she would refuse to transfer $5.6 billion into a ``rainy day fund''
she said was set up to impress Wall Street as the state prepares to issue $10
billion in revenue bonds to cover its power buys. Transferring the money
would leave the state general fund $2.4 billion in debt, Connell said.
She called the scope of the proposed transfer unprecedented and said it
amounted to a ``shell game'' that disguises the power purchases' effect on
the state budget.
Sandy Harrison, spokesman for the state Department of Finance, and Keely
Bosler, of the Legislative Analyst's Office, said such transfers are routine
and required by law. They put the state's budget surplus at $5.6 billion.
``The law says she has to do it. The law does not give her the power to
demand that kind of audit information,'' Harrison said.
Harrison said the state's budget isn't in danger because it will be repaid
with the revenue bonds.
Connell's criticism of Davis, a fellow Democrat, won support from Assembly
Republicans and Secretary of State Bill Jones, a Republican who may challenge
Davis next year.
Jones said he wants to announce his own plan to solve the state's energy
woes, but can't unless Davis releases more financial details.
Davis spokesman Steve Maviglio dismissed the criticism.
``Political grandstanding doesn't generate one more kilowatt of energy for
California in this time of emergency,'' he said.
Maviglio said the administration has released the financial information it
can without jeopardizing negotiations for long-term power contracts with
wholesalers.

------------------------------------------------------------------------------
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----------------------------

If the power goes off
Thursday, March 22, 2001
For most of us, rolling power blackouts are a nuisance. For some people, it
could mean life or death.
"In Laguna Hills, cancer patient Ruben Marquez said the blackout interrupted
and prolonged his dialysis treatment. He was unharmed," the Register reported
on Monday's blackouts, which hit about 1.2 million Californians, including
100,000 Orange County homes and businesses.
What can people do to prevent disaster?
"They and their families should have a backup plan," Rebecca Long,
spokesperson for the Orange County Red Cross, told us.
"The Red Cross recommends in general that you plan for this as you would for
any disaster, making sure you have battery-operated radios and flashlights.
We do not recommend candles for an emergency," because of the fire hazard.
She recommended a Web site: www.prepare.org
People with special health needs, such as electric-powered respirators and
oxygen machines, also should register with the power company.
"There's a whole classification" for such persons with health needs, Southern
California Edison spokesperson Clara Potes-Fellow told us.
"The list is for us to alert them that the power could be discontinued. They
arrange to have power through other means, batteries or generators. We
recommend that they have a battery backup of eight hours. Therefore, if the
rotating outages are one hour, they will have plenty."
Even though the power company has such people's names, she said, "we don't
inform them in advance because we have just minutes from when the Independent
System Operator," which directs where the electrons go, orders Edison to
implement a power outage on the grid Edison owns. "By the time it took to
call people, the outage would be over."
What's the problem at the ISO? "We notify as best we can," Pat Dorinson, ISO
director of communications, told us.
"The object is to keep the lights on. Sometimes it's just a moment's notice"
before a blackout. "It makes [giving more notice] pretty difficult. We're
looking into ways to make the system better."
In the meantime, citizens will have to keep taking precautions.
We can't help noting that free market pricing, instead of politically-driven
prices, would much more likely make electricity available, albeit at higher
prices.
We would expect, too, there would be hardship allowances, donations and
level-pay plans to accommodate various types of needs.

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Socialized electricity
Thursday, March 22, 2001
Government control of state power won't add one watt for consumers' use

TOM MCCLINTOCK
Sen. McClintock, R-Thousand Oaks, represents the 19th state Senate District
in the state Legislature.

In a city where bad ideas never die, Sacramento is once again host to a
variety of plans for the government takeover of California's power system.
The private sector, it is said, has done such a terrible job of providing
electricity that government must now step in to save the day. Thus, the
Legislature is awash in proposals to spend billions of dollars of public
money to acquire existing power facilities. Fifteen billion dollars has
already been authorized for this purpose, and an additional $10 billion is
pending in the Senate.
Meanwhile, Gov. Davis is losing about a $1.5 billion a month day-trading in
the electricity market. The irony is that after the expenditure of as much as
$25 billion for "public power,'' not a single inch will have been added to
the transmission lines, nor a single watt to the generating capacity of
California.
The root of California's crisis is a catastrophic shortage of electricity. In
a shortage, prices rise or blackouts occur. To reduce prices and avoid
blackouts, the only permanent solution is to increase the supply. Merely
changing the ownership of existing facilities leaves Californians with
exactly the same shortage, only billions of dollars the poorer for it.
Government takeover advocates argue that at least a government power
authority will protect consumers against price gouging and poor management.
Unfortunately, government power authorities don't insulate against price
gouging. The biggest price gouger in this entire crisis has been the Los
Angeles Department of Water and Power, which was generating electricity for
$51 per megawatt hour and selling it back to California ratepayers for as
much as $1,400.
Nor does a government takeover assure better management. Just a few years
ago, the LADWP was buried in $7 billion in debt. The Sacramento Municipal
Utilities District was a managerial laughing stock, having squandered
hundreds of millions of dollars for a nuclear plant it barely used.
"Say what you will,'' the government takeover advocates reply, "when push
came to shove, the municipal utility districts of California are in great
shape, while the private utilities are a basket case.'' But one needs to look
at the reason. Ever since the state reorganized the electricity market in
1996, the municipal utility districts were allowed to trade in a free market,
while the private utilities were forced to buy power exclusively in a
Soviet-style power exchange where the highest bid during an hour set all
prices.
The municipal utilities were able to retain their generators. Government
forced the private utilities to sell theirs. The municipal utilities were
able to enter into long-term contracts. Government prevented the private
utilities from doing the same thing. The municipal utilities were able to
negotiate the lowest prices available for power. Government forced the
private utilities to pay the outlandish prices on the government's power
exchange. The municipal utilities were allowed to adjust their rates to
reflect the actual cost of power to consumers. Government forced the private
utilities to sell at astronomical losses.
The final argument is simply an ideological one: that power is just too
important to be left in private hands. Really? Food is a great deal more
important and private hands have kept this nation well fed for centuries.
Picturing the Department of Motor Vehicles running the local supermarket
should sober even the most euphoric of the government takeover advocates.
California's Independent System Operator is predicting a 6,000-megawatt
shortfall this summer. When there is no electricity on the transmission
lines, it really won't matter who owns them. During the hottest hours of the
hottest days of the year, when as many as 6 million homes are without
electricity, it may begin to dawn on most people that socialism doesn't work
any better in California than it did in the Soviet Union.

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NEWS
Bush's Energy Policy Will Backfire, Feinstein Warns / She wants federal price
controls now
Carolyn Lochhead

03/22/2001
The San Francisco Chronicle
FINAL
Page A.3
(Copyright 2001)
Sen. Dianne Feinstein, D-Calif., warned yesterday that when blackouts
intensify in California this summer, the pressure will intensify on the Bush
administration to explain why it rejected price controls on wholesale
electricity.
"If by this summer California is, as anticipated, facing these blackouts, and
the federal government won't help, I don't think the American people are
going to be very pleased," Feinstein told California reporters.
Asked if help means the cost-based price controls Feinstein is pushing, she
said, "Right now, yes."
Feinstein said California Democrats will begin to escalate their criticism of
the administration, predicting that support will build among Western senators
for her legislation to impose price caps on wholesale electricity in exchange
for lifting the rate cap on California consumers.
If it passes, she said, "the administration is really going to have to face
whether they're going to help or not help."
Feinstein said House Democrats from the West Coast also told her they expect
that White House inaction on price caps would help them gain seats in 2002.
But she refused to speculate on the political fallout from the energy crisis
against Democrats in California .
Feinstein characterized Energy Secretary Spencer Abraham's adamant arguments
against price controls as "recalcitrant," saying his statement to a Senate
committee last week "essentially said California 's on its own."
She speculated that because " California is dominantly Democratic, even
somebody like me that works across party lines is beginning to wonder if this
isn't an unnecessarily barbed stick at California ."
White House spokesman Ken Lisaius disputed the charge, saying the Bush
administration is doing all it can, but can't control that demand is
outstripping supply.
"The federal government cannot prevent blackouts, but can only help at the
margins in situations like this," Lisaius said. "The only thing that can
prevent blackouts is reduced demand, increased supply and good weather."
Abraham has twice in the last week argued strongly against price controls,
including the cost-based ones Feinstein advocates, saying they could increase
blackouts by discouraging power sales into the Western electricity grid.
He also said many power providers, including the federal Bonneville Power
Administration in the home district of Sen. Gordon Smith, the Oregon
Republican co-sponsoring Feinstein's bill, would be exempt from federal price
caps. Feinstein disputed that, but Smith's office agreed.
Abraham argued that price controls would not work in part because roughly
half the Western electricity market would be exempt, including federal power
marketing authorities such as Bonneville, rural electric cooperatives and
municipal utilities such as the Los Angeles Department of Water and Power.
On another front, House Republicans omitted from their budget projected
revenues from opening part of the Arctic National Wildlife Refuge to oil and
gas exploration.
A Budget Committee spokeswoman said Chairman Jim Nussle, R-Iowa, determined
that the $1 billion in revenues from the wildlife refuge the Bush
administration included in its budget were not needed and that there was "no
reason to put in something that controversial, that some of our members don't
even like, when you don't have to."
But Rep. Gary Miller, R-Diamond Bar (Los Angeles County) said House
Republicans "are not backing off at all" from opening the wildlife refuge to
drilling. "Our goal is to get it passed in the House," he said, saying the
Budget Committee omitted the revenue projections because the drilling has not
yet been approved.

PHOTO; Caption: Sen. Dianne Feinstein wants to cap wholesale electricity
costs and end caps on con- sumer rates.
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Reliant Still In Power Pact Talks With Calif. DWR
By Christina Cheddar

03/22/2001
Dow Jones News Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)
Of DOW JONES NEWSWIRES

  (This report was originally published late Wednesday.)

NEW YORK -(Dow Jones)- Reliant Energy Inc. (REI) remains in discussions with
the California Department of Water Resources to sign long-term power
contracts.
However, issues regarding the creditworthiness of the agency remain, said Joe
Bob Perkins, president of Reliant's Wholesale Division.
"We want to be part of the solution," Perkins said. At the same time, Reliant
is trying to protect itself from incurring additional unpaid accounts
receivable, he said.
The DWR has been buying power on behalf of California 's financially troubled
utilities. However, Reliant has yet to sign a formal agreement with the
agency because Reliant is concerned it won't be paid.
During a conference call Wednesday, Perkins said he couldn't comment on a
lawsuit between Reliant and the California Independent System Operator
because he didn't know how it was progressing.
Further court action on the case is expected Wednesday.
The lawsuit stems from Reliant's desire not to be required to sell power to
California if the state won't guarantee payment. The Houston energy company
is concerned that it won't be paid for power being bought by the ISO on
behalf of Edison International's (EIX) Southern California Edison unit and
PG&E Corp.'s (PCG) Pacific Gas & Electric Co. unit.
To date, Reliant is owed "some $370 million" from unpaid power sales to the
utilities.
Much of Perkins' presentation centered on how the power crisis in California
emerged.
Using data from research firm Cambridge Energy Research Associates, the
company discussed the imbalance between California 's power demand and its
power supply.
Looking ahead to the summer, it isn't a question of whether rolling blackouts
will occur, but "how many and how severe," Perkins said.
Low hydroelectric availability, loss of imported power, warm weather, demand
growth and plant outages could lead to a worst-case scenario in California ,
he said, adding that some estimates predict California could experience 1,100
hours of power outages this summer.
The skyrocketing power prices in the region are a reflection of the power
market's imbalance, he said.
Reliant submitted only "economically sound" bids for power, Perkins said. He
expects the company can document why it charged the prices it did as required
by regulators.
"We have been very rigorous and very disciplined in what we have submitted,"
Perkins said.
He added that retail customer price increases are one way of sending a signal
to consumers to lower consumption. He cited studies that show a 20% retail
price increase could reduce consumption by 2,000 megawatts. A megawatt is
enough power to serve roughly 1,000 homes.
-By Christina Cheddar, Dow Jones Newswires; 201-938-5166;
christina.cheddar@dowjones.com
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CPUC Must Address Rates In QF Repayment Order - SoCal Ed

03/22/2001
Dow Jones Energy Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)
(This article was originally published Wednesday)

LOS ANGELES -(Dow Jones)- Any order from the California Public Utilities
Commission requiring utilities to pay small, independent generators going
forward must determine how that could be done within the existing rate
structure, a spokesman for Edison International (EIX) utility Southern
California Edison said Wednesday.
The utility was responding to a PUC proposed decision that would require
utilities to pay small generators, called qualifying facilities, $79 a
megawatt hour within 15 days of electricity delivery. The decision will be
voted March 27 by the CPUC.
"We're still reviewing (the decision) and should have more to say in a day or
two. To the extent that the commission orders us to pay going forward of
course we will. But it needs to address how we will pay the QFs," a SoCal
Edison spokesman said.
SoCal Edison and PG&E Corp. (PCG) unit Pacific Gas & Electric Co. are
struggling under nearly $13 billion in uncollected power costs due to an
inability to pass high wholesale power costs to customers under a rate
freeze.
Gov. Gray Davis Tuesday blasted the utilities for not having paid their QF
bills in full since December. Pacific Gas & Electric Co. has made some
partial payments to QFs, but SoCal Edison has paid nothing. Together, they
owe the QFs about $1 billion, but the order doesn't address that debt.
An Edison executive said, in reaction to the governor's sharp comments, that
the company simply doesn't have the money to pay creditors.
"The root problem here is there just isn't enough money in the current rate
base to pay our bills," said Edison Senior Vice President of Public Affairs
Bob Foster. "We understand the financial distress (the QFs) face; we are
facing financial distress ourselves."
The proposed PUC order would also require the state's investor-owned
utilities to offer the small generators five- and 10-year contracts for power
for $79/MWh and $69/MWh, respectively.
The QFs "may be able to live with" the PUC proposal, but the five- and
10-year contract prices may be inadequate if natural gas prices at one of the
California borders are high, said Jan Smutny-Jones, president of the
Independent Energy Producers Association. Natural gas prices into California
are currently higher than anywhere in the country.
But some say the proposed decision may not be enough to prevent the QFs from
filing involuntary bankruptcy proceedings against the utilities for the money
they are still owed.
"There's still a lot of skepticism. To say our position has changed based on
the CPUC decision or the governor's announcement is not accurate. A lot still
has to happen," said Jay Lawrence, a spokesman for a renewable creditors
committee.
-By Jessica Berthold, Dow Jones Newswires; 323-658-3872;
jessica.berthold@dowjones.com
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Calif Small Pwr Producers To Shut Plants If Rates Capped
By Jason Leopold

03/22/2001
Dow Jones Energy Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)
Of DOW JONES NEWSWIRES

(This article was originally published earlier Thursday.)

LOS ANGELES -(Dow Jones)- Many of California 's independent power producers
late Wednesday threatened to take their small power plants offline this week
if state lawmakers pass legislation that would cap the rates the generators
charge for electricity they sell directly to the state's three investor-owned
utilities.
At issue is a bill that would repeal a section of the state's Public
Utilities Code, which links the 688 so-called qualifying facilities'
electricity rates to the monthly border price of natural gas.
Lawmakers, however, are poised to pass the legislation.
State regulators are then expected to approve a measure that would
restructure the fluctuating rates the QFs charge PG&E Corp. (PCG) unit
Pacific Gas & Electric , Edison International (EIX) unit Southern California
Edison, and Sempra Energy (SRE) unit San Diego Gas & Electric from $170 a
megawatt-hour to $69-$79/MWh, regardless of the price of natural gas.
Whereas each of the 688 QF contracts differed, largely because natural gas
prices are higher in Southern California than Northern California , the state
wants the QFs to sign a general contract with the utilities.
The cogeneration facilities, which produce about 5,400 megawatts of
electricity in the state, said the rates are too low and they won't sign new
supply contracts with the utilities.
"For $79/MWh, natural gas would have to be $6 per million British thermal
unit at the Southern California border," said Tom Lu, executive director of
Carson-based Watson Cogeneration Company, the state's largest QF, generating
340 MW. "Our current gas price at the border is $12.50."
Other gas-fired QFs said the state could face another round of rolling
blackouts if lawmakers and state regulators pass the legislation, which is
expected to be heard on the Senate floor Thursday, and allow it to be
implemented by Public Utilities Commission next week.
Lu, whose company is half-owned by BP Amoco PLC (BP) and is owed $100 million
by SoCal Ed, said the proposals by the PUC and the Legislature "will only
make things worse."
David Fogarty, spokesman for Western States Petroleum Association, whose
members supply California with more than 2,000 MW, said the utilities need to
pay the QFs more than $1 billion for electricity that was already produced.

  State Loses 3,000 MW QF Output Due Of Financial Reasons

The QFs represent about one-third, or 9,700 MW, of the state's total power
supply. Roughly 5,400 MW are produced by natural gas-fired facilities. The
rest is generated by wind, solar power and biomass.
About 3,000 MW of gas-fired and renewable QF generation is offline in
California because the power plant owners haven't been paid hundreds of
millions of dollars from cash-strapped utilities SoCal Ed and PG&E for nearly
four months.
Several small power plant owners owed money by SoCal Ed have threatened to
drag the utility into involuntary bankruptcy if the utility continues to
default on payments and fails to agree to supply contracts at higher rates.
The defaults have left many of the renewable and gas-fired QFs unable to
operate their power plants because they can't afford to pay for the natural
gas to run their units. Others continue to produce electricity under their
contracts with the state's utilities but aren't being paid even on a forward
basis.
The California Independent System Operator, keeper of the state's electricity
grid, said the loss of the QF generation was the primary reason rolling
blackouts swept through the state Monday and Tuesday.
Gov. Gray Davis, recognizing the potential disaster if additional QFs took
their units offline, held marathon meetings with key lawmakers Monday and
Tuesday to try and hammer out an agreement that would get the QFs paid on a
forward basis and set rates of $79/MWh and $69/MWh for five and 10 year
contracts. He also said he would direct the PUC to order the utilities to pay
the QFs for power they sell going forward.
"After next week the QF problem will be behind us," Davis said Tuesday. "We
want to get the QFs paid...the QFs are dropping like flies...and when that
happens the lights go out."
But this just makes the problem worse, said Assemblyman Dean Florez,
D-Shafter, a member of the Assembly energy committee.
"I don't know how we are going to keep the lights on," Florez said in an
interview. "Many of these congenerators are in my district. They said if the
legislation doesn't change they are going offline. This compounds the issue
of rolling blackouts, especially now when we need every megawatt."
Davis, who didn't meet with people representing the QFs, said he was handing
the QF issue to the PUC because lawmakers failed to pass legislation that
would have set a five-year price for natural gas and allow the QFs to sign
individual contracts with the utilities. In addition, SOCal Ed opposed the
legislation, saying the rates should be below $50/MWh.
Some renewable power producers said they aren't vehemently opposed to the new
rate structure because it guarantees them a higher rate than what was
originally proposed.

        QFs Want Third Party Supply Contracts

John Wood, who represents the SoCal Ed Gas Fired Creditors Committee, one of
a handful of groups that have formed since January to explore options on
getting paid by the utilities, said his group of gas-fired QF creditors want
to be released from their supply contracts and sell to third parties.
"Under our plan, we would be permitted to sell electricity to third parties
(including the state Department of Water Resources) until a resolution to the
crisis can be accomplished," wood said.
Hal Dittmer, president of Sacramento-based Wellhead Electric in Sacramento,
which is owed $8 million by PG&E, has 85 MW of gas-fired generation units
offline.
Under the state's plan, Dittmer said he risks going out of business.
"I can't buy natural gas for what I would be paid under this decision," he
said. "The state needs to quit kidding themselves that they don't need to
raise electricity rates. All of this is being driven by an artificial
construct that California can avoid raising rates."

-By Jason Leopold, Dow Jones Newswires; 323-658-3874;
jason.leopold@dowjones.com