Please see the attached articles:

SD Union, Sun, 6/3:  Poor find more red tape than federal energy aid

SD Union, Sun, 6/3: Top energy adviser confident of gaining pact for L.A.
surplus

SD Union, Sun, 6/3: Energy firm ties enriched top advisers to president

SD Union, Sun, 6/3: Report: State may have little money left to head of
blackouts

SD Union, Sat, 6/2: San Onofre reactor back on line, sending power to state
grid

SD Union, Sat, 6/2: State files to manage energy on its own

SD Union, Sat, 6/2: Escondido not running power plant process, ex-official
says

SD Union, Sat, 6/2: PG&E bankruptcy judge won't challenge state regulation

SD Union, Sat, 6/2: New majority leader says nay to electricity price caps

LA Times, Sun, 6/3: Watchdogs Take a Hit in State's Power Ills

LA Times, Sat, 6/2: Duke Charged Record Price for Electricity

LA Times, Sat, 6/2: Incoming Senate Leader Daschle Lukewarm on Power Price
Caps

LA Times, Sat, 6/2: PUC May Trip Bailout of Edison

LA Times, Mon, 6/4: Better Than Bankruptcy        (Commentary)

SF Chron, Mon, 6/4:  Electricity usage shrinks by 11%
State's consumers beat goal set by governor

SF Chron, Mon, 6/4:  Enron is my spiritual teacher   (Commentary)

SF Chron, Mon, 6/4:  Change in Senate control slows Bush's energy plan

SF Chron, Mon, 6/4:  Developments in California's energy crisis

SF Chron, Mon, 6/4:  Electricity usage shrinks by 11%
State's consumers beat goal set by governor

SF Chron, Mon, 6/4: Gov. Davis -- please act

SF Chron, Mon, 6/4:  Power buying by cities gets Assembly OK
S.F. could contract for cheaper electricity if bill becomes law

SF Chron, Sun, 6/3:  Critics say FERC ignored California's deregulation flaws

Mercury News, Mon, 6/4: New market overwhelms U.S. agency

Mercury News, Mon, 6/4: U.S. agency's actions invited power disaster

Mercury News, Mon, 6/4: Gov. Davis, by failing to act, is to blame for energy
crisis (Commentary)

OC Register, Mon, 6/4:  Conservation paying off

OC Register, Mon, 6/4:  O.C. firms' energy-saving moves

Individual.com (Businesswire), Mon, 6/4:  Pacific Gas and Electric Company
Launches
Campaign to Enhance Outage Preparedness; State Predicts More Power Shortages
In Coming Weeks And Months

Individual.com (Businesswire), Mon, 6/4:  PG&E Issues Statement After Court
Decision
On Its Request for Stay

WSJ, Mon, 6/4:  The Pros and Cons of Power Price Caps

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Poor find more red tape than federal energy aid

By Jeff McDonald?
UNION-TRIBUNE STAFF WRITER
June 3, 2001
When George W. Bush arrived in California last week for the first time as
president, he quickly reaffirmed his belief that temporary price caps would
do nothing to reverse the runaway energy costs plaguing the Golden State.
Bush did, however, offer to stir an extra $150 million into the pot of
government money doled out each year to help poor families pay their utility
bills.
If lawmakers approve that gesture, a share of those proceeds could end up at
Metropolitan Area Advisory Committee, known as MAAC, and Campesinos Unidos
Inc., the only agencies through which federal energy-assistance dollars
headed into San Diego County may pass.

For some, that is a worrisome prospect.
The two nonprofit organizations oversee millions of dollars in government
assistance to low-income San Diego-area families that need help meeting their
energy payments and weather-proofing their homes.
For hundreds of senior citizens on fixed incomes and cash-strapped households
struggling to stay afloat, applying for the Low-Income Home Energy Assistance
Program can be an impossible task.
Office hours can be sketchy. Telephone messages often go unanswered.
Applications by mail are returned for minor omissions, pushing back relief
for desperate people with overwhelming debt or pending shut-off notices.
"I've been on the phone for two solid weeks and nobody tells me anything,"
said Brenda Hunt, a crossing guard from Santee who has been trying to secure
help paying down a $1,500 utility bill racked up by her elderly parents.
"It's frustrating."
The federal program started in the 1970s as a modest effort to help poor
families. At the time, it was minuscule by Washington standards. The energy
assistance program since has ballooned into a $1.8 billion appropriation.
The cost of administering the block grants and complying with onerous
reporting rules often diverts resources from their primary purpose.
Huge chunks of money intended for social services and energy assistance
instead pay for salaries, lawyers, accountants, travel bills and a range of
unspecified expenses, a review by the Union-Tribune has found.
"The irony is the government demands a high level of reporting, but doesn't
want to look at it very closely," said Peter Manzo, who directs the Center
for Nonprofit Management in Los Angeles. "It's a real administrative burden."
Last year, with special emergency allocations, MAAC and Campesinos Unidos
received more than twice the federal money for low-income energy assistance
-- and aided more than twice as many clients -- than they had in each of the
two previous years.
Campesinos Unidos, Spanish for "united farm workers," is an Imperial
County-based social service agency that received more than $4 million last
year to help needy families with utility bills, and millions more to run
preschool and other programs. It provided energy assistance to 11,500 clients
in 2000.
According to tax records required to be made public, the agency spent $4.5
million on salary and benefits for 220 employees, $260,000 on attorneys and
$178,000 on travel, among other expenses, on 1999 income of $7.2 million.
Overhead costs at MAAC also eat up 65 percent of the money taken in by the
National City-based social service agency. MAAC provides energy and housing
assistance, a preschool, and drug-and alcohol-abuse programs.
MAAC received more than $2.2 million in energy assistance grants and assisted
6,000 people in 2000.
From a total revenue of $11.1 million, MAAC paid more than $6.1 million in
salary and benefits to its 275 workers, an additional $1 million in
professional fees and almost $170,000 for phone service, recent IRS filings
show.
In outside audits required by the state, both organizations were cited for
lax records or internal financial controls. Two years ago, Campesinos Unidos
emerged from Chapter 11 bankruptcy, which it sought after paying a $600,000
judgment in a sexual harassment case.
Officials from the nonprofits say the cost of running the variety of programs
is in line with what other agencies spend. They said they meet all
restrictions attached to the money.
"We can only spend X-number of dollars on administration," said Campesinos
Unidos director Jose M. Lopez, who reports to a board made up entirely of
Imperial County residents. "We cannot spend more than the formula tells us
to."
Modest beginnings
Federal energy-assistance began as a 1974 pilot project in Maine with a
$478,000 grant. Aid expanded through the years and by 1982, the Low-Income
Home Energy Assistance Program received $1.8 billion a year.
The 2002 budget plan pitched by Bush includes $1.7 billion in
energy-assistance spending released to states in grants by the U.S.
Department of Health and Human Services. Other money is awarded by the
federal Department of Energy.
State governments disperse the funds locally, either directly to counties or
to nonprofits such as MAAC and Campesinos Unidos. Much of the money goes to
the densely populated Northeastern states to help reduce home heating costs.
In California, which ranked sixth among the 50 states with $83 million in
energy-assistance funding, the cash is distributed by the little-known state
Department of Community Services and Development.
Eleven field monitors oversee the 44 local agencies that hand out relief
dollars, and inspections are few. Four staff auditors review financial
reports filed by the agencies receiving the federal grants. No suspensions or
disciplinary action has been taken against any of the contractors, officials
say.
"We try to get out to each agency at least once every two years," said Toni
Curtis, chief deputy of the Department of Community Services and Development.
"In the interim, we do what's called a desk-monitoring evaluation."
Those reports are written by state monitors based on telephone calls to the
agencies. All agencies that give out federal money and weather-proof homes
must file bi-monthly work summaries in Sacramento.
The law requires participating agencies to spend no more than 8 percent of
the energy assistance grant money on administration. To meet that standard,
the cost of offices, staff, phone service and other needs typically is spread
around other budgets within the nonprofit structure.
Rules specify that energy assistance applications be prioritized in favor of
disabled people, seniors and families with young children. There are far more
eligible households than can be served before the money runs out.
Best-kept secret
Help for underprivileged families dealing with rising energy costs extends
beyond the federal assistance. San Diego Gas and Electric steers needy
customers to other programs funded by ratepayers, donors and state tax
dollars.
Gov. Gray Davis signed legislation last month requiring utilities to enroll
more customers in the CARE program, an under-used effort that discounts rates
for low-income customers with money paid by utility customers.
Less than 60 percent of the 225,000 households eligible for that program sign
up, a ratio that SDG&E was told to improve.
The overwhelming leader in energy subsidies is the federal low-income
assistance plan. Many San Diego County residents worry that too little of
that money makes its way to needy families.
"It's not a fair and equitable distribution of government money," said Dean
Russo, a disabled Point Loma man who qualified for a $200 credit on his SDG&E
bill after writing dozens of letters to state officials.
"It's the best-kept secret in government: that there's money available but no
outreach to tell people about it. They give out a phone number, but there's
nobody there to answer the phone."
MAAC and Campesinos Unidos set aside just a few hours a week to schedule
appointments. Because of the volume of calls they receive, getting through
can be like winning the lottery. Critics say the agencies do too little
outreach, and that they can be slow to respond to pleas for help.
Jill Van Cleve, a 61-year-old Ramona woman who gets by on disability, mailed
what she thought was a completed application for SDG&E credit early this
year. Campesinos Unidos returned the paperwork weeks later, saying it was
missing details that Van Cleve said she could have provided by telephone.
"I felt they were playing a shell game as to which documents I needed to
provide them with to establish my eligibility," she said.
Long before electricity rates spiraled out of control in San Diego County
last year, MAAC program manager Sandra Cordova heard such complaints. There
may never be enough money to help everyone who qualifies, Cordova said.
"Even when we got $2.6 million in emergency relief from President Clinton
last July, it was still not enough," Cordova said.
Questions raised
There is no general standard among charities for how much money should be
spent on administration and overhead vs. how many dollars are directed to the
cause, nonprofit consultants say.
Guidelines from the Council of Better Business Bureaus suggest that
fund-raising and administrative expenses be kept below 50 percent of the
organization's total income.
The appropriateness of nonprofit spending can be affected by a variety of
factors, but most important is the specific mission of any particular
charity, said Manzo, the Los Angeles management consultant.
"But if people aren't getting service, that's an issue," he said. "There may
be things they could be doing differently."
The paperwork can be daunting.
Tax statements filed by MAAC and Campesinos Unidos contain apparent
oversights. For the year ending June 1999, Campesinos Unidos failed to detail
the number of clients served, and reportedly paid no contractor more than
$50,000 even though it spent more than $1 million on lawyers, travel and
other services or supplies.
MAAC reported in 1999 that it paid $5.3 million to its officers and
directors, when it should have attributed that sum to all employees.
Both groups spent little or nothing on fund raising -- a management policy
that may work against the charities' missions, Manzo said. Soliciting private
donors could raise unrestricted money for additional projects.
Roger Caldwell, MAAC senior vice president, is aware of past bookkeeping
problems and said new computer software to improve the system already is on
order. Board members are weighing whether to expand fund raising, but they
worry about diverting resources from existing programs.
"We do the best we can with what we have," Caldwell said. "We're trying to
address the needs of clients. That's where we've been directing our services."

Top energy adviser confident of gaining pact for L.A. surplus

By Danny Pollock
ASSOCIATED PRESS
June 3, 2001
CALIFORNIA'S POWER CRISIS

LOS ANGELES -- California's top energy adviser vowed yesterday that the state
will get a guarantee from its biggest municipal supplier to provide power
through the summer.
"We will get (a contract) in the next few days, one way or another" from the
Los Angeles Department of Water and Power, S. David Freeman told an energy
summit in Studio City.
"We want a contract for all its surplus over the summer," he said.
Freeman, former head of the department, did not provide details. But his
remark follows recent warnings by Gov. Gray Davis that he was prepared to use
executive authority, if necessary, to obtain power from municipal utilities
and other providers at lower rates.
The governor has accused city utilities of gouging the state.
Freeman said the department, the state's largest municipal utility, has made
$300 million in profits by selling its excess power to the state's energy
grid.
During a panel discussion, department assistant general manager Henry
Martinez said the agency is continuing contract negotiations with the state.
"We're willing to negotiate .?.?. to make excess power available, but we have
to make sure the city is taken care of first," Martinez said.
Los Angeles wants to ensure it won't face blackouts or big rate increases if
it makes a long-term deal to sell some of its power, he said.
Californians are facing rolling blackouts this summer, even though Davis has
expedited the building of more than a dozen new power plants.
Freeman said new plants would ease the energy crunch, and California should
be able to meet its demand by next year. The state could begin producing
surplus power within two years, he said.
"By 2003, we will have the problem behind us," Freeman said. "We are not
fighting the war on drugs. We are breaking the back of the problem one power
plant, one efficient refrigerator and one wind plant at a time."
There were no power alerts yesterday as electricity reserves stayed above 7
percent because of lower temperatures and more power plants back on-line.
A nuclear reactor at the San Onofre Nuclear Generating Station that was shut
down in the wake of a February fire was restarted Friday. The reactor was
expected to be running at full capacity by today, cranking out enough power
for 840,000 homes.
Freeman, in his keynote speech to the summit, praised Californians for
conserving energy, noting that 9 percent less electricity in May was used
than during the same month last year.
"Our huge weapon is the market power of the people of California cutting
back," Freeman said.
He also took aim at President Bush's energy plan, which calls for oil
drilling in Alaska but offers little in the way of short-term help for
California.
"We do not need to drill in the Arctic or slash and burn what's left of
America the beautiful," Freeman told the 300 people attending the summit,
which was sponsored by Los Angeles radio station KFWB-AM.
The summit also featured Stephen Frank, chairman and CEO of Southern
California Edison, and John Stout, senior vice president of Reliant Energy.
Reliant, a Houston-based power generator, outraged state government officials
last month when it charged California $1,900 per megawatt hour of
electricity.
Another generator, Duke Energy Co. of North Carolina, confirmed Friday that
it sold electricity in California for as much as $3,880 per megawatt hour.
During the panel discussion, Stout blamed high costs on a reduction of as
much as 25 percent in hydroelectric power from the Pacific Northwest because
of a drought, and a sevenfold rise in the past year for natural gas, which
fuels generating plants.

Energy firm ties enriched top advisers to president

Enron made big push to shape Bush's policy
By Joseph Kahn
NEW YORK TIMES NEWS SERVICE
June 3, 2001
WASHINGTON -- At least three top White House advisers involved in drafting
President Bush's energy strategy held stock in Enron Corp. or earned fees
from the large, Texas-based power trading company, which lobbied aggressively
to shape the administration's approach to energy issues.
Karl Rove, Bush's chief political strategist; Lawrence Lindsey, the top
economic coordinator; and I. Lewis Libby, Vice President Dick Cheney's chief
of staff, all said in financial disclosure statements released Friday that
they had divested or intended to divest themselves of holdings in Enron, the
nation's leading trader and marketer of electricity and natural gas, as well
as holdings in other energy companies.
Lindsey received $50,000 last year from Enron for consulting. Rove's
statement said he intended to sell stock holdings in Enron valued at $100,000
to $250,000, though the statement does not make clear if he has completed the
sale. Libby sold his stake in the company.
The financial disclosures for senior White House aides show that many of
Bush's top advisers are millionaires. Among the wealthiest are Rove, Lindsey,
Libby and Andrew Card, the chief of staff, who earned $479,138.77 as chief
lobbyist for General Motors and reported assets of $810,000 to $2.1 million.
Mary Matalin, Cheney's senior counselor and a former political commentator,
reported income of more than $1.5 million last year from speaking fees and
television appearances. Her husband, James Carville, a Democratic commentator
and political adviser, made $2.1 million last year on the speaking circuit,
Matalin's financial disclosure shows.
Enron was one of the largest contributors to Bush's presidential campaign.
Kenneth Lay, the chairman, has close ties to the president, as he did to
Bush's father, and he has had considerable access to the Bush White House.
The administration's energy strategy issued last month recommended opening
protected lands to oil and gas drillers, building hundreds of power plants
and easing some environmental controls, measures strongly favored by the
industry. It suggested that the federal government exercise more authority
over electricity transmission networks, a longtime Enron goal.
Lay and other Enron officials interviewed several candidates to fill
vacancies on the Federal Energy Regulatory Commission, which regulates
Enron's main markets. Bush selected two people for the panel who were favored
by Enron and some other energy companies.
White House officials have said that Enron's views were not crucial to their
selections.

Report: State may have little money left to head of blackouts

ASSOCIATED PRESS
June 3, 2001
SANTA ANA ) If California keeps buying high-priced power at its current pace,
the $12.5 billion Gov. Gray Davis hopes to borrow to head off summer
blackouts will soon be gone, a newspaper reported Sunday.
According to a projection of the state's numbers by The Orange County
Register, the state is currently spending 66-point-nine million dollars a day
on electricity. And if it continues at this pace, it will have spent $10.4
billion ) or 83 percent ) of what it plans to borrow through a bond sale by
mid-August.
That leaves only $2.1 billion to buy future energy; and according to the
state's own estimates, its needs at least $2.7 billion to pay for such
contracts just through June 2002.
But Davis' energy team says not to worry. The outlook is brightening for the
energy supply because of new energy contracts ) some taking effect this month
) continued conservation and new power plants, administration officials told
the Register. The increased supply should drive down prices, thus reducing
the average amount the state is spending each day on energy.
"We'll have room to spare," said Davis spokesman Steve Maviglio.
However, Brad Williams, chief economist in the nonpartisan Legislative
Analyst's Office, is concerned that the governor is relying on theories.
"There's certainly a vulnerability to these assumptions," Williams said. "The
administration assumption that prices will fall is very risky."
State Controller Kathleen Connell, a Democrat, also has her doubts.
"We don't know whether the governor's estimates are correct. They haven't
been correct to date. ... I have always argued that $12.5 billion is not
going to be enough."
According to the Davis administration, it will need to repay itself only $7.9
billion of the bonds it plans to issue Aug. 14, leaving $4.6 billion )
presumably enough to buy an adequate supply of relatively cheap electricity
on long-term contracts.

San Onofre reactor back on line, sending power to state grid

UNION-TRIBUNE
June 2, 2001
SAN ONOFRE -- After four months of repairs, the nuclear power plant's Unit 3
reactor began sending electricity to the state's power grid early yesterday,
officials said.
Operators at San Onofre Nuclear Generating Station connected the reactor to
the grid at 2:30 a.m., said Ray Golden, a plant spokesman.
Twelve hours later, the reactor was running at 42.5 percent of full power and
sending 350 megawatts of electricity to the grid, Golden said.
The reactor, which generates 1,120 megawatts at full power -- enough
electricity for at least 1 million households -- is expected to be running at
capacity by tomorrow morning.
San Onofre's Unit 3 reactor was shut down Feb. 3 after an electrical fire
ignited in a switching room outside the reactor's containment dome.
The fire didn't result in any release of radiation, but it did cause major
damage to the reactor's steam turbines and electrical generator.

State files to manage energy on its own

By Ed Mendel
UNION-TRIBUNE STAFF WRITER and Toby Eckert
COPLEY NEWS SERVICE
June 2, 2001
CALIFORNIA'S
POWER CRISIS
SACRAMENTO -- State officials and two utilities proposed yesterday that
California establish itself as a regional power grid, grudgingly making the
offer so that federal limits on the cost of emergency power will stay in
place.
Federal regulators threatened to lift the price limits if California failed
to make a proposal to join what is known as a regional transmission
organization. But California suggested that it form its own organization and
not join with other states.
Under the federal vision, the regional grids are steps toward an interstate
highway for electricity that could one day let power flow efficiently in the
West as more states move toward deregulation and a free market.
Filing under protest, California said it meets the criteria for a regional
transmission organization and proposed that it be designated as such, while
working with other states to improve the flow of power in the region.
An official of California's power grid operator, the Independent System
Operator, said the state needs to correct its own problems of soaring prices
and transmission congestion before joining a regional power network.
Charles Robinson, ISO general counsel, said California has moved further
toward a free market than states in two other organizations, RTO West and
Desert Star, which mainly have "vertically integrated" utilities that still
provide most of the generation, transmission and distribution.
"While they are working out their issues, I think it would be prudent for us
to work out ours before we bite off more than perhaps we can chew," Robinson
said.
California officials began pleading with the Federal Energy Regulatory
Commission last year to impose regional price caps on power. But the order
the FERC finally issued April 25 only limits prices when power reserves drop
to an emergency level.
State officials said most power is not bought during an emergency and that
FERC limits will do little to control price gouging. The cost of power in
California is expected to grow to about $50 billion this year from $9 billion
in 1999.
Gov. Gray Davis remains closemouthed on specific details of the state's power
purchases, but Duke Energy revealed that it sold power during the first
quarter for an average price of $136 per megawatt-hour, or more than triple
last year's typical rates during the same period.
Duke also sold power to California for $3,880 per megawatt-hour, which
translates to a retail rate of $3.80 per kilowatt-hour, or nearly 100 times
the typical consumer rates at this time last year.
The North Carolina company said less than 1 percent of its electricity sales
to California were at this price. Duke officials said the $3,880 price
reflected credit surcharges the company applied because it feared nonpayment
or partial payment of its charges because of financial problems at Pacific
Gas and Electric Co. and Southern California Edison Co.
Last month, Davis blasted Reliant Energy for selling power to the state for
$1,900 per megawatt-hour.
Duke also said it charged the state an average $76 per megawatt-hour for
power last year, or nearly double the average rate paid before California's
deregulated market began spiraling out of control in June 2000.
Meanwhile, a Superior Court judge said yesterday that she will hold a hearing
Wednesday on a demand from several newspapers in the state, including The San
Diego Union-Tribune,? and a state assemblyman for specific details about
long-term power contracts the state has signed.
The new federal price controls were in place on two days this week when the
state made emergency power purchases. ISO officials said yesterday they will
not be able to say until next week if FERC limits kept prices down.
"We are not confident that the benefits will necessarily prove out to be
worthwhile," said Michael Kahn, ISO board chairman.
The FERC approved the creation last month of RTO West, which involves nine
utilities in eight states stretching from the Canadian border to Nevada. A
second RTO, Desert Star, covers the Southwest and sprawls from Arizona to
western Texas and eastern Wyoming.
FERC member Linda Breathitt said she was not surprised by the limited
California proposal, but added that she expects California to join a
multistate RTO eventually.
"RTOs are evolving," Breathitt said. "While our goal may be for there to be
large ones, I realize that may take some time."
She said it will take the FERC staff "some time to go through the filing" to
determine whether it meets the RTO standards laid out by the commission.
The proposal for a California-only RTO filed with the FERC yesterday came
from the ISO, San Diego Gas & Electric Co. and Edison. PG&E, the largest
California utility, made a separate filing proposing that California join a
multistate RTO.
"We feel that there are primarily reliability and efficiency reasons that a
regional RTO in the long run makes more sense than trying to go it alone,"
said John Nelson, a spokesman for PG&E, which filed for bankruptcy two months
ago.
Staff writer Craig D. Rose contributed to this report.

Escondido not running power plant process, ex-official says

By Jonathan Heller
UNION-TRIBUNE STAFF WRITER
June 2, 2001
ESCONDIDO -- A former planning commissioner says the city's failure to set
standards for proposed power plants has eroded its control of the planning
process.
"The city has taken a very inadequate position in maintaining high
standards," James Di Luca said.
Di Luca, who served on the commission for 31/2 years, resigned last week so
he could devote more time to a new job with a Carlsbad startup company, which
he declined to name. He is an engineer who works in fiber optics and
telecommunications.
In his last few months as a commissioner, Di Luca urged that Escondido form a
special committee of city officials and residents that would determine
standards -- on such things as air pollution, noise and appearance -- for
proposed power plants.
Instead, city officials have tried to frame the standards by taking input
from various sources, including the volunteer Environmental Advisory Board,
the Planning Commission and residents.
Thus far, the City Council has yet to adopt any power plant guidelines,
although it recently approved a new policy requiring all power plant
proposals to qualify for a special zoning permit known as a conditional-use
permit. That will require a more rigorous review.
Karen Allgeier, Planning Commission chairwoman, agreed with Di Luca. She said
the city's focus on small "peaker" plants, designed to provide power during
peak demand times, has been shortsighted.
"We need to set the standards, and the power plants need to meet those
standards," Allgeier said. "I realize there's a crisis, but peaker plants are
just a Band-Aid on a bigger problem."
Escondido should be in a favorable position when it comes to power plants
because high-voltage lines and a natural-gas transmission pipeline run
through it, and it has an electricity substation, Di Luca said. The city is
also retrofitting its sewage plant to produce reclaimed water that can be
sold to power plants for cooling purposes.
"I feel the city is in a position to be very selective in who and what we
choose for a power plant," he said.
At one point, three peaker plants and a much larger, 500-megawatt plant were
in the city's planning pipeline. The city already has approved a 44-megawatt
plant by Ramco Inc. and is awaiting plans from Sempra Energy Resources for
the 500-megawatt plant.
Hanover Co. of Houston, however, has pulled out of a potential deal to build
a peaker plant at a city public works yard on Washington Avenue, city
officials say. The two sides had been locked in secret negotiations for
months but were unable to strike a deal.
The city may have lost any say in a plant proposed by CalPeak Power of San
Diego. CalPeak withdrew its application with Escondido for a 49-megawatt
peaker plant in April after it grew impatient with the city's approval
process. The California Energy Commission has taken over the proposal and has
asserted exclusive jurisdiction over it.
City Attorney Jeffrey Epp has said that under the law, CalPeak must also
apply for a local permit.
Donna Jones, a San Diego attorney representing CalPeak, said the city's
position is "contrary to common sense." In a letter to Epp, Jones said Gov.
Gray Davis' executive order granting the commission broad powers in approving
power plants was intended to streamline the permitting process.
Davis' order allowed the commission to use an expedited, 21-day approval
process so that more power plants could be brought online swiftly to deal
with the power crisis. To require an applicant to go through both the local
and state bureaucracies would be pointless, Jones wrote.

PG&E bankruptcy judge won't challenge state regulation

By Karen Gaudette
ASSOCIATED PRESS
June 2, 2001
SAN FRANCISCO ) California power regulators can still order the state's
largest utility to perform an accounting change the company claims will end
its chance to recover billions in undercollected electric rates from its
customers, a federal bankruptcy judge ruled Friday.
In his decision, U.S. Bankruptcy Judge Dennis Montali dismissed Pacific Gas
and Electric Co.'s complaint against the Public Utilities Commission, saying
the bankrupt utility must defer to the PUC's regulation.
"The public interest is better served by deference to the regulatory scheme
and leaving the entire regulatory function to the regulator, rather than
selectively enjoining the specific aspects of one regulatory decision that
PG&E disputes," Montali wrote in his decision.
The decision settles weeks of speculation over whether PG&E could
successfully avoid what it considered an illegal order from the PUC by asking
Montali to halt the request, hence, potentially pitting the federal
bankruptcy court against a state regulatory agency.
The dispute emerged after the cash-starved utility filed for federal
bankruptcy protection April 6, unable to collect enough money from ratepayers
to pay its expenses due to a rate freeze and soaring wholesale power prices.
The PUC had ordered PG&E, as well as fellow financially floundering utility
Southern California Edison Co., to rebalance their accounts to better reflect
how much money they earned selling off power plants under the state's 1996
deregulation law against how much money they lost being unable to charge the
full cost of electricity.
The accounting change order emerged from a request by San Francisco-based
consumer group The Utility Reform Network. The group told the PUC that
without the change, ratepayers would be forced unfairly to empty their
pockets to rescue the utility from its debt.
PG&E has repeatedly called the change illegal, and one of its first motions
after bankruptcy was to ask Montali on April 9 to block the PUC's March 27
order.
In a printed statement Friday, PG&E said it was "disappointed that the court
did not grant immediate relief from the unlawful and retroactive CPUC order.
However, today's decision was not on the overall merits of the CPUC action."
The utility "will continue to pursue all legal challenges to this unlawful
CPUC decision," the statement said.
In its own printed statement, the PUC said it was pleased by Montali's
decision to dismiss PG&E's complaint against the commission.
"The Commission is pleased, but not surprised, that Judge Montali has ruled
that PG&E cannot evade proper state regulation by choosing to file for
bankruptcy and seeking protection from Bankruptcy Court," said PUC President
Loretta Lynch.

New majority leader says nay to electricity price caps

ASSOCIATED PRESS
June 2, 2001
LOS ANGELES ) A Senate controlled by Democrats will hold hearings on
California's energy crisis, says incoming Majority Leader Tom Daschle, but
isn't likely to cap power costs as California wants.
The South Dakota Democrat told the Los Angeles Times on Friday it will be
difficult to pass wholesale price controls with a Republican president and
the leadership of the Republican party still in control of the House of
Representatives.
"We've got an uphill battle," he said, adding that not even all Democrats in
Congress believe price controls are needed.
President Bush has come out against price caps, saying they neither promote
conservation nor increase supplies.
Daschle didn't go into detail about the possible hearings but said an
announcement would probably come next week. Democratic legislators have
already said they plan to investigate oil companies and their role in rising
natural gas prices.
He said he believes the best avenue toward granting California relief may be
legislation ordering the Federal Energy Regulatory Commission to use its
existing powers to protect consumers from price gouging by suppliers.
"The possibility of passing price caps is not as great as other options that
we could choose," he said, "especially the one forcing FERC to do its job."
A spokesman for Gov. Gray Davis said Congress may change its mind this summer
if increased power use extends the energy crisis beyond California.
"I think as summer goes on and more and more states are affected in the
Midwest and New England and New York, you'll hear hue and cry for the caps,"
said Steve Maviglio.

Watchdogs Take a Hit in State's Power Ills
Energy: Ex-federal officials say oversight of California's deregulation
suffered due to a push for free-market competition.
By JUDY PASTERNAK and ALAN C. MILLER, Times Staff Writers
?????WASHINGTON--California was the first test, and right from the start
economists at the Federal Energy Regulatory Commission saw trouble coming.
Their bosses were worried too. In hindsight, some admit they could have done
better.
?????But five years ago, when California officials were rushing to deregulate
electricity, the federal watchdog charged by law with overseeing the process
and guarding against runaway prices decided not to bark.
?????In their zeal for free-market competition and their ideological
commitment to shifting authority away from Washington to the states, FERC's
commissioners brushed aside their qualms and let the process roll forward.
?????"There were a lot of issues that got swept under the rug," said
economist Carolyn A. Berry, who headed FERC's analysis of the California
plan. "We were trying to point out the ugly warts, but it wasn't our job to
set policy."
?????Former FERC Chairman James J. Hoecker, who presided over the approval,
said the agency "should have been far less deferential." John Rozsa, a state
legislative analyst who played a key role in the deregulation law, laughed
when he heard that. "FERC wanted it badly," he said.
?????Today, FERC stands accused of failing to exercise its oversight,
enforcement and political muscle just when they were needed most. The agency,
critics on the inside and outside agree, helped launch a radical economics
experiment without sufficient preparation, adequate staff or a clear sense of
how to carry out its mission.
?????With fully half the states considering deregulation, the story of what a
previously obscure federal agency did not do has become more than a case
study in regulatory shortcomings. It has become a warning shot across the bow
of the whole country.
?????FERC has approved deregulation plans in New England, New York and the
mid-Atlantic states. At stake is a reliable supply of a commodity that fuels
virtually every home and workplace in America. California's example is hardly
encouraging: months of blackouts and an electric bill that has rocketed from
$7 billion in 1999 to as much as $50 billion this year.
?????Now the commission is caught in what some see as an identity crisis,
divided and uncertain as politicians in California and Washington call for
mutually contradictory action.
?????"I think the commission needs to decide what it wants to do when it
grows up," said Hoecker, who headed the agency during a critical period
ending in January. His own leadership, he concedes, was not always all it
might have been.
?????Without question, there is ample blame for everyone, not just FERC.
Certainly in California, state officials devised a flawed deregulation scheme
and then insisted on carrying it out. Some power company executives have
extracted windfall profits. Politicians have wilted when things went awry.
?????And, as FERC officials continually point out, its authority is limited
to wholesale markets. State officials are responsible for the local utilities
and other retailers selling power to consumers.
?????Nonetheless, it is FERC that Congress charged with overseeing
electricity markets and assuring "just and reasonable" prices.
?????How did FERC choose the course it took? What factors influenced its
decisions?
?????Certainly energy companies, consumer advocates, lawmakers and others
lobbied the agency.
?????Yet even FERC critics say such influence was not dominant. FERC is not
insulated from lobbying, but David Nemtzow, president of the Alliance to Save
Energy, a coalition of business, consumer and environmental leaders, said:
"They are less sensitive to those forces than a lot of other players."
?????Rather, this seems to have been a case of government decisions driven by
ideology. The commissioners, both Republicans and Democrats, were wedded to
the idea that deregulation at the wholesale level would lead to lower retail
bills. The market, they believed, would inexorably produce greater
competition, greater efficiency and falling prices.
?????To Mark Cooper of the Consumer Federation of America, the primary
problem was "their excessive faith in the market."
?????Even after price spikes occurred across the Midwest and in California as
early as 1998, FERC officials dismissed suggestions the surges might reflect
market instability or manipulation.
?????And as California's situation worsened, FERC's response was shaped by a
continuing commitment to market forces with a minimum of government
intervention--witness its April order allowing temporary price caps but only
in narrowly defined emergencies.
?????In the last few months, under enormous pressure, FERC has ordered a
dozen companies to justify high prices or refund $124.5 million to California
utilities for January and February. It won an $8-million settlement from
Williams Cos. of Tulsa, Okla., which it had accused of shutting power plants
last spring to drive up prices. Williams did not admit guilt.
?????Detractors, including California officials, howl that FERC's actions are
too little too late. They have called for a range of solutions, from flat-out
price caps, as in the old days of full regulation, to much higher rebates
from generators caught price-gouging, to retractions of individual firms'
permission to charge market-based rates.
?????If the agency chose to wield all of its authority, it also could force
witnesses to testify under oath and subpoena tapes of phone calls among power
traders, and even force the state to change the way the market operates.
?????Curtis L. Hebert Jr., the free-market champion who succeeded Hoecker as
chairman, insisted "FERC is being vigilant in its efforts to ensure just and
reasonable rates, while at the same time ensuring" that it fosters new energy
supplies.
?????"I would vehemently disagree with anyone who says otherwise," he added,
noting he transferred 75 attorneys--half of the agency's litigators--into
market oversight.
?????Still, a consensus that it's time for aggressive action seems to be
forming among commissioners, including two nominees confirmed by the Senate
last month: Patrick H. Wood III and Nora M. Brownell.
?????Wood, a Texas utility regulator nominated by Bush and probably FERC's
next chairman, said the agency needs to evolve into a "market cop with a
great big old stick," adding: "There is a role that only the federal
government can take. . . . The free market ain't a free and full market yet."
?????Already named FERC's special liaison for California, Wood remains
dedicated to market principles but vows to take a fresh look.
?????Commissioner Linda Breathitt, a Democrat, also talks of change. And
commissioner William L. Massey describes agency officials as naive in their
past actions, in contrast to what he calls the "very sophisticated players"
on the industry side.
?????If some commissioners are starting to sound more like watchdogs, that's
partly because they feel the tug of two conflicting ideas in their mandate to
open markets while assuring fair prices.
?????Americans have always loved the way capitalism gives opportunities to
the shrewd and energetic. At the same time, the country has repeatedly turned
to government regulation when it thought particular industries, such as the
railroads, waxed too powerful.
?????How well FERC deals with this intrinsic conflict and meets its
challenges may have a sizable effect on the country's energy future.
?????Frightened by events on the West Coast, some states have slowed their
progress toward deregulation. Others have decided not to try at all, at least
for now.
?????"If the commission wants to have competitive markets," Hoecker said,
"it's going to have to pull the bacon out of the fire."
?????Though it traces roots back to the Federal Power Commission and
development of hydroelectric power in the 1920s, FERC began its present
incarnation in the 1980s, with the Reagan administration's deregulation
campaign.
?????FERC undertook to deregulate natural gas, then, spurred by a Democratic
Congress and the first President Bush, it moved on to electricity.
?????The problem is that electricity and its markets differ significantly
from natural gas. Electric power cannot be stored to meet future shortages,
as gas can. Its markets are more volatile. And the effect of shortages or
price spikes cascades through the economy much faster.
?????Without anyone quite realizing it, FERC was sailing into uncharted
waters.
?????Moreover, as FERC's staff took up the original California deregulation
plan, it faced a significant constraint: The commissioners had made a
conscious call to let the state have its way most of the time.
?????As state officials saw it, so much power was available for the Western
electrical grid that prices would surely come down. FERC economists, on the
other hand, saw myriad problems.
?????For example, the state's scheme called for generators to submit blind
bids with a separate quote for each hour of the coming day. With any power
plant, the unit cost is highest when a generator is started up and declines
as it runs. So the price charged for later hours should be lower than for the
first--but only if the operator can sell both the beginning and the later
hours.
?????Under the California blueprint, though, bidders could not be sure which
hours the purchaser might buy. That meant bidders would have to load the
higher start-up costs into each hour throughout the cycle to make sure those
costs were recovered. By contrast, the mid-Atlantic market requires the power
purchaser to add separate payments to cover start-up costs.
?????Other issues were deferred rather than solved before FERC granted
approval, including such questions as how to manage congestion on the grid
and what the transmission rights should be for municipalities that generated
and sold power.
?????State legislative aide Rozsa argues that such matters were not crucial
and that the biggest flaw in the plan--the insistence that the system
operator not have any generators of its own--was conceived with FERC
guidance. Both FERC and the state, he said, had "an exaggerated sense of
their knowledge and ability."
?????As the California launch, originally scheduled for January 1998, drew
near, FERC's nervousness increased. As late as the Christmas holidays, the
state was still tinkering. The agency ordered the state to provide two weeks'
written notice before taking the final step, even though FERC had already
approved the plan.
?????When California finally "went to market," FERC analysts snickered at the
timing: The first electricity auction was held March 31 for power to be
delivered the next day--April Fool's Day.
?????As for the commissioners, "We were somewhat naive," Massey said. "The
commission believed there was so much inefficiency built into the
old-fashioned . . . regime that any new market would be better."
?????With the nation's largest state deregulating, FERC began blessing plans
on the East Coast. Hundreds of companies lined up for permission to charge
market rates in various open trade zones.
?????FERC, according to its rules, was supposed to reject any firm that held
a big enough share in a market--generally defined as about 20%--to influence
prices for a sustained period. But doing the necessary market analyses proved
impractical.
?????For one thing, the rising workload was overwhelming the staff, which had
shrunk by more than 25% from its 1980 high of 1,600 employees. The agency, as
critics see it, simply buckled.
?????"Once it got going, it took over," Berry said of the momentum behind
deregulation. "FERC was handing out [permission] to anybody who walked in."
?????FERC economist Steven A. Stoft was infuriated. He wanted to start
cautiously, opening one small market, testing before expanding nationally.
?????"To put in markets everywhere, to affect a lot of people, to just wait
and see how it turns out, that's completely irresponsible," said Stoft, who
now lives in California and is writing a book for regulators about how to
design markets.
?????At first, the staff Cassandras seemed wrong. Prices generally headed
down.
?????But during the summer of 1998, prices spiked twice--once in the Midwest,
once in California.
?????In the Midwest, several aging nuclear plants shut down for maintenance
just as a heat wave sent air conditioners into overdrive. Wholesale
electricity rose past $7,000 per megawatt-hour, 100 times normal. Consumers
and politicians screamed.
?????The weather cooled and new supply came in fast. Prices ebbed.
?????To consumer groups and several FERC economists, the sudden increase
suggested the worst can happen. Hoecker and FERC member Vicky Bailey drew a
different lesson, as did a staff investigation: The market worked to correct
an unusual confluence of events that was unlikely to recur.
?????About the same time, a strange thing happened in California's reserve
market, where the state's independent system operator pays generators with
extra capacity to stand ready to meet unexpected surges in demand.
?????So few companies offered to sign such contracts that the ISO sometimes
had little choice but to accept whatever bid came in. It was just a matter of
time before someone took advantage. One day in that summer of 1998 someone
did: The only offer to provide reserve power was an astronomical $9,999 per
megawatt-hour.
?????To some, it was proof that the California market could--and would--be
manipulated. "I was horrified," Berry said.
?????FERC quickly granted California's request for permission to cap prices
in the reserve. The authority quietly expired in November. There was no
outcry about this spike because reserve costs are spread around to the
states' utilities, thus diffusing their effect.
?????"Of course, it should have been a warning that the sellers were several
steps ahead of us," commissioner Massey says.
?????In a memo last June, Ron Rattey, a senior FERC economist who has been
with FERC since 1975, complained that the staff was "impotent in our ability
to monitor, foster and ensure competitive electric power markets." He added
in an interview: "FERC doesn't want to discover that the policy changes it's
making aren't working."
?????Commissioners at the quasi-judicial agency are forbidden by law from
privately discussing pending cases. So companies and Congress must officially
content themselves with filing briefs, writing letters and testifying at
hearings.
?????No such restraints apply to the issue of who sits on the commission.
There, the jockeying for influence can be intense.
?????Commissioners are appointed by the president and confirmed by the Senate
to staggered five-year terms, with a limit of three members of a political
party on the panel. The president can also designate at any time which
commissioner serves as chairman, a position that bestows broad authority over
the FERC's agenda and staff.
?????When Bush took office, he picked Hebert, then the lone Republican on the
commission, to the chairmanship and named his choices for the two vacancies.
It was unclear whether Hebert would keep the chair once Bush's nominees were
confirmed.
?????Soon afterward, Hebert talked by telephone with Kenneth L. Lay, who
heads Enron Corp., a Houston-based energy marketing giant that recently saw
its profits triple in a year. FERC policy decisions could have a huge
influence on its future.
?????Enron spokesman Mark Palmer says Lay, whose friendship with Bush is well
known, was returning a call from Hebert. Palmer says Hebert wanted Lay's
support for remaining chairman.
?????Hebert told a FERC official, who heard the new chairman's end of the
conversation, that Lay offered support but only if the chairman changed his
views in ways that would aid Enron. The official says he heard Hebert decline
and characterizes him as offended. The discussion was first reported in the
New York Times.
?????Lay has never been shy about offering advice, nor about courting
political access. He golfed with President Clinton, and Palmer wrote a letter
to Clinton's personnel chief touting Hoecker for chairman. The Enron
executive's ties with Bush bind especially tight; Lay raised and donated
hundreds of thousands of dollars to Bush's campaigns and related efforts.
?????Power companies also scouted candidates for the two slots. Enron went so
far as to send the White House a list of a dozen people Lay considered
qualified (the two new commissioners were on it).
?????In the end, however, the evidence suggests that such lobbying mattered
less than the faith in free markets and less federal intervention shared by
two presidents and just about every recent FERC member. "FERC is filled with
true believers," Rozsa said.
?????The agency's recent California orders underline the point. In December,
FERC concluded the market was dysfunctional and ordered a limited version of
the price caps that free marketers abhor.
?????Still, prices remained above $300 a megawatt-hour--10 times the
pre-crisis average. So in April, FERC concluded it had to take further action.
?????But the new version of price caps, approved 2 to 1, actually narrowed
the circumstances under which they could be imposed, though it gave the state
more flexibility. Even temporarily, the commission would not abandon its
market principles.
?????"I was reluctant to stop in my tracks," said Breathitt, the swing vote.
She didn't want "to go back to a form of regulation that this commission and
I had departed from five or six years ago."

Copyright 2001 Los Angeles Times

Duke Charged Record Price for Electricity
Crisis: But energy firm agrees to waive 80% of its $3,880-per-megawatt-hour
tab, if it gets paid.
By THOMAS S. MULLIGAN and NANCY RIVERA BROOKS, Times Staff Writers
?????Duke Energy Corp., one of the power wholesalers that the state has
accused of price gouging, charged $3,880 per megawatt-hour for electricity
during a brief period last winter--by far the highest price yet disclosed for
emergency power.
?????The price was more than double the $1,900 that Gov. Gray Davis
excoriated Texas wholesaler Reliant Energy Inc. for charging during an
emergency last month.
?????Spokespeople for Davis and Duke agreed Friday--but for entirely
different reasons--that the case illustrates nearly everything that has gone
wrong with California's power market.
?????From the governor's perspective, the Duke sales represent a clear-cut
case of gouging. He has cited the opportunism of such out-of-state energy
merchants as a major cause of the ongoing energy crisis.
?????"It's obscene," Davis spokesman Steven Maviglio said. "The state is on
its knees, and they're out to get every last dime from us."
?????But Duke, based in Charlotte, N.C., said that it hasn't yet received a
dime for the power and that if it ever does get paid, it will gladly waive
the "credit premiums" that made up 80% of the $3,880.
?????Moreover, Duke said it made the sales in question only because it was
ordered to do so by the California Independent System Operator, the private
agency that runs 75% of the state's power grid. To provide the power, Duke
had to start up an idle generating unit at its Chula Vista station--the
dirtiest and least efficient of the four units at that former San Diego Gas &
Electric Co. plant, spokeswoman Cathy S. Roche said.
?????"We tried to convince ISO that this was not a good unit to run in
January--that the power would be more needed in the summer," Roche said.
?????ISO declined to comment on the sales, citing a policy of confidentiality
regarding its transactions, spokesman Gregg Fishman said.
?????The sales, first reported Friday by the Charlotte (N.C.) Observer, took
place over eight or nine days beginning Jan. 17 and continuing into early
February, Roche said. Each sale occurred after ISO had declared a Stage
3--highest level--emergency, and two of the sales took place on days when
there were rolling blackouts.
?????In all, Duke said it sold 5,000 megawatt-hours at $3,880 each, for a
total of $19.4 million. The sales represent less than one-tenth of 1% of the
power Duke sold in California during the first three months of this year, the
company said. A megawatt-hour is enough power to serve about 750 homes for an
hour.
?????Duke's average price in California over that span was $136 per
megawatt-hour, up from $76 per megawatt-hour during all of 2000, the company
said Friday.
?????Duke, like other wholesalers, tacks on credit premiums as a kind of
insurance to reflect the financial condition of its buyers.
?????In this case, though ISO ordered the sales, the actual buyers were
SDG&E, Southern California Edison and Pacific Gas & Electric Co. Edison and
PG&E were on the brink of insolvency and discussing bankruptcy at the time,
though it was not until April 6 that PG&E filed for bankruptcy protection.
Their shaky finances justified the big surcharges, Roche said.
?????By imposing an 80% credit premium, Duke indicated it wouldn't expect to
get more than 20 cents on the dollar in a bankruptcy.
?????However, Maviglio and Joe Newlin, consumer advocate at the Foundation
for Taxpayer and Consumer Rights in Santa Monica, both called the surcharges
excessive.
?????"It's greed on top of greed," Newlin said.
?????Subtracting the 80% premium leaves a price of $776 per megawatt-hour,
which Newlin said is still unjustifiably high.
?????But Tom Williams, another Duke spokesman, explained it this way: To
start up a generator that it hadn't planned on operating, Duke had to buy
natural gas on the spot market at a stratospheric $30 to $40 per million
British thermal units (BTUs), which meant it cost $450 per megawatt-hour for
fuel alone.
?????The balance of the price included operating and maintenance costs, a
large fee for emissions credits to run the environmentally costly plant, plus
a reasonable profit, Williams said.
?????The Duke sales were different from Reliant's; Reliant sold its
$1,900-per-megawatt-hour electricity to the state Department of Water
Resources, which has become the emergency purchaser of power.
?????"The difference is, Reliant got paid," Roche said.
?????In any case, consumers do not pay these market prices. Instead, their
power rates are set by the state Public Utilities Commission.
?????But if residential customers were on the hook for Duke's $3,880 per
megawatt-hour on a regular basis, it would translate into $3.88 per
kilowatt-hour on a household's bill.
?????That compares to the 7.5 cents per kilowatt-hour that Southern
California Edison customers have paid for electricity since January, with
another 5.5 cents per kilowatt-hour going to such services as transmission
and distribution. In March, the PUC added another 3 cents per kilowatt-hour
on average to electricity rates.
?????If the average household in Edison territory paid that $3.88 for each of
the roughly 500 kilowatt-hours used each month, the electricity portion alone
of the monthly bill would reach $1,940.

Copyright 2001 Los Angeles Times

Incoming Senate Leader Daschle Lukewarm on Power Price Caps
Capitol: Ordering FERC to rein in electricity costs is a more likely
strategy, the Democrat says.
By MARK Z. BARABAK, Times Political Writer

Sen. Tom Daschle Meets With Times Editors

Audio of Full Interview

Broadband Video:
 National impact of Calif. power crisis

 An emphasis on conservation

 Forcing FERC to lower prices

 Prospects for an investigation

?????Dashing California's hopes for relief from a reconstituted U.S. Senate,
incoming Majority Leader Tom Daschle on Friday all but ruled out passage of
federal price controls on soaring electricity costs.
?????But Daschle indicated that Democrats will hold hearings into the cause
of the energy crunch, which has bankrupted California's biggest private
utility, PG&E, and cost state taxpayers billions of dollars.
?????"We may have a multitiered, multicommittee analysis of the circumstances
through hearings that I think will be very instructive and helpful," the
South Dakota Democrat said in an interview.
?????The remarks signaled the shifting dynamic in Washington as Democrats
prepare to assume control of the Senate for the first time in six years,
thanks to the party switch of Sen. James M. Jeffords of Vermont. A
Republican, Jeffords will formally switch to independent next week, which
will give Democrats a 50-49 advantage over Republicans in the Senate.
?????One of the most important powers Democrats will assume is the Senate's
investigative function.
?????In theory, the Senate Democrats would have the power to grill energy
executives in much the same fashion that House Democrats years ago browbeat
representatives of big tobacco companies.
?????Democratic lawmakers already plan to investigate the role of oil
companies in the nation's rising gas prices, and Daschle said the probe of
the electricity industry could be folded into those hearings.
?????At the same time, however, Daschle's pessimism about the chances of
imposing wholesale price controls indicates the limits newly empowered
Democrats face dealing with a Republican president and a GOP-run House.
President Bush and key Republican lawmakers have been adamant in opposing
price controls, saying they would only worsen the country's energy problems.
?????"We've got an uphill battle," Daschle said.
?????Even in Democratic ranks, "there are differences of opinion . . . about
price caps," he said.
?????For now, he added, the swiftest and most likely course of action would
be passing legislation ordering the Federal Energy Regulatory Commission to
more aggressively rein in electricity costs.
?????"The possibility of passing price caps is not as great as other options
that we could choose," Daschle said, "especially the one forcing FERC to do
its job."
?????His remarks are likely to disappoint price-cap advocates who expected a
more sympathetic hearing once Democrats took control of the U.S. Senate.
?????After meeting with Bush on Tuesday and pleading the case for caps, Gov.
Gray Davis pointedly told reporters he "looked forward to working with the
newly constituted U.S. Senate" to win price relief for California consumers.
?????Informed of Daschle's remarks, a Davis spokesman suggested that the
incoming Democratic leader could change his assessment, especially given the
push for price caps by Sens. Dianne Feinstein (D-Calif.) and Jeff Bingaman
(D-N.M.), the incoming head of the Senate Energy and Natural Resources
Committee. Feinstein has introduced a price cap bill, which is co-sponsored
by Sen. Gordon Smith (R-Ore.).
?????The bill, which also has the backing of fellow California Democrat
Barbara Boxer, would direct FERC to establish rates based on "cost of
service" when the agency finds that "unjust and unreasonable" wholesale
prices are being charged.
?????Davis spokesman Steve Maviglio cited the support of Democrats Feinstein
and Bingaman and Republican Smith in predicting that support for price
controls would multiply.
?????"I think as summer goes on and more and more states are affected in the
Midwest and New England and New York, you'll hear hue and cry for the caps,"
he said.
?????For her part, Feinstein insisted that she would "go to the wall" in
fighting for price caps. After learning of Daschle's comments, she called the
senator and secured a promise that he will make her bill a priority when
lawmakers return to Washington next week after their Memorial Day break, she
said, adding that he even agreed to sign on as a co-sponsor.
?????Earlier in the day, however, Daschle had sounded tepid toward the
concept of price controls. "I don't agree with the notion of price caps as
the panacea or necessarily as even the first option available to us," he said.
?????Rather, Daschle said, it might be preferable to pass legislation forcing
federal regulators to use their existing power to protect consumers from
price gouging and ensure "just and reasonable prices."
?????"I don't think Congress should dictate what 'just and reasonable' is,"
he added. "That's not our responsibility. That's their responsibility."

Copyright 2001 Los Angeles Times

PUC May Trip Bailout of Edison
By JERRY HIRSCH and STUART SILVERSTEIN, Times Staff Writers
?????In a development analysts fear could push Southern California Edison
closer to bankruptcy, the Public Utilities Commission is expected to miss a
deadline to complete a set of regulatory changes required in a bailout plan
with Gov. Gray Davis.
?????Under the rescue agreement worked out between the utility and the
governor, the PUC was required to implement six regulatory changes--mostly
dealing with rate making, nuclear power sales and energy procurement--by June
8.
?????But in a conference call with creditors Friday, worried Edison officials
noted that none of the changes are on the agenda for the next PUC meeting
Thursday.
?????The PUC agenda represents a "disturbing void" that could endanger the
entire agreement, said Theodore Craver Jr., chief financial officer of the
utility's parent, Rosemead-based Edison International.
?????Analysts said the lack of PUC action probably signals that the Davis
plan, which has little legislative support, also may be in trouble with the
state's chief regulatory agency.
?????Gary Cohen, PUC general counsel, said the commission's staff is working
on the regulatory changes, but that "everybody knew that June 8 deadline was
optimistic."
?????"We are not trying to kill the deal. It's just that there is a huge
amount of work to be done," he said.
?????But some legislators are pressuring the PUC not to move ahead.
?????"I am asking them not to do anything until the Legislature acts," said
Senate leader John Burton (D-San Francisco). "Why give regulatory relief to
Edison until we know what the people of California are going to get in
return?"
?????In objecting to the PUC taking action, Burton is bucking Davis, who
still supports the agreement he reached with Edison.
?????"We would like to see the PUC consider the items as quickly as they
can," said Steve Maviglio, a spokesman for the governor.
?????Craver said that without PUC action by the deadline, Edison would feel
free to walk away from the agreement, though it is not clear what other
options the utility has. Various state lawmakers are exploring rescue plans
ranging from the state purchasing the company to having ratepayers pay for
the rescue. None of the plans appear to have a consensus.
?????One option would be for Edison "to stick with the program as long as we
were seeing some hard evidence as to what the PUC was doing and what would be
on their next agenda," said Stephen E. Pickett, vice president and general
counsel at the utility.
?????Creditors listening to the conference call clearly were disturbed by the
turn of events and immediately peppered Edison executives with questions
about whether this development would push the utility closer to bankruptcy.
?????"We are not really in a position to speculate on that at this time,"
Craver said. "We will have to see what takes place," he added.
?????Nellwyn Voorhies, a San Diego lawyer who represents Edison bondholders,
said she had not seen the PUC agenda, but held out hope that there still
would be a way for the rescue plan to move forward. Still, she said she was
concerned by Friday's news, as well as the $9-million lien the city of Long
Beach recently won to attach Edison assets.
?????"Anything that leads us to believe that the memorandum of understanding
won't be implemented is an incremental step that makes it more likely that
someone will file for bankruptcy, either the debtor or a creditor," Voorhies
said.
?????Voorhies said the legal move by Long Beach was worrisome because it
could keep the $9 million in assets away from other Edison creditors. As a
result, she said, the attachment raises the likelihood of a creditor making
an involuntary bankruptcy filing.
?????With a bankruptcy filing, the $9 million in assets "could be distributed
to all creditors, rather than just the one who attached them," she said.
?????Edison officials have maintained that they would do everything possible
to avoid following the footsteps of the Northern California utility Pacific
Gas & Electric, which filed for bankruptcy court protection in April.
?????Both companies have come to the brink of financial ruin from soaring
power costs and regulatory limits on the expenses they could pass on to
customers.
?????Though PG&E chose to file for bankruptcy protection, Edison reached a
"memorandum of understanding" with the governor that could bail out the
utility. It calls for Edison to sell its transmission lines to the state for
$2.8 billion. The utility also would be able to issue ratepayer-secured bonds
to pay off $3.5 billion of debt piled up from purchasing electricity at
prices above what regulators would allow Edison to charge its customers.
?????Power generators owed money by Edison generally have been patient,
hoping the state could work out a rescue allowing them to recoup most or all
of their money, said Brian Youngberg, an analyst at Edward Jones in St. Louis.
?????"Now, creditors will have to take a harder look at whether they should
force Edison into Bankruptcy Court or wait and see if something still can
happen," Youngberg said.
?????In the conference call, Craver intimated that Edison officials were
concerned about an involuntary bankruptcy filing.
?????"If somebody files a petition, we are starting down a very slippery
slope," Craver said.
?????Craver and other executives said there was still a chance that the PUC
would take up the regulatory actions required by the agreement.
?????Also, Southern California Edison defaulted Friday on the principal
payments on $200 million in debt, bringing the total default on notes and
other debt this year to $931 million. The utility plans to continue to make
interest payments.

?????Times staff writer Walter Hamilton contributed to this report.

Copyright 2001 Los Angeles Times

Monday, June 4, 2001
Better Than Bankruptcy

?????Southern California Edison will slip inexorably toward bankruptcy unless
Gov. Gray Davis and the California Legislature stir themselves to action
soon. Davis' $2.76-billion plan to rescue the utility is dead in the
Legislature, shunned as overly generous to both Edison and the private power
generators. Possible alternatives are being discussed in legislative back
rooms, but there is no visible sense of urgency about the fate of the
utility, which provides electric power to 4.2 million customers.
?????Doing nothing is the worst option. The goal of both the governor and the
Legislature should be to get the utilities back into the business of buying
electric power as soon as possible.
?????True, Pacific Gas & Electric Co., supplier to the northern part of the
state, went into bankruptcy two months ago and the sky didn't fall. With
that, the political will to restore Edison to fiscal solvency seems to have
evaporated. Some argue that Edison's problems might get worked out just as
quickly in Bankruptcy Court, but history suggests that this option would take
years longer than a political solution crafted by the Legislature.
?????The state is spending $50 million a day or more to buy power, at up to
nearly $4,000 a megawatt-hour, more than 100 times the average price two
years ago. This will go on until the utilities are again able to buy their
own power, possibly in 2003, perhaps later. Each extra day increases the
potential of fiscal calamity for state government.
?????A legislative solution stands a better chance of putting California back
in charge of its own energy destiny. Lawmakers, smarting from the
deregulation boondoggle of 1996, are wary of voting for a complex measure
that is difficult for anyone but an expert to understand. But the elements of
a fair and workable solution are available. They include:
?????* Dedication of a portion of existing rates to pay off the utility's
debts. Edison would sell power from its remaining plants in the state at a
minimal profit for at least 10 years. Both Edison's parent firm and the
generators, to which it owes more than $3 billion, would have to absorb
substantial parts of the utility's debt.
?????* Maintain Public Utility Commission regulation of Edison, something
that would have been dramatically eased under the Davis-Edison plan.
?????* Give the state a five-year option to buy Edison's power transmission
system--this rather than the Davis plan to pay $2.8 billion outright, which
is far above book value. Lawmakers understandably want something tangible in
return, but obtaining Edison's part of the system does not get the state much
if it doesn't gain control of PG&E's share too.
?????Legislative leaders would like to present some alternative to the Davis
plan. But with an election year approaching, many lawmakers are loath to open
themselves to charges they bailed out a private utility company with a
sweetheart deal. However, to sit idle would bleed away state funds, and in
the end there would be nothing to show for it.
?????One late-blooming proposal for which there is little enthusiasm in the
Legislature calls for the state to simply buy Edison lock, stock and barrel.
Bad idea. California needs to work itself out of the power business, not
further into it. Copyright 2001 Los Angeles Times

Electricity usage shrinks by 11%
State's consumers beat goal set by governor
Keay Davidson, Chronicle Staff Writer
Monday, June 4, 2001
,2001 San Francisco Chronicle
URL: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2001/06/04/MN183543.DTL
By turning off lamps, turning up thermostats and buying energy-efficient
light bulbs, the people of California helped reduce the state's electricity
consumption last month 11 percent below the May 2000 level, more than was
expected, Davis administration officials said yesterday.
The "fairly remarkable" response to the governor's appeal for energy
conservation came not only from business but from ordinary electric
customers: "If you go into any hardware store, people are buying new lighting
facilities. . . . It's truly a tribute to the people of California who are
doing this," said Steve Larson, executive director of the California Energy
Commission, in a conference call with news reporters.
In May, the state consumed 18,616,485 megawatt hours of electricity, a drop
of 2,289,362 megawatt hours or 11 percent from May 2000, said Gov. Davis'
press secretary, Steve Maviglio.
The governor called for a 10 percent reduction in May, whereas his energy
advisers forecast that only 7 would be achieved, Maviglio noted.
In the news conference, officials also said:
-- The state signed nine new contracts in May with out-of-state power sources
to boost Caliornia's available megawattage by 900 megawatts. Presently,
that makes a total of 36 contracts with out-of-state energy sources.
-- The price of electric power in May was 45 percent below the January
amount, thanks to market fluctuations.
Prices "are much more stable today -- things are really coming together,"
said Ray Hart of the Department of Water Resources.
-- An unknown number of rolling blackouts are ahead as the state enters
energy-hungry summertime. "Who knows?" Larson replied when asked by a
reporter to forecast the likely number of blackouts.
"It's the job of the state to look under every rock for every megawatt
possible," Larson said. "During the month of May, we did a pretty good job."
All in all, Maviglio concurred, it's "very good news for this month."
"Californians exceeded the governor's expectations," Maviglio added in a
post-conference interview with The Chronicle, "and it's critical to note all
this (energy conservation) was voluntary. . . . If this is a harbinger of the
summer, it's good news."
During the news conference, a reporter from another publication asked for
comment on Chronicle reports that certain energy providers deliberately
throttled their available supply early in the crisis.
While declining to discuss the newspaper's charge in detail, Hart replied:
"What we do know -- I do not have specific information -- (is) the amount of
forced outages were more than double the norm, and that's never happened
(before). And (the forced outages were) up to four times (normal) some days.
That is extraordinary, in itself, (and) that really makes you wonder whether
there was (power) idling that was intentional."
Officials also discussed the Davis administration's push to negotiate power
purchases at reasonable prices from municipal utilities. They vaguely hinted
at legal action if the state doesn't get what it wants, namely reasonably
priced power from such sources.
Negotiations with the utilities are continuing, said Dick Sklar, energy
adviser to the governor. "I think the first step is to see if we can get
people (at the municipalities) to act in a reasonable way before (we start)
talking about punitive action. . . . The state has weapons I hope we never
have to go (toward using)."
E-mail Keay Davidson at kdavidson@sfchronicle.com
,2001 San Francisco Chronicle ? Page?A - 1

Enron is my spiritual teacher
Jon Carroll
Monday, June 4, 2001
,2001 San Francisco Chronicle
URL: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2001/06/04/DD139381.DTL
THE BUDDHA SAYS that we take wisdom where we find it. Perhaps the Buddha does
not say that, but it's not a bad idea anyway. The Buddha would have said it,
maybe, had he not been saying the other things.
Our enemies can teach us lessons. Our adversaries can make us stronger. They
can be consumed with greed and contempt, their very breath can be toxic, and
yet their actions can open upward-flowing paths.
Take Enron, the energy company, or Chevron, another energy company, or El
Paso Natural Gas, yet another energy company. These organizations are the
minions of Satan. They pillage and they profit. They are in the ascendant.
Their enemies fall before them like cordwood. Ordinary citizens cower and
meekly hand over tribute.
And yet we thank them. We send our investigators after them and we pray that
their executives land in jail, but we thank them. They have shown us the
nature of our enslavement. They have defined the nature of our sloth.
We have believed the Big Lie. We have believed in the free lunch. We have
trusted those who would pander to us. We have eaten energy in great dripping
gobs. Did we know it was not infinitely renewable? Oh yes. Did we understand
that energy companies could create "shortages" whenever they wanted merely by
closing plants for "maintenance"? You bet we did. And did we confuse the
energy companies with charitable organizations and/or alchemists able to
repeal the laws of nature? We did not.
But it was more convenient to forget those things, and so we did. We have
busy lives. We must do the things we must do. The infrastructure is
everywhere crumbling, and we are patching it up ourselves. We are paying
bureaucrats with taxes, but the bureaucrats are inadequate, so now the spirit
of volunteerism is much praised.
Volunteers are people who do jobs that other people are being paid to do but
don't.
AND SOMEHOW, EVEN in a society as relentlessly materialistic as this one, we
forgot about our own checking accounts. Already seduced by the idea that
credit card debt is good clean fun, we decided to waste a lot of money using
energy we didn't need.
I'm not talking about using a washing machine instead of going down to the
river and beating your clothes with small stones -- I'm talking about washing
machines with quarter-full loads and settings far too powerful for the task
at hand. Right? Lights burning in unoccupied rooms. Appliances plugged in but
never used.
We pay for it. We send our wonderful money straight to the largest villains
in American commerce because we are too stupid to do anything else. You
wonder why they have contempt for us. You wonder why Dick Cheney believes he
can fool all of the people all of the time. Because he has.
Look: Last week the secretary of commerce suggested means-testing Social
Security -- that is, means-testing a pension plan. You gave us the money, we
kept it for 40 years, now -- prove that you need it!
Why did he suggest that? Because he can! Why did PG&E demand additional
compensation for its executives, who are moral dimbulbs and social criminals
under any fair definition? Because they can get away with it! They will get
away with it! You watch!
I AM NOT saying that we have no one to blame but ourselves. There are active
villains, and there are people who allow villainy to occur. Everyone in a
corrupt system is corrupt. The fools are the ones who don't end up with any
extra money.
We are the fools. If we understand our foolishness, we begin to be wise. We
send lovely bread-and-butter notes to Enron -- once we were blind, but now we
see. And we await developments, or create them.
It would be foolish to mention SUVs. When the brain is ready, the ear will
hear.
Restless by day, and by night, rants and rages at the stars; God help the
beast in jcarroll@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?E - 10

Change in Senate control slows Bush's energy plan
H. JOSEF HEBERT, Associated Press Writer
Monday, June 4, 2001
,2001 Associated Press
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2001/06/04/state0
301EDT0101.DTL
(06-04) 00:01 PDT WASHINGTON (AP) --
The shift to a Democratic majority in the Senate has put the brakes on
President Bush's hopes for quick action on his energy proposals as Democrats
revamp the Republican bill that was racing toward a Senate vote this summer.
With soaring gasoline prices and a West Coast wrestling with blackouts and
record high electricity costs, energy remains a top priority on Capitol Hill.
But with Democrats now holding a 50-49 majority and control of the Senate's
agenda with a senator's resignation from the GOP, the Republican bill is
being overhauled with less emphasis on production and more on ways to boost
conservation and energy efficiency.
Democrats plan to press for more short-term measures, such as dramatically
boosting money to help low-income families pay their electricity and natural
gas bills.
They have called for $2 billion more this year and $3.4 billion next year for
the low-income energy assistance fund. In contrast, the administration last
week proposed $150 million more now and $1.4 billion in next year's budget
for the program.
"People are feeling the pinch. ... We ought to be acting on short-term
solutions," said Sen. Jeff Bingaman, D-N.M., incoming chairman of the Senate
Energy and Natural Resources Committee, which will handle the legislation.
At the same time, a Republican proposal backed by Bush to drill for oil in
the Arctic National Wildlife Refuge is given virtually no chance with the
change in party control.
"This is no solution," said incoming Senate Majority Leader Tom Daschle,
D-S.D.
Democrats have complained that the GOP bill and Bush's energy blueprint had
"a lack of balance," with too much emphasis on production and not enough on
promoting conservation, energy efficiency and development of renewable wind,
solar and geothermal energy sources.
Now Republicans, thrust into the minority by Vermont Sen. James Jeffords'
decision to quit the GOP and organize with the Democrats as an independent,
are complaining that Democrats will blunt the drive to develop such
traditional energy sources as coal, oil and nuclear.
"Senator Daschle wants to return to the failed energy policies of the past,"
said Sen. Frank Murkowski, R-Alaska, outgoing chairman of the energy
committee. He accused the Democratic leader of pursing an "agenda of no" when
it comes to energy production, including drilling in the Arctic refuge.
Only a few weeks ago, Senate Majority Leader Trent Lott, R-Miss., promised a
vote on energy legislation before the July 4 recess. Murkowski was set to
move quickly to mesh the GOP legislation with Bush's recently unveiled energy
plan.
Now, as members of Congress return from their Memorial Day recess, the Senate
is immersed in reorganization and debate is focusing over the partisan lineup
in committees, instead of legislation.
Once reorganized, the Senate is expected to spend the rest of June finishing
an education bill and acting on patients' rights legislation written by Sens.
Edward M. Kennedy, D-Mass., and John McCain, R-Ariz., and opposed by the
White House.
On energy legislation, Democrats maintain that Lott's prediction of a vote
before July 4 was always unrealistic given the complexity and controversial
nature of the subject.
While the tone of the new energy package will be different from that of the
GOP bill, Democrats say they will not ignore supply and production.
A Democratic package proposed several weeks ago includes:
* Tax incentives for building a pipeline to move natural gas from Alaska's
North Slope.
* Reauthorization of a law providing the nuclear industry with special
liability protection. The GOP legislation does the same.
* A proposal to approve a disputed oil lease in the eastern Gulf of Mexico,
which is strongly opposed by Florida Gov. Jeb Bush, the president's brother.
* Tax incentives for clean coal technology.
The Democrats also plan to pursue measures included in Bush's energy plan to
reduce the number of different blends of gasoline that refiners now must
produce.
But their legislation will call for more emphasis on energy efficiency than
advocated by Republicans. It includes a measure to boost motor vehicle fuel
efficiency, an item the Bush plan pushed off into the future.
In addition, there will be increased pressure on the Federal Energy
Regulatory Commission to intervene with price controls to stem the soaring
wholesale electricity costs in California and other Western states.
Legislation to require FERC to impose temporary price caps, based on the cost
of power production, for wholesale electricity in the West is almost certain
to be brought up for a vote. It was doomed under the Republicans.
At the same time, the Senate Government Affairs Committee, to be chaired by
Sen. Joseph Lieberman, D-Conn., is considering hearings on both FERC's
refusal to more aggressively intervene in the California power market and
circumstances surrounding the surge in gasoline prices.
,2001 Associated Press ?

Developments in California's energy crisis

Monday, June 4, 2001
,2001 Associated Press
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2001/06/04/state1
022EDT0151.DTL
(06-04) 07:22 PDT (AP) --
Developments in California's energy crisis:
MONDAY:
* No power alerts Monday as electricity reserves stay above 7 percent.
SUNDAY:
* The state energy commission announces that Californians sliced their
electricity use in May by 11 percent compared to the same month last year.
Residents and businesses cut their electricity demand by 3,595 megawatts in
May compared to last year. One megawatt is enough to power about 750 homes.
Energy use during peak demand hours decreased in May by about 10 percent over
the same period last year. In April this year, monthly electricity use was
down by 7 percent over the previous year.
* More than 6,500 businesses -- from pet cemeteries to bakeries to tattoo
parlors -- have applied with the state Public Utilities Commission in hopes
of being spared during rolling blackouts. The high demand prompted the PUC to
extend the deadline from Friday to Monday. Thousands of institutions, such as
fire and police stations, military bases and hospitals, are already exempted
from rolling blackouts because the PUC considers their services essential to
public health and safety.
* The federal agency in charge of monitoring and policing California's power
system was warned by experts both inside the agency and out of potential
deregulation flaws such as the price gouging that now fuels the state's power
crisis, the Los Angeles Times and the San Jose Mercury News both report.
Though the Federal Energy Regulatory Commission is charged with ensuring the
price of energy is "just and reasonable," just three months into the 1998
launch of California's deregulation experiment, energy traders tested their
ability to manipulate the market by offering a megawatt-hour of electricity
for $9,999 -- the highest price they thought trading computers could accept.
Electricity had been trading below $100 per megawatt-hour.
* California will blow through most of the $12.5 billion Gov. Gray Davis
hopes to borrow to head off summer blackouts over the next two months, the
Orange County Register reports. The state currently spends $66.9 million a
day on electricity. If it continues at this pace, it will have spent $10.4
billion -- or 83 percent -- of what it plans to borrow through a bond sale by
mid-August. That leaves only $2.1 billion to buy future energy. The state
estimates it needs at least $2.7 billion to pay for such contracts just
through June 2002. Davis' energy team says dropping energy prices and
long-term contracts will help stretch the money.
WHAT'S NEXT:
* Davis' representatives continue negotiating with Sempra, the parent company
of San Diego Gas and Electric Co., to buy the utility's transmission lines.
* In federal bankruptcy court Monday, Calpine Corp. asks U.S. Bankruptcy
Judge Dennis Montali to order Pacific Gas and Electric to free Calpine's
small power plants from contracts to provide the bankrupt utility with
electricity or else let them stop producing electricity. PG&E will also ask
Montali to stop the manager of the state's power grid from buying future
electricity for PG&E or charging it for any electricity bought after the
utility filed for bankruptcy April 6.
THE PROBLEM:
High demand, high wholesale energy costs, transmission glitches and a tight
supply worsened by scarce hydroelectric power in the Northwest and
maintenance at aging California power plants are all factors in California's
electricity crisis.
Edison and PG&E say they've lost nearly $14 billion since June to high
wholesale prices the state's electricity deregulation law bars them from
passing on to consumers. PG&E, saying it hasn't received the help it needs
from regulators or state lawmakers, filed for federal bankruptcy protection
April 6.
Electricity and natural gas suppliers, scared off by the two companies' poor
credit ratings, are refusing to sell to them, leading the state in January to
start buying power for the utilities' nearly 9 million residential and
business customers. The state is also buying power for a third investor-owned
utility, San Diego Gas & Electric, which is in better financial shape than
much larger Edison and PG&E but also struggling with high wholesale power
costs.
The Public Utilities Commission has approved average rate increases of 37
percent for the heaviest residential customers and 38 percent for commercial
customers, and hikes of up to 49 percent for industrial customers and 15
percent or 20 percent for agricultural customers to help finance the state's
multibillion-dollar power buys.
,2001 Associated Press ?

Electricity usage shrinks by 11%
State's consumers beat goal set by governor
Keay Davidson, Chronicle Staff Writer
Monday, June 4, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/06/04/M
N183543.DTL
By turning off lamps, turning up thermostats and buying energy-efficient
light bulbs, the people of California helped reduce the state's electricity
consumption last month 11 percent below the May 2000 level, more than was
expected, Davis administration officials said yesterday.
The "fairly remarkable" response to the governor's appeal for energy
conservation came not only from business but from ordinary electric
customers: "If you go into any hardware store, people are buying new lighting
facilities. . . . It's truly a tribute to the people of California who are
doing this," said Steve Larson, executive director of the California Energy
Commission, in a conference call with news reporters.
In May, the state consumed 18,616,485 megawatt hours of electricity, a drop
of 2,289,362 megawatt hours or 11 percent from May 2000, said Gov. Davis'
press secretary, Steve Maviglio.
The governor called for a 10 percent reduction in May, whereas his energy
advisers forecast that only 7 would be achieved, Maviglio noted.
In the news conference, officials also said:
-- The state signed nine new contracts in May with out-of-state power sources
to boost Caliornia's available megawattage by 900 megawatts. Presently,
that makes a total of 36 contracts with out-of-state energy sources.
-- The price of electric power in May was 45 percent below the January
amount, thanks to market fluctuations.
Prices "are much more stable today -- things are really coming together,"
said Ray Hart of the Department of Water Resources.
-- An unknown number of rolling blackouts are ahead as the state enters
energy-hungry summertime. "Who knows?" Larson replied when asked by a
reporter to forecast the likely number of blackouts.
"It's the job of the state to look under every rock for every megawatt
possible," Larson said. "During the month of May, we did a pretty good job."
All in all, Maviglio concurred, it's "very good news for this month."
"Californians exceeded the governor's expectations," Maviglio added in a
post-conference interview with The Chronicle, "and it's critical to note all
this (energy conservation) was voluntary. . . . If this is a harbinger of the
summer, it's good news."
During the news conference, a reporter from another publication asked for
comment on Chronicle reports that certain energy providers deliberately
throttled their available supply early in the crisis.
While declining to discuss the newspaper's charge in detail, Hart replied:
"What we do know -- I do not have specific information -- (is) the amount of
forced outages were more than double the norm, and that's never happened
(before). And (the forced outages were) up to four times (normal) some days.
That is extraordinary, in itself, (and) that really makes you wonder whether
there was (power) idling that was intentional."
Officials also discussed the Davis administration's push to negotiate power
purchases at reasonable prices from municipal utilities. They vaguely hinted
at legal action if the state doesn't get what it wants, namely reasonably
priced power from such sources.
Negotiations with the utilities are continuing, said Dick Sklar, energy
adviser to the governor. "I think the first step is to see if we can get
people (at the municipalities) to act in a reasonable way before (we start)
talking about punitive action. . . . The state has weapons I hope we never
have to go (toward using)."
E-mail Keay Davidson at kdavidson@sfchronicle.com
,2001 San Francisco Chronicle ? Page?A - 1

Gov. Davis -- please act

Monday, June 4, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/06/04/E
D237071.DTL
IF PRESIDENT Bush had hired a skywriter, it couldn't be any plainer. The
White House isn't planning on giving Gov. Gray Davis the price caps on power
he wants to ease the state's energy crisis.
It's time for Davis to plot a new strategy for handling the energy crisis
this summer. It's not enough to blame Washington and the power generators. A
convincing blueprint needs to be spelled out -- and fast.
For now, none of the options appeal to Davis' cautious nature. But the state
has spent $8 billion this year buying high-priced power. Tough, sweeping
proposals are piling up on the governor's desk.
The major choices include a takeover of private generating plants, a windfall
profits tax to recoup the state's huge losses, or scheduled blackouts to
ration power and possibly cut costs. A year ago, such choices were
inconceivable, but not now.
There are already signs that Davis may be dumping his legendary caution in
favor of a breakout move. His threat last week to seize surplus power sold by
publicly-owned power systems -- such as Los Angeles, Palo Alto and Alameda --
suggests a new brashness.
The pressure is clearly building for new solutions. Waiting for more plants
to open, as the Bush administration advocates, won't stave off the damaging
shortage expected this summer. Davis must choose a plan that moderates the
looming blackouts, and the havoc they bring to residents and business,
without deepening the crisis.
As much as Davis has tried to manage the crisis, it remains beyond his
individual control. It's time for him to improve his dismal relations with
the Legislature and widen the circle of advisers. Any new plans to bring
political pain -- power company takeovers or enforced blackouts -- will need
broad support, not just the say-so of one political leader.
A political gift could save Davis. Though Bush and his advisers have
repeatedly ruled out price caps, the new, Democratic-controlled U.S. Senate
could approve a plan such as one being pushed by Sen. Dianne Feinstein.
The idea is a nonstarter in the GOP-ruled House as well as the White House.
But a compromise might emerge, and the money-eating crisis could subside if
wholesale power costs are brought down temporarily.
But nothing is guaranteed. Waiting for Washington to act isn't enough. It's
time for Davis to set aside rhetoric and devise hard-edged plans to contain
the damage.
,2001 San Francisco Chronicle ? Page?A - 18

Power buying by cities gets Assembly OK
S.F. could contract for cheaper electricity if bill becomes law
Lynda Gledhill, Chronicle Sacramento Bureau
Monday, June 4, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/06/04/M
N50251.DTL
The city of San Francisco would be able to contract for its own power --
presumably at lower rates -- under a bill moving through the Legislature.
The idea would be to allow San Francisco and other cities to contract for
cheaper power based on the cities' own needs. Assemblywoman Carole Migden, D-
San Francisco, said residents by the bay should be able to benefit from the
climate.
"Preparing for summer in San Francisco means piling on the sweaters," said
Migden, who is carrying the bill. "This would allow customers to agree to
long- term contracts for cheaper power."
Currently, residents pay a blended rate that is charged to power users
throughout Pacific Gas and Electric Co.'s territory, which includes regions
of the Central Valley that normally swelter through the summer months.
"San Francisco pays more than it ought to," Migden said.
The bill would not create a municipal utility because the city would not
control the generation or distribution of the power.
Cities that already have municipal utilities would not be eligible. The
cities of Oakland and Berkeley along with Marin County have all signed on in
support of the bill.
Migden also argues that cities can use more alternative sources of power
under this system.
"I think we can do better on our own," she said. "Our citizens are ultra-
committed to conservation."
San Francisco, whose city Public Utilities Commission has traditionally made
millions of dollars in profit annually from selling power generated at its
Hetch Hetchy hydroelectric dams, has found itself losing millions in the past
year. The PUC is locked into long-term, low-price contracts with Modesto and
Turlock that started in the late 1980s.
To try to curb those losses, the city has signed a long-term pact to buy 50
megawatts of power daily over five years from Calpine Energy Services at an
average price of $80 a megawatt.
In November, San Francisco voters will decide on at least one ballot measure
that calls for the creation of a municipal utilities district.
Some supervisors and Mayor Willie Brown are talking about competing measures
that would create a power authority that would make it easier for the city to
build more power plants and take over PG&E's grid.
Brown has also hired Edward Smeloff, a leading public power executive, to try
to jump-start the city PUC's power operations.
Smeloff is an advocate of alternative power sources. When buying for
municipal facilities, California cities currently purchase more than half of
all of the cleaner sources of power, such as solar and wind, that is
available,
Migden said.
Under this bill, cities would be able to purchase as much "green" power as
they would like in their contracts.
Utility companies support the idea of the bill but object to a provision that
allows the cities to run their own energy-efficiency programs.
"We support the concept of giving municipalities the ability to contract
directly for power," said Ron Low, a spokesman for PG&E. "San Francisco could
contract with power generators for energy needed, and we would be the
delivery and distribution company."
But Low said the company's experience in running efficiency programs should
not be dismissed.
"We have years of experience in operating energy-efficiency programs," he
said. "We don't think that we should try to change course in the middle of
the race."
The bill passed the Assembly last week with one dissenting vote and now moves
to the Senate.
E-mail Lynda Gledhill at lgledhill@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?A - 11

Critics say FERC ignored California's deregulation flaws

Sunday, June 3, 2001
,2001 Associated Press
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2001/06/03/state1
918EDT0172.DTL
(06-03) 16:18 PDT FOLSOM, Calif. (AP) --
The federal agency in charge of monitoring and policing California's power
system was warned by experts both inside the agency and out of potential
deregulation flaws such as the price gouging that now fuels the state's power
crisis.
The Federal Energy Regulatory Commission has a legal obligation to ensure
"just and reasonable" prices, and is meant to operate as an oversight agency,
similar to the Federal Securities Commission that oversees Wall Street.
However, just three months into the 1998 launch California's deregulation
experiment, energy traders tested their ability to manipulate the market by
offering a megawatt-hour of electricity for $9,999 -- the highest price they
thought trading computers could accept. Electricity had been trading below
$100 per megawatt-hour.
FERC may have set itself up for problems by eagerly promoting deregulation,
despite red flags from one of the nation's top deregulation experts and the
agency's own staff members, including its economists, according to interviews
and a review of hundreds of documents published Sunday by the San Jose
Mercury News and the Los Angeles Times.
"There were a lot of issues that got swept under the rug," said economist
Carolyn A. Berry, who headed FERC's analysis of the California plan. "We were
trying to point out the ugly warts, but it wasn't our job to set policy."
But Curtis Hebert Jr., who took over as FERC's chairman in January, insists
the agency isn't failing to investigate the energy industry. FERC's job is to
make the market competitive, which will bring lower prices, he said.
"We do have enough resources, and we are handling it in a way that's
appropriate," Hebert said of California's energy crisis.
Before deregulation began, FERC commissioners, generating companies,
utilities and politicians argued that a deregulated market for electricity --
as was done with natural gas -- would reduce prices and increase competition.
In 1992, Congress passed a law encouraging open access, and in the mid-1990s,
a draft plan was started for the California Public Utilities Commission.
Bill Hogan, a deregulation expert from Harvard University, said he was hired
to analyze the state's plan for San Diego Gas & Electric Co. He wrote a
71-page report citing potential price spikes and other problems to be
presented at FERC's deregulation hearings in the summer of 1996.
That report was eventually withdrawn after the utility was pressured to join
the deregulation bandwagon if it wanted to have a say in the final plan, said
Bill Reed, chief regulatory officer for the utility's parent company.
Once the California Legislature passed the bill in 1996, it essentially gave
FERC the sole authority to intervene when wholesale power prices soar.
But FERC also had the final say on each part of the plan before it was
implemented. Some say the agency did not promote internal debate, and add
that the plan was already charging forward and would have been politically
difficult to stop.
"There was great resistance on the part of many people at the commission to
undo the process that California sent in," Berry said. "There was a
reluctance to start pulling at the threads for fear that the whole package
might fall apart."
At that same time, FERC officials also were working on a $12.7 million plan
reorganize the agency's staff and upgrade computers.
Then came the hot July day in 1998 when energy traders charged nearly $10,000
for a megawatt-hour of electricity to test the waters. The Independent System
Operator, manager of California's power grid, was forced to buy the power to
keep the grid from crashing.
The ISO then requested that FERC grant an emergency price cap, which it did.
But ISO officials continued to warn the federal agency that this was just the
beginning.
"I don't think they had any thought of what the potential was," said Anjali
Sheffrin, the ISO's market surveillance director who visited the agency twice
in the fall of 1999 in an effort to convince FERC officials of potential
dangers.
James Hoecker, who served as FERC's chairman during the transition to
deregulation, now disagrees with the way in which deregulation was pushed
through in California. He says more attention should have been given to
critical analysis.
"I would have liked for the commission to be more prepared for California,"
he said.
FERC has approved deregulation plans in New England, New York and the
mid-Atlantic states. But FERC officials point out they only oversee wholesale
energy prices, while state officials are responsible for the local utilities
and other retailers selling power to customers.
Over the past few months, FERC has ordered a dozen companies to justify their
high prices or pay $124.5 million to California utilities for January and
February. Williams Cos. of Tulsa, Okla., also settled for $8 million after
being accused of shutting down power plants last spring to spike prices.

New market overwhelms U.S. agency
Posted at 10:18 p.m. PDT Sunday, June 3, 2001
Part
1: U.S. agency's actions invited power disaster

BY ERIC
NALDER AND
MARK GLADSTONE
Mercury News

Last August, more than two dozen employees at the Federal Energy Regulatory
Commission were summoned to a conference room and told to find the cause of a
dramatic run-up in electricity prices plaguing California and threatening
other states.
For California, the stakes could not have been higher.
Its utilities were amassing huge debts. Horrified consumers in San Diego saw
their power bills triple. And in the Bay Area, a June scorcher brought the
first blackouts.
Ron Rattey, a respected FERC economist, scanned the room skeptically. With a
knot in his stomach, he realized he was one of just a few employees
experienced at in-depth market analysis -- and the group was being given just
three months.
``It was ludicrous,'' he said.
In the end, the group's Nov.?1 report largely detailed the well-known causes
of the high prices -- a hot summer, more demand, less power available from
other states -- without answering the most sensational question: Were energy
traders manipulating the state's newly deregulated market?
And FERC's commissioners, reviewing the report, turned down California's plea
for a cap on Western electricity prices.
The probe underscored the limitations of FERC, a little-known agency charged
with regulating wholesale electricity prices.
Through interviews with FERC employees and reviews of documents, the Mercury
News found:
?FERC lacks enough qualified employees to make sure that the savvy players in
the nation's highly complex, new electricity markets are not artificially
driving up prices.
?The agency's collegial relationship with companies it regulates makes it
reluctant to demand crucial market data. It shuns the use of subpoenas and
did not back up California when the state issued subpoenas.
?Energy companies have derailed probes with a phone call, but when one
complained about a document leaked to the media, FERC interrogated 40
employees about it.
FERC's former chairman, James Hoecker, and its current chairman, Curtis
H,bert Jr., both say FERC does a good job with the powers and resources it
has. And Joe Bob Perkins, CEO of Reliant Energy Wholesale Group, said
generators are ``absolutely not'' receiving favorable treatment from FERC.
But Hoecker believes the agency needs more power. ``It can't be in a
situation where it is begging the industry for information,'' he said.
Rattey, a 26-year veteran, argues that FERC is not taking advantage of the
powers it has. At the request of senior FERC staff members, he wrote a
postmortem report on the market investigation and concluded: ``The
investigation was not well thought out, poorly designed and lacked a sense of
urgency and direction until its last few weeks.''
Not until January, more than two years after warnings that the markets were
vulnerable to manipulation, did FERC acquire the computers they needed to
track energy trading.
``This is a difficult time,'' said Daniel Larcamp, the FERC official charged
with watching the markets. ``It's not going to happen overnight. We are
moving in the right direction.''
Order to investigate
The investigation began with a July 26 order from the commissioners to
uncover what caused prices to leap to record levels in California and to look
at problems nationwide. Last June, prices hit $750 per megawatt-hour for
three days straight. The year before, electricity prices in the West averaged
about $28 and had spiked higher than $100 only once.
FERC chose two people to lead the investigation: Andrea Wolfman, a longtime
lawyer at the agency, and W. Scott Miller, a former industry executive. Each
brought strengths to the probe, but each also illustrated some of FERC's
vulnerabilities in its attempts to grapple with a complex market.
Wolfman is highly respected within the agency, but her expertise is not
electricity markets. She has spent much of her career dealing with natural
gas issues.
Miller brought expertise. He had just left a $230,000-a-year job with one of
the prime players in the electricity market, the power-generating subsidiary
of PG&E Corp.
``Who better to look than someone who knows what is happening in the
marketplace?'' asked Larcamp, Miller's boss. Miller heads a key FERC office
when it comes to monitoring the market and investigating abuses.
But utility officials were suspicious that he would favor generating
companies.
Both Miller and Wolfman declined to comment on their investigation.
As the probe started, Miller and others met with utility representatives,
including Southern California Edison's Gary Stern, who wrote an 11-page road
map for how to investigate generators. He described ways to game the market,
including: overloading transmission lines, filing false power schedules,
shutting down plants and demanding top dollar for emergency power. And he
advised FERC on how to track them.
But FERC did not follow this blueprint, according to Stern and Rattey.
Stern said that when he talked to Miller about companies with sufficient
market power to affect prices, Miller used a definition of market power that
generators prefer, which limits it to companies that can affect prices for an
extended period of time.
``That sort of gave me a clue as to where he is heading on this,'' Stern
said. ``He's trying to find ways not to find market power.''
Team lacked key members
Market investigations cannot be done without a team of economists trained to
understand the voluminous data that could reveal manipulation, unfair
advantages and what economists call ``imperfect competition,'' said Paul
Joscow, an economics professor at the Massachusetts Institute of Technology
who is widely recognized as one of the top experts in the field.
But no such team was assembled for FERC's probe.
``The FERC staff is very well-intentioned and they work hard. But I think
they are understaffed in the way of economic analysis,'' Joscow said.
Larcamp said FERC has a hard time competing for the talent it needs when
energy companies pay much higher salaries. Traders can make up to $130,000.
FERC salaries have gone up 21 percent since 1997, but they still average
about $80,000.
In the closing weeks of the investigation, FERC did add three senior
economists to the team. Recognizing that the report was thin on expert
analysis, one of the new economists tried to keep his name off the report,
and another was uncomfortable having his name on it, according to Rattey and
another FERC source.
All three economists declined to be interviewed.
Data requests fall short
Even if FERC had put together a team of crackerjack economists, it would have
needed comprehensive market data and ample time to discover whether traders
were exploiting the market.
In his postmortem report, Rattey complained that the agency's requests for
data were unclear. And he said FERC failed to collect data on specific
transactions and detailed supply-and-demand data.
FERC also chose to request data from just a dozen major firms, rather than
the scores of companies Rattey hoped to review.
The results, Rattey wrote, were ``superficial analyses.''
What little he did find, though, intrigued him. Prices in California were
much higher -- 65 percent higher in June -- than expected under normal
competitive conditions. The average cost of electricity on the spot market in
June, $324 a megawatt-hour, was twice the cost to produce it.
``If we had the data and the staff to evaluate the data,'' Rattey said, ``I
think we would have found that the players in the market -- the generators
and power marketers -- were able to game the system. And we'd see the games
they were playing.''
Generating companies have repeatedly denied that they manipulate the markets.
This wasn't the first time Rattey had run into this problem. The agency has a
poor track record of demanding trading data -- the EKG of a commodities
market -- from companies it regulates.
When price spikes occurred in the Midwest in summer 1998 and in the Midwest
and Northeast in summer 1999, Rattey investigated. In both cases, he lost
battles to get the data he needed because energy companies bucked him, and
his bosses were reluctant to press the issue.
Last June, before the California investigation, an exasperated Rattey
e-mailed the entire FERC staff.
``The commission appears to have taken the tact (sic) (consciously or
unconsciously) that industry should police itself,'' he wrote. ``If FERC
staff has no ability to ferret out wrongdoing .?.?. how can FERC expect
market participants to undertake the effort?''
Former FERC engineer Judy Cardell confirmed that there are at least five
instances she knows of, or was involved in, where senior staff members
derailed requests for data after company officials complained. An associate
still at the agency confirmed her account.
``A number of people in FERC did not want to overburden the utilities or the
people in the industry with these requests,'' Cardell said.
H,bert, the chairman, said he has started to negotiate with an industry
organization, the North American Electric Reliability Council, to get
detailed data on electricity transactions. But the talks -- recommended by
FERC staff members for three years -- could take time. Gene Gorzelnik, the
group's spokesman, said members want their names kept confidential. That
could hamper FERC's ability to use the data for enforcement.
Getting information
The industry has resisted efforts to collect data, arguing that leaks of
competitive information could hurt companies in a business based on thin
differences in prices.
FERC can subpoena data, but a spokesman said the last time it used a subpoena
in a non-judicial investigation was 1985. In fact, FERC officials could
recall only four investigations where subpoenas had been used since 1980.
Documents are regularly subpoenaed during the trials and hearings run by
FERC's administrative law judges. Why not in other cases?
``I asked that question early on when I first came to the commission,'' said
William L. Massey, who became a commissioner in 1993. ``I was basically told
that it's a weapon that we keep in reserve, but that generally speaking we've
got to deal with all these market participants in an ongoing basis. We'd
rather persuade them to give us this information.''
The Securities and Exchange Commission, which oversees the nation's financial
markets, subpoenas documents so frequently no one keeps track of the number.
FERC General Counsel Kevin Madden said his agency might yet subpoena data in
its investigations of alleged price-gouging in California, but only if
companies don't cooperate.
FERC has sat on a request from California's Public Utilities Commission
seeking help with its subpoenas. In August, the PUC subpoenaed pricing data
from generators. It sent a second round of subpoenas a month later. In
November, the PUC asked FERC to force six major generators to turn over the
information. The matter is still pending.
In documents filed with FERC, the PUC said that without this data, ``there
will be no way that the CPUC can present any evidence to the FERC that will
`substantiate any charges of market power abuse.'?''
Agency officials say the requests are overly broad. ``The CPUC was on a witch
hunt and it was the commission's decision not to participate in it,'' Hoecker
said.
Besides resorting to subpoenas, the commissioners can also ask the agency's
Office of Administrative Law Judges to investigate market abuse, but they
haven't done so in the past two decades, according to Chief Judge Curtis L.
Wagner Jr., a 27-year veteran.
Steps approved by agency
The commissioners did recently order Wagner to launch a time-consuming probe.
Wagner spent a month and took 40 sworn depositions trying to figure out which
employee leaked documents about El Paso Merchant Energy's ability to
influence natural gas markets.
``The El Paso folks were upset,'' he said. ``Any leak of protected material
is of great concern to us. When something like that gets out, it hurts our
procedures. It makes people reluctant to supply confidential business
matters.''
FERC issued its report on the California investigation Nov.?1, along with a
proposed order that found the market ``dysfunctional'' but included no
regional price cap, disappointing California leaders. The commissioners
finalized the order Dec.?15.
Since then, FERC has taken some steps to monitor the market more closely.
H,bert just reassigned 150 employees. Some will go to a beefed-up enforcement
division. The agency is seeking $125 million in refunds from generators and
recently reached an $8 million settlement with one company. The state,
however, has told FERC that it has found $6 billion in excess charges.
And on April 26, the commissioners emerged from closed-door negotiations to
issue an order that set complex limits on wholesale power bids in California
during power emergencies, a plan quickly rejected by state officials as
inadequate.
H,bert, in an interview, defended FERC's actions so far under his reign,
saying FERC's latest effort will reduce prices where others failed.
``I don't think the people of California are fooled by any of their leaders
telling them that an agency is not doing anything, when the only thing they
can point out that the agency has not done is a price cap,'' he said.
But two new FERC commissioners -- Patrick Wood and Nora Brownell -- could
reshape how the agency handles enforcement. Both are free-market advocates
who also say they want to do more to oversee the markets. Wood, who could
become the next chairman, said he wants to see ``a vigilant market cop
walking the beat.''

Contact Eric Nalder at enalder@sjmercury.com or (206) 729-5161 and Mark
Gladstone at mgladstone@sjmercury.com or (916) 441-4601.

U.S. agency's actions invited power disaster
Posted at 8:27 p.m. PDT Saturday, June 2, 2001
BY ERIC NALDER AND MARK GLADSTONE

Mercury News

The federal agency charged with ensuring the stability of the nation's power
system gave California the go-ahead to deregulate its electric utilities
despite critical flaws evident to its own experts. And once deregulation was
under way in 1998, the agency did little to police the state's market, even
though it has a legal obligation to ensure that prices are ``just and
reasonable.''
Far from being the innocent bystander that top federal officials portray, the
Federal Energy Regulatory Commission has played a central role in
California's deregulation disaster, weighing in more than 80 separate times
with orders approving, revising or rejecting parts of the plan.
To examine the role this small agency has played in California's
deregulation, the Mercury News reviewed hundreds of documents and interviewed
energy experts and FERC employees, some of whom talked publicly for the first
time.
The review found that FERC, eager to promote deregulation and reluctant to
cross California politicians, generating companies and utilities pushing the
state's groundbreaking plan, ignored detailed criticism from one of the
nation's top deregulation experts and its own staff members, including its
chief economist.
More important, the review reveals the most critical mistake federal
regulators made in ushering in electricity deregulation: They set the stage
for a new energy-trading market every bit as complicated as Wall Street but
failed to monitor it. With California ceding its regulatory role, FERC had
the critical responsibility to stop market abuses, but it failed to hire
enough experts, obtain the data or install the computers needed to keep the
market honest.
Subpoenas rare
In contrast to the Securities and Exchange Commission, which frequently takes
aggressive action to enforce stock-market rules, FERC almost never uses
subpoenas in staff investigations to acquire data on electricity trading that
could include evidence of anti-competitive practices that boost prices.
Curtis H,bert Jr., a confident 38-year-old Mississippi lawyer who became
FERC's chairman in January, dismisses claims that the agency does not gather
enough data on prices or investigate the energy industry thoroughly.
``We do have enough resources, and we are handling it in a way that's
appropriate,'' he said of the agency's role in California's crisis. An ardent
supporter of free markets, he said FERC's primary job is to create a
competitive market for electricity and keep the lights on. Low prices will
follow, he promised.
But James Hoecker, FERC's chairman when California adopted its plan, has
become more critical of the decisions the agency made under his leadership
and now says FERC should have more aggressively scrutinized the plan rather
than moving it along.
``I would very much have liked for the commission to be more prepared for
California,'' he said.
FERC has a responsibility to rule on deregulation plans because, under a
66-year-old federal law, it regulates wholesale electricity. The law says the
agency must ensure that wholesale prices are ``just and reasonable,'' though
neither Congress nor the courts have made clear what that means in a
deregulated market.
For decades, FERC's responsibilities were much simpler. The agency set rates
for wholesale electricity using a formula based on generating costs plus a
fair profit.
But the agency took steps to change its role in the early '80s, when it
helped set into motion the forces that would lead to California's
deregulation. In 1982, two years after President Reagan's election, a FERC
lawyer named Robert Angyal wrote an internal memo assuring commissioners that
the ambiguity of ``just and reasonable'' gave them ample room to experiment
with free-market sales of electricity.
``We thought we were the good guys then,'' said Steve Greenleaf, who joined
the agency in 1986 as a regulatory specialist. Greenleaf, who now works for
California's power grid operator, said recent events ``certainly make me go
back and consider what we did.''
What he and others did was clear a path for the deregulation bandwagon. FERC
commissioners, generating companies, utilities and politicians -- both
Democrats and Republicans -- all argued that competition could both reduce
rates and boost profits, just as it had for natural gas, airlines and other
markets.
In 1992, Congress passed a law encouraging open access. FERC took the next
key step when Chairwoman Betsy Moler, a free-market Democrat, sat down at her
kitchen table one morning to begin drafting Order 888, named after the
agency's address in Washington, D.C.
The order, finalized in April 1996, encouraged the emergence of free markets
by requiring utilities to open their transmission lines to competing power
companies, but it did little to prepare the agency to monitor the markets and
make sure companies competed fairly.
Daniel Fessler, a former University of California-Davis law professor
appointed to the state Public Utilities Commission by Republican Gov. Pete
Wilson, drafted California's deregulation plan in the mid-'90s. In a brief
and reluctant interview -- the first he has granted since the energy crisis
began -- Fessler said that he consulted with FERC officials while he worked
on the plan and testified several times before the commission.
``Our dialogue was extremely public,'' he said.
But FERC officials say the agency took a hands-off approach, despite
conducting hearings and receiving thousands of documents.
Hoecker, who took over from Moler in June 1997, said the agency viewed
California's plan as an experiment that raised questions that could not be
answered until it was in place. ``Fundamentally, the commission took the
stance that no one had experience in the United States anyway with this
comprehensive restructuring,'' he said.
At several crucial junctures, the agency's commissioners passed on the chance
to explore the advice of critics, both academic and in-house, that could have
helped shape California's plan.
One of the nation's top experts on electricity deregulation, Bill Hogan of
Harvard University, witnessed how commissioners let a detailed critique of
California's plan slip by them at FERC's summer 1996 hearings.
San Diego Gas & Electric, the state's third-largest investor-owned utility,
had hired Hogan to analyze the plan, which the utility opposed. His 71-page
report offers a blueprint for some of what eventually would go wrong.
Flaws in the plan
Hogan did not predict the disaster -- nobody did -- but he criticized key
aspects of the plan: a market structure that made it possible for companies
to boost prices, and a complex power auction that opened the door for gaming.
At a hearing, the San Diego utility's chairman presented Hogan's paper to the
commission. San Diego's opposition was the last major obstacle the plan
faced, and the utility says it came under pressure to get in line so
California could meet a start-up date of January 1998.
State lawmakers and other energy executives told San Diego to get on board if
it wanted to have a ``meaningful role'' when the Legislature wrote the final
plan, said Bill Reed, chief regulatory officer for the utility's parent
company.
``I believed, naively as it turned out, that FERC would exercise the ultimate
judgment as to what needed to be done,'' Reed said. ``Unfortunately, FERC has
taken deference to an extreme that I never considered.''
The San Diego utility withdrew Hogan's report, and the commissioners signed
off on the deregulation plan.
``San Diego stopped talking,'' Hogan said. ``I wasn't invited to speak.''
After the San Diego utility dropped its opposition, Steve Peace, a loquacious
Democrat from San Diego, led legislators on 18 days of hearings to craft the
final details of California's plan.
The Legislature passed the bill unanimously, and Wilson signed it Sept. 23,
1996, hailing it as ``a major step in our efforts to guarantee lower rates.''
To a degree that few seemed to grasp at the time, it was an unprecedented
transfer of power from the state to the federal government. Prior to the
bill's passage, state regulators had control over most of the power generated
in California, setting prices and making sure enough electricity was
available. Now much of the power is generated by private companies -- not
state-regulated utilities -- and only FERC has the authority to step in when
wholesale prices climb.
FERC also continued to rule on each additional step in the state's
complicated deregulation plan as it was implemented. Again, the agency missed
chances to overhaul the plan, this time based on flaws pointed out by its own
experts.
Rube Goldberg
FERC's chief economist, Richard O'Neill, openly called the California plan a
Rube Goldberg contraption in conversations with colleagues and California
officials, according to sources inside and outside the agency.
Carolyn Berry, a FERC economist who has since left the agency, also reviewed
the plan. She, too, saw flaws -- and worried especially that the odd market
structure might encourage companies to manipulate prices.
``There was great resistance on the part of many people at the commission to
undo the process that California sent in,'' Berry said. ``There was a
reluctance to start pulling at the threads for fear that the whole package
might fall apart.''
The flaws the two cited, including some of the same ones Hogan flagged, are
now widely acknowledged as contributing to the collapse of California's
scheme.
The deep concerns of the staff members, however, were never impressed on the
commissioners. FERC does not foster a culture of internal debate, insiders
say.
Hoecker said the agency made few changes in the plan because ``the commission
was too highly deferential'' to California's industry leaders and
politicians.
In addition, he said, the agency simply did not have the clout to stop a plan
hurtling along on a political fast track.
The agency, like others in Washington, is highly political and, acutely aware
of what industry leaders want, often delivers. As far back as 1960, a
presidential commission labeled the agency's predecessor ``a virtual Chamber
of Commerce for the oil and gas companies.''
Corporate executives have considerable sway over the agency, to the point of
helping the White House decide who is appointed to the five-member commission
and who becomes chairman.
And there is an active revolving door. Hoecker was an industry lawyer before
he was a commissioner, and now he is again. Former Chairwoman Moler consulted
for Enron and other energy companies after leaving the agency, and now she is
a utility executive.
Industry leaders wanted deregulation, and they pressed hard for California's
plan, which they thought would open the door for unfettered markets
nationwide.
Several other factors kept FERC from playing a stronger oversight role. While
the California plan was being put into effect, many FERC officials were
focused on a $12.7 million plan to reorganize their staff and upgrade
computers. Hoecker was so proud of the result, he spent $100,000 to have a
historian write a book about it.
But key employees say they were distracted by the reorganization for months.
More important, a half-dozen employees who were versed in deregulation issues
left, leaving FERC handicapped in its ability to police the new market it had
created.
Some staff members sought a single, larger enforcement division resembling
the one at the Securities and Exchange Commission, where 900 people, half of
the agency, handle market investigations and enforcement. But FERC decided to
keep its enforcement split between two offices that had a total of about 75
employees at the time -- a fraction of its 1,200 employees.
Warning came soon
The agency was confronted with its first clear warning of the coming disaster
soon after California's deregulation took effect.
On a hot day in July 1998, three months after the market opened, energy
traders whose names state officials have refused to release decided to test
whether the new market could be manipulated. Although electricity had been
trading well below $100 a megawatt-hour, they offered a megawatt-hour at
$9,999 -- the highest number the traders thought the computer system would
accept, they later told regulators.
Desperate for power to keep the grid from crashing, the Independent System
Operator -- which monitors the system and buys some power -- paid it. The ISO
then made an emergency request for a price cap, and FERC granted it.
Worried that federal regulators were not alert to the potential for market
shenanigans, the grid operator repeatedly warned FERC that trouble was ahead.
The ISO's market surveillance director, Anjali Sheffrin, was so concerned
that she visited the agency twice in the fall of 1999 to try to explain to
FERC officials that California's fledgling market needed the protection. ``I
don't think they had any thought of what the potential was,'' Sheffrin said.
But at least one FERC economist did.
Ron Rattey, one of the agency's most experienced analysts, made a
presentation to his colleagues in March 2000, shortly before the California
crisis began. He noted an increase in price spikes nationwide from 1997
through 1999. Among other factors, he blamed regulatory policies and market
abuses.
His conclusion: ``We should expect another tumultuous summer in 2000.''

Contact Eric Nalder at enalder@sjmercury.com or (206) 729-5161 and Mark
Gladstone at mgladstone@sjmercury.com or (916) 441-4601.

Gov. Davis, by failing to act, is to blame for energy crisis
Published Monday, June 4, 2001, in the San Jose Mercury News
BY PETE WILSON
Five years ago, when electricity deregulation was passed by unanimous vote of
both houses of the Legislature (and without a murmur of dissent from any
Democratic constitutional officer, including then-Lt. Gov. Gray Davis),
California enjoyed an excess of supply over demand amounting to some 30
percent.
Deregulation was enacted to create free market competition; first, to drive
down what were then among the very highest power costs in the nation and,
second, to attract private power providers to invest in the creation of new
generating capacity to meet the exploding power needs of the New Economy and
keep in California all the jobs that it would produce.
And deregulation did succeed in stimulating a significant increase in
applications to build power plants, especially after the effective date of
the legislation in 1998 and the defeat that year by California voters of
Prop. 9 (which unwisely sought to repeal deregulation). The total megawattage
of the filings for 1998 doubled that for 1997. After the effective date
(March 1998) of the deregulation legislation, AB 1890, and the defeat of
Proposition 9 (November 1998), removing the threat of repeal, the total for
1999 was double that of 1998 -- exceeding the 5,000 megawatt mark in '99
alone.
Far from causing the problem of energy shortage, as the Davis administration
charges, deregulation caused providers to file -- by mid-2000 -- applications
to build new power plants that promised to add 10,000 megawatts to
California's power supply.
That's why I signed it.
I did so even though I disagreed with two of the provisions of AB 1890 --
just as I (and every other governor in history) signed other bills which,
though imperfect, promised significant and needed beneficial change from the
status quo, which was certainly true of deregulation.
The reason we will suffer power blackouts this summer is because the Davis
administration has by inaction allowed a problem to become a crisis. Now the
power crisis threatens to become a state fiscal crisis.
Gov. Davis has been quoted as saying, ``If I wanted to raise rates, I could
have solved this problem in 20 minutes.'' Sadly, by temporizing on needed
actions to raise rates and other steps required to avert crisis, he made
crisis inevitable. As a result, California bonds have suffered two downgrades
by Wall Street rating agencies, and he has put in jeopardy state spending for
parks, schools, transportation and other capital needs. He has been warned by
the state legislative analyst to sharply reduce the state budget.
The administration failed to monitor either the explosive growth in
electricity consumption by the New Economy in the last five years, which
gobbled up the energy surplus that existed at the time of deregulation, or
the curtailment of production of natural gas, which led to price spikes in
recent years. It failed also to heed early warnings from weather forecasting
agencies that the summers ahead would be among the hottest in a century.
It ignored a 1998 warning by the California Energy Commission of possible
energy shortages by as early as 2000. And when possibility became hard, hot
reality in San Diego in 2000, the Davis administration continued to ignore
it, putting in place a political, palliative rate cap instead of dealing with
the problem.
Fully a year ago, or earlier had he chosen to do so, Gov. Davis could have
invoked the almost unlimited powers conferred upon the governor of California
by the State Government Code to deal with an emergency, including explicitly
the sudden and severe shortage of electrical energy. These powers include the
suspension of statute and regulation. It was this power that I used after the
Northridge earthquake in 1994 to rebuild and reopen Los Angeles' shattered
freeways -- just 64 days after their destruction, instead of taking the 2 1/2
years that would otherwise have been required by law.
Fully a year ago, Davis could have acted unilaterally, without the
Legislature, to suspend operation of the rate cap that the investor-owned
utilities (PG&E, SCE and SDG&E) recently complain of but eagerly requested at
the time of enactment.
He could have, by decree, suspended the provision that prohibited the
utilities from forward contracting with power wholesalers.
He could have, by executive order, suspended and truncated the nightmarish
process required by state law for approval of siting. Had he done so early
enough, when he might even have made a difference this summer, and done so
not just with peaker plants but also with large plants, he might have greatly
accelerated construction of the power plants that will be required to allow
us to escape from blackouts, power price spikes and the severe job loss and
economic injury certain to result from a power supply that is neither
reliable nor affordable.
All these actions, Gov. Davis could have taken a year ago -- or earlier. A
governor can foresee the emergency and exercise his extraordinary powers to
prevent it. He is not required to wait and compel California to suffer it.
Had the governor heeded the early warnings -- about hot weather, or the
threat of insolvency to the utilities -- and had he acted, using the full
range of his extraordinary emergency powers when he should have, he could
have prevented the problem from becoming the crisis it has become.
We might have given power providers incentives to build enough new plants
fast enough to avoid blackouts this summer.
PG&E would not have been compelled to declare bankruptcy and Southern
California Edison would not be teetering on the brink.
Energy costs would not have spiked to the present outrageous levels.
The state would not have burned through billions of taxpayers' dollars.
And California's jobs would not be threatened, as they are, by raiders from
other state governments who are aggressively seeking to lure California
employers to their states and steal our jobs.
The blame game waged by the governor's office adds insult to injury. It will
provide no comfort to Californians sweltering in darkness this summer. But it
does do a serious disservice to ratepayers and taxpayers by seeking to
mislead those who are not aware of the real, unhappy facts of California's
present crisis.
The honest explanation for it is simple, not rocket science: State government
cannot ignore the law of supply and demand. It is not the state's
responsibility to build power plants. But it is its responsibility to create
a regulatory environment that will give incentives to private sector
providers to do so. Deregulation, even with imperfections that the governor
could have cured by fiat if the need arose, was a significant advance in
achieving that incentive as subsequent filings by providers attest.
The problem grew into a crisis not because of deregulation but because of
Gov. Davis' failure to act. That is the plain, unhappy truth of the matter. I
take no joy in saying so. I have been prepared to be helpful to the governor
during this very serious challenge to our state's well-being, just as when I
responded to his request for my assistance in passing Proposition 39 (the
school bond issue) in the most recent election.
Just as my perception of what was best for California caused me to help him
then, I am compelled now to speak out to prevent the rewriting of history and
a deliberate effort to mislead the public and to discredit deregulation in
order to shift the blame for his own inaction.

Pete Wilson is the former governor of California. He wrote this column for
the Sacramento Bee.

Conservation paying off
Californians cut back use by 11% in May, and continuing efforts could help
avert blackouts.
June 4, 2001
By KATE BERRY
The Orange County Register
Electricity consumption in California fell a dramatic 11 percent last month -
a drop hailed by state energy officials as so significant that rolling
blackouts could be averted this summer by conservation efforts.
Californians used 3,595 fewer megawatts last month -- and a significant 10.4
percent less energy during peak hours -- compared with the same month a year
ago, according to figures released jointly by the California Energy
Commission and the governor's administration.
"It's been fairly remarkable," said Steve Larson, executive director of the
energy commission. Larson said several initiatives, including a "20/20 rebate
program," have not yet gone into effect, so more conservation can be
expected. "We believe conservation played an important role in avoiding
blackouts during the month of May."
Daily temperatures in Santa Ana averaged a high of 76 degrees in May -- 2.4
degrees above normal, according to the National Weather Service.
"We believe conservation will really help us get through this summer," said
Stephanie McCorkle, a spokeswoman for the California Independent System
Operator, which manages the state's electric grid.
In addition, wholesale electricity prices are dropping, state energy
officials reported.
"The market has definitely been moving down through May," said Ray Hart,
deputy director of the Department of Water Resources, the agency that has
been buying power since January for customers of Southern California Edison
and Pacific Gas & Electric.
Hart said the agency signed nine long-term energy contracts in May, for a
total of 900 megawatts. With a total of 36 long-term contracts, California
has slowly been able to move out of the expensive spot market for
electricity, securing lower power prices that are locked in for up to 10
years.
The state is now purchasing 25 percent of wholesale power on the spot market,
down from 90 percent in Jan uary. The agency also is negotiating with the Los
Angeles Department of Water and Power, a large municipal utility, to buy its
excess electricity at cost-based rates.
But energy officials could not explain why municipal agencies like LADWP have
charged California exorbitant prices for wholesale electricity and, at the
same time, have come under less scrutiny or public pressure from politicians.
"The governor made clear that public agencies financed by taxpayers were
engaging in higher-than-normal pricing," said Hart.
For all the negotiations, California is bracing for a brutal summer. As many
as 260 hours of rolling blackouts could hit the state during hot summer
months, according to the North American Electric Reliability Council.
But no one knows exactly how much conservation will materialize, or whether
it will be enough to keep blackouts at bay.
Californians' energy use has been in decline all year, falling 7 percent in
April, 9 percent in March, 7 percent in February, and 5 percent in Jan uary.
On the hottest days, typically from June to September, electricity demand is
forecast to hit 47,500 megawatts.
Demand in May has averaged about 34,000 megawatts, and a significant amount
of generation - or more than 10,000 megawatts of power - has been offline for
unexpected repairs.

O.C. firms' energy-saving moves
June 4, 2001
By JAN NORMAN
The Orange County Register
The prospect of a long summer and short electricity supplies has many local
companies taking action to reduce electricity use. For example:
3M ESPE, Irvine
3M ESPE, a dental-products manufacturer, tries to wring out every watt of
savings. (See story on Page 11).
It not only uses motion sensors on lighting, many rooms have programmable
thermostats and twist timers that can be set to turn off after a specific
length of time.
Savings vary by usage. But some thermostats qualify for a rebate.
Check with Southern California Edison.
Kistler's Hair & Nail Mall, Orange
The interior of this hair salon was designed in 1983 to fit in with Old Towne
Orange's rustic look, right down to the light fixtures. Recently owners Tim
and Toni Kistler realized that the lights not only consumed large amounts of
electricity, but they made the room hotter, so the air conditioner consumed
even more electricity to cool the salon.
In May, the Kistlers replaced 30 100-watt incandescent bulbs with eight
fluorescent fixtures at the styling stations and six condensed fluorescent
bulbs in other areas.
The Kistlers say that the project cost $600 for new fixtures and bulbs and 10
hours of installation work. They reduced electricity use by 1,652 watts.
Boyle Engineering Corp., Newport Beach
Boyle must be mindful of electricity conservation. Energy efficiency is part
of the consulting work it does for clients.
Among the firm's actions since 1993 in its own 50,000-square-foot building:
Installed light sensors in every room to turn off lights automatically when
no one is present. Cost: $22,000. Annual savings (before this year's rate
hikes) $4,400;
Added reflective solar film on east and west sides of building. Cost $6,000.
Annual savings $6,000;
Added insulation under the floor above the parking area. Cost: $21,000.
Annual savings: $9,000.
Since 1993, Boyle has spent $99,000 to increase energy efficiency. Its energy
use increased 15 percent even though it has grown from no computers or
printers to 160 computers.
"A few years ago, we also wanted to install a heat-pump system that would
chill at night and circulate during the day, but the city turned down our
request because it would have taken out one - yes, only one - parking space,"
said Vice President Victor Opincar.
Kentec Medical Inc., Irvine
Kentec, a medical-products distributor, replaced its seven old air
conditioners (6 SEER - seasonal energy efficiency ratio) with more-efficient
units (13 SEER). The new units will use about half the electricity and Kentec
gets a $300-per-unit rebate, said owner Kent Wilken.
The company also installed solar-tube lighting in the warehouse roof. Each
Solatube, $460 installed, reflects enough natural light to illuminate up to
400 square feet, according to Sola Lite in Santa Ana, which sells the
product.

Pacific Gas and Electric Company Launches Campaign to Enhance Outage
Preparedness; State Predicts More Power Shortages In Coming Weeks And Months

June 4, 2001

SAN FRANCISCO--(BUSINESS WIRE)--June 1, 2001 via NewsEdge Corporation -
As California barely avoided its seventh day of rotating outages this year,
Pacific Gas and Electric Company ratcheted up its outage preparedness
campaign.
The California Independent System Operator (CAISO), which runs the state's
electric grid, is forecasting more electricity shortages - ranging from 600
to 3,700 megawatts on any given day between now and the end of September -
which will likely result in blackouts for millions of Californians.
"We know that state officials are doing everything they can to purchase
enough power to meet the needs of all our customers, but we also recognize
that they may not be successful every day," said Dan Quigley, Pacific Gas and
Electric Company's outage communications coordinator. "When statewide energy
supplies are short, blackouts are ordered by the California Independent
System Operator, and that presents challenges for thousands of our customers.
So, we're working for the best, but doing everything we can to help our
customers prepare for the worst."
In preparation for a worst-case scenario, Pacific Gas and Electric Company
has been blanketing its service area - through the media, with paid
advertising, the Internet and other tools - with tips on how the public can
prepare for outages and be safe when they hit.
The company's latest effort involves working with United Way, the Red Cross
and other organizations to reach out to nonprofits who assist customers
particularly vulnerable during outages - seniors, the disabled and the very
young. The utility is hosting several seminars throughout its service area
for community-based organizations to learn about the energy crisis so they
can help their clients prepare for blackouts.
Following are some additional outreach efforts the utility is undertaking:
-- Briefing emergency service organizations on the blackout
process so they can take precautions in their communities to
ensure public safety.
-- Hosting seminars for large industrial and commercial customers
whose equipment is especially sensitive to power outages.
-- Educating local and state government officials so they can
keep their constituents informed.
-- Producing collateral materials in four languages on outage
safety and conservation tips for distribution at public
meetings, customer service centers and by service
representatives who visit customers' homes. Items include:
brochures, fact sheets and magnets.
-- Launching paid advertising in four languages on outage
preparedness that builds on previous ads highlighting the need
for conservation and how Pacific Gas and Electric Company can
help consumers conserve.
-- Producing Public Service Announcements in English and other
languages for distribution to radio and television stations.
-- Including customers' block information on the utility's
website at www.pge.com. Pacific Gas and Electric Company will
continue to print block numbers on customers' bills, as it has
done for more than 20 years.
-- Enhancing outage notification systems by automating the
process and offering customers more flexibility in how they
receive information.
The outage preparedness effort is part of Pacific Gas and Electric Company's
customer education campaign called "The More You Know About Conserving
Energy, the Less Energy You Need." In addition to outage safety, the utility
is helping customers learn how to conserve energy and providing rebates to
help them purchase energy efficient appliances and equipment.
For more energy saving tips, please visit our website at www.pge.com/123 or
contact the Smarter Energy Line at 1-800-933-9555.
CONTACT: PG&E | News Department, 415/973-5930

PG&E Issues Statement After Court Decision On Its Request for Stay

June 4, 2001

SAN FRANCISCO--(BUSINESS WIRE)--June 1, 2001 via NewsEdge Corporation -
Pacific Gas and Electric Company today released the following statement after
the U.S. Bankruptcy Court issued its decision denying the utility's request
for a stay and an injunction on the TURN accounting proposal. On March 27,
the California Public Utilities Commission (CPUC) issued an order that
attempts to force the company to restate all its regulatory books and
accounts retroactively back to January 1, 1998. On April 9, the company had
asked the court to stay the CPUC's order, under the automatic stay provision
of the Bankruptcy Code. The court did not grant this request, citing certain
exceptions to the automatic stay:
"Pacific Gas and Electric Company is disappointed that the court did not
grant immediate relief from the unlawful and retroactive CPUC order. However,
today's decision was not on the overall merits of the CPUC action.
"Pacific Gas and Electric Company will continue to pursue all legal
challenges to this unlawful CPUC decision."
CONTACT: Pacific Gas and Electric Company | News Department, 415/973-5930

The Outlook

The Pros and Cons
Of Power Price Caps
By Jon E. Hilsenrath

06/04/2001
The Wall Street Journal
Page A1
(Copyright (c) 2001, Dow Jones & Company, Inc.)
New York -- Alfred Kahn, a Cornell University economics professor, is seen by
many in his field as the father of cheap airfares. As chairman of the Civil
Aeronautics Board under President Carter during the 1970s, Mr. Kahn led the
nation's drive to deregulate the airline industry.
By allowing airlines to set their own prices and pick their own routes,
practices previously regulated by the government, competition among airlines
drove ticket prices lower on many popular routes. By some accounts,
deregulation has saved travelers about $19 billion a year. Letting the market
dictate prices "is the best way of bringing customers low prices and improved
service," Mr. Kahn says.
Yet when it comes to allowing the market to set prices for California's
wholesale electricity, Mr. Kahn is singing a different tune. "The
circumstances in electricity are unusual," he says.
Mr. Kahn was one of 10 economists who stepped into the middle of a battle
last week between President Bush and California Gov. Gray Davis about the
state's energy crisis. Mr. Davis, and the economists like Mr. Kahn who
support him, want the federal government to impose caps on wholesale
electricity prices in California. California's total electricity bill jumped
to more than $27 billion for 2000 from $7.4 billion for 1999, and state
officials expect it to reach $50 billion or more this year. The soaring costs
have led to a budget crisis for the nation's largest state economy and have
prompted the utility unit of PG&E Corp. to file for bankruptcy-court
protection. By capping the wholesale price of electricity, Mr. Davis says he
can stave off further damage to the California economy.
Mr. Bush, however, says such caps will only make the state's energy problems
worse. "Price caps do nothing to reduce demand, and they do nothing to
increase supply," Mr. Bush said last week. If anything, say economists who
are opposed to price caps, controls will lead to worse shortages. The logic
for this is simple: If power companies can't earn a decent return on their
investment, they'll redirect their production and cut back future
investments, exacerbating the very problem price controls are supposed to
fix.
Indeed, government efforts to cap prices have a long history of failure. As
early as 301 A.D., Roman Emperor Diocletian imposed economywide price
controls. The move led to mass shortages and he ended up abdicating four
years later.
A more recent -- and far more vivid -- example of how price controls can
backfire occurred during the 1970s when the federal government limited the
price that oil companies could charge for gasoline and dictated where it
could be distributed. Unable to sell their wares at market-clearing prices,
oil companies ended up rationing supplies. Motorists had to wait for hours in
long lines at gasoline stations just to buy a few gallons of fuel.
"Price controls are in and of themselves very, very bad," Glenn Hubbard,
chairman of President Bush's Council of Economic Advisers, says. "It is in
every freshman textbook on economics."
But Mr. Kahn and other pro-control economists say California's problems are
unique. In a normally functioning competitive market, price shocks have an
immediate impact on supply and demand. Producers respond to higher prices by
boosting supply immediately, and consumers respond by cutting back purchases.
But that is not happening in California's wholesale electricity market for
several reasons. First, it takes nearly two years for new power plants to
come on line, so energy supplies remain constrained. Meanwhile, consumers
aren't cutting back their electricity use, because their rates are capped.
That has led to a price squeeze and shortages.
Pro-control economists say the small group of power producers who run the
plants that supply California with energy are exacerbating the problem by
deliberately holding power off the market, forcing prices -- and their
profits -- even higher. "They're exercising unilateral market power," says
Frank Wolak, a professor at Stanford University. (The power producers dispute
this argument. They say they have taken power off the market only when they
have had to service old plants that are being overworked.)
Temporary price caps, Mr. Kahn and other pro-cap economists say, would soften
the increasing burden on California's state coffers until new power plants
come online, easing the supply crunch. The state already has spent $7.7
billion to acquire energy for distressed utilities. To help cover the costs,
it is planning to issue a $13.4 billion bond, which taxpayers will have to
pay back eventually in the form of high electricity prices.
These economists add that they can avoid the pitfalls of the past by setting
price caps at a level that still allows energy producers to earn a strong
return on their investments. Several producers say such a move will constrain
their investments going forward.
The idea sits well with at least one power producer. Calpine Corp. is
planning to invest about $6 billion in new capacity during the next four
years, including three new plants that will be up and running this summer. "I
don't see anything right now that would dissuade us," Calpine Chairman Peter
Cartwright says.