Please see the following articles:

Sac Bee, Thurs, 4/5:  "Conservation bills hit snag: Provisions added to
shield farmers from
 blackouts irritate Senate leaders and delay passage of an overall package."

Sac Bee, Thurs, 4/5:  "Democrats urge U.S. price controls"

San Diego Union, Thurs, 4/5: "California governor prepares to address state
on energy"

San Diego Union, Thurs, 4/5:  "State gets $4.1 billion infusion"

San Diego Union, Thurs, 4/5:  "All California hospitals exempted from
blackouts"

San Diego Union, Thurs, 4/5:  "Quick fix proposed for power problems"

LA Times, Thurs, 4/5:  "Treasurer Urges Disclosure of Power Cost"

LA Times, Thurs, 4/5:  "House GOP Moves to Draft Plan to Give the West Summer
Energy Aid"

LA Times, Thurs, 4/5:  "California's Electricity Woes Power Up Northwest"

SF Chron, Thurs, 4/5: "Davis Campaign Losing Steam
Energy crisis generates possible challengers for governor in 2002 "

SF Chron, Thurs, 4/5:  "Crisis Takes Toll On State Economy
DAVIS'S SPEECH: Possible tax on generators "

SF Chron, Thurs, 4/5:  "San Jose Looks Past the Energy Crisis
Big server farm OKd in hope the electricity will be there"

SF Chron, Thurs, 4/5:  "More Unpaid Power Plants Face Closing
Owners slam PUC silence about bills "

SF Chron, Thurs, 4/5:  "California governor plans to address state on energy
"

SF Chron, Thurs, 4/5: "Critics question effectiveness of energy rebates "

SF Chron, Thurs, 4/5:  "Developments in California's energy crisis "

Mercury News, Thurs, 4/5:  "Sharp dispute on economic impact in California"

Mercury News, Thurs, 4/5:  "Gov. Davis prepares to address state on energy"

Orange County, Thurs, 4/5:  "Too much hot air about too little power"
           (Commentary)

Orange County, Thurs, 4/5:  "More pain predicted in electric crisis"

Orange County, Thurs, 4/5:  " 'Windfall tax' on power profits? "

Orange County, Thurs, 4/5:  "PUC chief takes issue with utilities' claims on
power crisis"

Orange County, Thurs, 4/5:  "State borrows $4.1 billion for power"

Orange County, Thurs, 4/5:  "Electricity Notebook:  Davis to discuss power
crisis in
televised address"

Individual.com, Thurs, 4/5:  "California Regulators Face Backlash"

Individual.com, Thurs, 4/5:  "ICF Consulting Study Predicts Turning Point in
Wholesale Power Markets"

Energy Insight, Thurs, 4/5:  "Global Energy Use to Increase by 59%"
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Conservation bills hit snag: Provisions added to shield farmers from
blackouts irritate Senate leaders and delay passage of an overall package.
By Kevin Yamamura and John Hill
Bee Capitol Bureau
(Published April 5, 2001)
Conservation bills designed to keep energy flowing this summer were stalled
in the Legislature on Wednesday by a dispute over whether some farmers should
receive special protection from potential summer power blackouts.
The proposals make up a complementary, two-house conservation package that
aims to save California about 4,000 megawatts of energy. The two bills -- SB
5x by state Sen. Byron Sher, D-Palo Alto, and AB 29x by Assemblywoman
Christine Kehoe, D-San Diego -- together would cost the state $1.2 billion,
though Gov. Gray Davis may reduce that with line-item vetoes should the
legislation reach his desk.
The dozens of conservation measures include:
$20 million in rebates or other incentives to encourage Californians to
replace inefficient appliances, with priority given to low- and middle-income
residents.
An outreach program to teach schoolchildren about saving energy.
$14.5 million for efficient traffic signal lights.
Lawmakers want to give the bills to Davis before next week's scheduled spring
recess begins late Thursday, but the legislation remains mired in a
cross-house entanglement over a series of changes that the Assembly penciled
into SB 5x on Tuesday.
The Assembly approved the bill Wednesday on a 74-1 vote, but the Senate
adjourned without resolving the dispute.
Assembly leaders said that unless several proposals favorable to farmers were
included in the bill, a group of Central Valley lawmakers would have opposed
it.
One proposal limits the amount of time interruptible agricultural customers
can lose energy to four hours a day or 20 hours per month. Michael Boccadoro
of the Agriculture Energy Consumers Association said farmers and food
processors are concerned that their perishables would not be able to survive
beyond that amount of time.
The provision would affect "interruptible," customers, those who volunteer to
lose power in emergencies in exchange for lower rates.
Assemblyman Dennis Cardoza, D-Merced, a main proponent of the proposals, said
the state's farmers are going to be the most hurt by rolling blackouts and
high rates this summer and "are getting ready to leave the state if we don't
take care of the problem."
But the late change riled Senate leaders. Senate President Pro Tem John
Burton, D-San Francisco, said it would shift costs from farmers to urban
residents and develop special programs for agricultural customers.
"I think the ag people were very greedy, and what they gained in this
amendment, they may lose in other stuff," Burton said.
Assemblyman Fred Keeley, D-Santa Cruz, said he does not support some of the
amendments but said that they should not prevent the conservation package
from moving forward.
"We're trying to solve a problem," he said. "In my view, we cannot let the
perfect be the enemy of the good."
Davis met privately with Assembly Republicans on Wednesday for two hours and
emerged saying he would talk about rate increases during tonight's
five-minute televised speech.
Republicans said they discussed proposals that would boost energy supply in
the state and one to allow businesses to contract on their own for energy,
which won the Democratic governor's support.
State Treasurer Phil Angelides, meanwhile, said he has lined up commitments
for $4.1 billion in loans to keep the state going for the next few months
until the sale of bonds to buy electricity. He hopes to get a total of $5
billion to $6 billion in bridge loans. The money will be used to repay the
state's general fund for what it has spent on power so far.
The loans, in turn, would be paid back with money from the bond sales. But
Angelides warned that, before the bonds can be sold, he needs more
information from Davis about what's being spent on power.
"We will be selling the bonds in the public marketplace and so information
must be made publicly available," he said.
The treasurer, who like Davis is a Democrat, said he wants to see the
information and the administration's long-term plan before he supports
selling bonds in excess of $10 billion, the initial estimate of the bond
sale.
If the bond sale is delayed, he said, the state could end up paying a higher
interest rate on the bridge loan, which comes due Aug. 29.
Tim Gage, Davis' finance director, said in a news release Wednesday that it
was Angelides' bond underwriter, J.P. Morgan, who told him that more than $10
billion might be needed. Gage said Angelides is well aware that the
Department of Water Resources, which is buying power on behalf of the state,
has gone to great lengths to estimate how much money it needs.
Davis has come under fire from legislators, the media and others for not
disclosing more details about power purchases. The administration says that
revealing more would compromise the state's bargaining position.
Angelides also said that if Pacific Gas and Electric or Southern California
Edison challenges a Tuesday decision by the Public Utilities Commission
setting the state's share of electricity revenues, the bridge loan could be
held up.
PG&E spokesman Ron Low said the utility is reviewing the PUC decision to see
if all its costs of buying power will be covered.
The company has 10 days from Tuesday to ask for a rehearing. If PG&E decides
not to seek a new hearing, Angelides said, he would expect to complete the
bridge loan within another week.
Angelides said that officials should start turning their attention from
paying for power to driving down the costs of electricity by enacting an
excess profits tax on generators or buying power plants.
A state Senate committee Thursday approved a vaguely defined bill to impose a
windfall profits tax on power generators. Under the bill, the revenues raised
by the tax would be returned to ratepayers.
"It really doesn't get at the fundamental problem, which is supply," said
Martin Wilson, a lobbyist for Houston-based Reliant Energy Inc., which owns
generating plants in California.
Wilson said the tax could actually worsen the supply problem by creating "a
major disincentive" to building power plants in California.

The Bee's Kevin Yamamura can be reached at (916) 326-5542 or
kyamamura@sacbee.com.
Bee Staff Writer Dale Kasler contributed to this report.
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Democrats urge U.S. price controls
By David Whitney
Bee Washington Bureau
(Published April 5, 2001)
WASHINGTON -- Nearly three dozen Democratic House members from California,
Oregon and Washington joined in support of legislation to impose mandatory
controls on wholesale electricity prices Thursday amid indications that the
issue is fast becoming a political powder keg.
The legislation was endorsed by House Minority Leader Dick Gephardt, D-Mo.,
who stood shoulder-to-shoulder with a large contingent of West Coast
Democrats at an outdoor news conference. The House members denounced the Bush
administration and the Federal Energy Regulatory Commission for doing nothing
as prices zoom ever higher in a market of perpetual shortage.
"They are going to keep FERCing us day in and day out," said Rep. Peter
Defazio, D-Ore., in a word play on the acronym for the regulatory commission.
"If the Bush administration is frozen in inaction, congressional members will
step forward and exert action," Gephardt said.
With the West Coast summer of power shortages fast approaching, Rep. Joe
Barton, the Texas Republican who heads the House Energy and Commerce energy
subcommittee, had intended to roll out an energy bill by this week.
But the House recesses Friday for a two-week spring break, pushing off any
House bill until late April. And Barton's spokeswoman, Samantha Jordan, said
it's not certain now that Barton will even introduce legislation as a result
of six days of hearings on the California crisis.
"He hasn't decided to do a bill," Jordan said. "He's still looking at
options."
Some utility and Democratic sources said the White House has quietly urged
Barton to slow down work on an energy bill because it is worried that
Democrats will offer the price-control legislation as an amendment.
With fears spreading in the Northeast that New York and possibly other states
could face similarly skyrocketing electricity costs as air conditioners begin
turning on in a few weeks, the White House is said to be concerned that such
an amendment could squeak through Congress and force the president's hand on
a veto.
Last week Barton began circulating a list of ideas for inclusion in an
emergency bill. Among the ideas is requiring the FERC to determine if prices
are being unreasonably jacked up by producers -- something the commission
already has decided.
The ideas also included starting up backup generators on federal buildings,
authorizing portable generators to be set up and run on military property,
authorizing the Defense Department to "explore connecting Navy nuclear-ship
generators to the electric grid" and firing up mothballed non-nuclear plants.
One congressional source said the administration has begun dispatching
regulatory officials to federal property in California looking at any and
every suitable location for "dropping in" portable generation plants.

The Bee's David Whitney can be reached at (202) 383-0004 or
dwhitney@mcclatchydc.com.
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California governor prepares to address state on energy

By Jennifer Coleman
ASSOCIATED PRESS
April 5, 2001
SACRAMENTO ) While California Gov. Gray Davis prepared to address the state
Thursday night on energy, economic forecasters predicted his constitutents
will pay higher taxes, watch out-of-state investments evaporate and suffer
scrapped public projects because of the ongoing power crisis.
The UCLA Anderson Forecast says the worst economic threat could come from
state government itself and its scrutiny of private power suppliers, which
along with blackouts and brownouts, could scare new businesses away.
Davis addressed some commercial concerns Wednesday by breaking with his
appointees on the Public Utilities Commission by saying private companies and
other large power users should be allowed to contract directly for power with
generators.

State gets $4.1 billion infusion
All California hospitals exempted from blackouts
Quick fix proposed for power problems
Continuing coverage: California's Power Crisis
?

Critics of allowing direct access include PUC President Loretta Lynch and The
Utility Reform Network, who say residential customers and small businesses
unable to garner such contracts will get stuck with the bill for the billions
of dollars the state has and will spend buying electricity for the customers
of three cash-strapped utilities.
Word came from California's treasurer Wednesday that the state had secured
$4.1 billion in loans to help pay back the state's power buys.
Facing continued refusal from federal energy regulators to cap high energy
prices, Davis reassessed the tools at his disposal Wednesday, saying he is
open to supporting a windfall-profits tax being proposed by lawmakers on
electric generators that have made a fortune selling power to California this
year.
Assemblywoman Ellen Corbett, D-San Leandro, introduced a windfall-profits tax
bill Wednesday that would tax gross receipts that "significantly exceed" the
cost of producing power.
It would also tax profits of power marketers who have bought power and later
sold it at much higher rates. The rate of the tax was not specified in the
bill, and Corbett said she expects the details to be worked out later.
"We continue to allow some electricity generators and middlemen to reap
enormous profits on their sales of electricity into the state. This
profiteering must stop," said Corbett.
Senators on the Revenue and Tax Committee have also inserted similar language
into a pending bill.
Tom Williams, spokesman for Duke Energy, said he doubted a tax on a selected
industry would be legal. The tax would discourage generators from building
new power plants in California, he said.
"The governor has made very clear that he is trying to do whatever he can to
increase the amount of generation in California and reduce the price.
Windfall profits taxes do neither of these," said Williams.
"Clearly it would have an adverse affect on our decisions on new investment
or following through on our planned investments," he said.
Davis said Wednesday he generally opposes treating profitable companies in
that manner, "but these profits are outrageous and are at our expense. The
only things companies understand is leverage. I'm not saying I'll sign it and
I'm not saying I won't sign it."
For the first time, Davis also said the state should let companies buy their
power from generators instead of going through the utilities.
A January law that allowed the state to begin buying power for two nearly
bankrupt utilities barred such side contracts.
"That was done originally with the thought the state would have more power
and no one to sell it to if companies got off the grid," Davis said. "But our
problem is the opposite this summer. If companies want to get off the grid,
we should encourage, not discourage that."
The Democratic governor's comments came after he met behind closed doors for
more than two hours with Assembly Republicans, who have sharply criticized
his handling of the energy crisis.
"I think everyone agreed there are no political winners unless we resolve
this challenge," Davis said. "There were a lot of suggestions in there I'm
willing to adopt."
For instance, he agreed that San Diego Gas and Electric customers should have
a different benchmark for receiving 20 percent rebates under his program for
consumers who cut their energy use by 20 percent this summer.
Unlike other Californians, San Diego residents faced soaring rates last
summer and began conserving then, so Davis said they should have to cut 20
percent from 1999 energy use levels instead of using last summer as a
starting point.
Davis said he hasn't written the remarks he will make during a five-minute
address at 6:05 p.m. Thursday that he has asked California television
stations to carry live.
However, he said he will "share with them (viewers) the progress that we've
made and what we have to get through."
He is expected to talk about the more than 40 percent rate increases approved
last week by the PUC for customers of Pacific Gas and Electric Co. and
Southern California Edison Co.

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State gets $4.1 billion infusion

Treasurer to Davis: Don't pay generators' 'ransom'
By Ed Mendel
UNION-TRIBUNE STAFF WRITER
April 5, 2001
SACRAMENTO -- State Treasurer Phil Angelides announced an agreement for a
$4.1 billion short-term loan yesterday that would provide urgently needed
cash to begin repaying the state general fund for power purchases.
Angelides said the loan is needed to protect the state's credit rating and
preserve "important funding for programs such as education, public safety and
children's services."
The treasurer also sent a letter to Gov. Gray Davis warning that plans to
increase the size of a $10 billion bond, which would repay the short-term
loan and finance future power purchases, may only delay the "reality of
runaway energy prices."
Angelides urged Davis and the Legislature to send power generators a message
by considering a windfall profits tax or seizure of power plants that
utilities sold under a failed deregulation plan.
"These are very tough guys," Angelides said, "and you don't negotiate with
them by trying to figure out night and day how to pay their ransom. You've
got to push back on them. It's the only thing they understand."
The state Senate began moving a bill yesterday that would impose a windfall
profits tax on generators. The governor declined to say whether he would sign
the bill, but Davis did say its movement was "not an entirely unpleasant
event."
"These profits are just outrageous," said Davis, echoing the treasurer's view
of the generators. "They are coming at our expense directly, and the only
things companies understand is leverage."
The governor, who had previously briefed Democrats in both houses on his
handling of the electricity crisis, emerged from a two-hour meeting with
Assembly Republicans yesterday and announced two agreements.
Davis said he would make an adjustment sought by San Diego County residents
in his "20/20" conservation plan, which reduces electricity bills 20 percent
if customers reduce their energy use 20 percent below the same summer month
in the previous year.
San Diego Gas and Electric ratepayers reduced their power use last summer
when the utility became the first to be deregulated and bills doubled and
tripled before rates were capped by legislation.
The governor also said that businesses and other large users of electricity
should be allowed to contract directly with generators for power. He said new
contracts were barred because the state thought it would need customers to
pay for state power purchases.
"Our problem is just the opposite," Davis said. "We should encourage that and
not discourage it."
Assembly Republicans said Davis told them that he will discuss the need for
an increase in electricity rates in a statewide television address scheduled
for 6:05 p.m. today.
The state Public Utilities Commission, controlled by Davis appointees,
abruptly imposed the biggest rate increase in state history on Pacific Gas
and Electric and Southern California Edison customers last week. An SDG&E
rate increase is pending.
Davis said the PUC rate increase was "premature" and promised to give his
view after studying data. The PUC increase was more than 40 percent for
electricity and about 26 percent in the total bill, which includes
transmission and distribution costs.
The state began buying power for utility customers in mid-January after PG&E
and Edison were pushed to the brink of bankruptcy. Their rates were frozen
under deregulation as wholesale power costs soared, producing a debt of about
$13 billion.
State officials are considering purchasing the utilities' transmission
systems as a way to provide the utilities with money to pay that debt.
Sempra Energy Chief Executive Stephen Baum said yesterday in New York that
the company, which owns SDG&E, wants $1.4 billion for its part of the grid,
but state officials have offered $1.2 billion. The state has not disclosed
any details about the SDG&E negotiations.
Edison reached a tentative agreement with the state last month to sell its
larger part of the grid for $2.76 billion.
So far, the state has spent about $4 billion to buy electricity. Angelides
said he has a commitment for a $4.125 billion short-term or "bridge" loan
from three lenders: J.P. Morgan, $2.5 billion; Lehman Brothers, $1 billion;
and Bear Stearns, $625 million.
The treasurer said he hopes to get other lenders and reach a total of $5
billion to $6 billion. But, Angelides said, the loan could be blocked if
utilities challenge a decision by the PUC on Tuesday that gives the state
$3.5 billion a year from the monthly bills collected by utilities from
ratepayers.
PG&E and Edison have said they believe the PUC action does not leave them
enough money and will drive them deeper into debt. The utilities said
yesterday that they have not decided whether to challenge the PUC ruling.
Angelides said the utilities have 10 days from Tuesday to challenge the PUC
decision. He said that if the PUC did not quickly resolve a challenge,
legislation would be needed to allow the short-term loan. If the utilities do
not challenge the PUC action, he would expect to close the short-term loan by
about April 23.
Angelides said the short-term loan, obtained at 5.38 percent interest, must
be repaid by Aug. 29 or it will automatically convert into a long-term loan
with an interest rate that is two percentage points higher and due Aug. 29,
2004.
The plan is to repay the short-term loan with the biggest municipal bond in
the history of the nation, which would be paid off by ratepayers over a dozen
years. But Angelides and the Davis administration disagree about how large
the bond should be.
Angelides wanted to limit the bond to $10 billion. He warned last month that
the money, which will also pay for upcoming electricity purchases, could be
exhausted by September if the state continues to buy power at high rates.
PUC President Loretta Lynch said the $3.5 billion in ratepayer revenue
allocated to the state would allow a bond issue of $12 billion to $14
billion. The Davis administration says a bond in that range is needed to
spread the cost of power purchases over a decade and avoid a huge rate
increase.
Angelides said a bond cannot be issued unless the Davis administration
publicly discloses detailed information about power purchases -- prices paid
in the past and estimates for the future. Newspapers and Republican
legislators have filed lawsuits to force the release of the information.
The Legislature yesterday sent Davis a bill by state Sen. Dede Alpert,
D-Coronado, that would cap rates for businesses served by SDG&E at 6.5 cents
per kilowatt-hour.
Currently, businesses whose peak demand exceeds 100 kilowatt-hours a month
pay market rates for electricity, which in some cases have soared to 37 cents
per kilowatt-hour. An Alpert aide said Davis is expected to sign the bill.
Staff writer Bill Ainsworth and Bloomberg News Service contributed to this
report.
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All California hospitals exempted from blackouts

By John Berhman
UNION-TRIBUNE STAFF WRITER
April 5, 2001
All hospitals in California, regardless of their size, are now ensured that
their power will remain on during rolling blackouts, thanks to a ruling by
the state Public Utilities Commission.
Previously, hospitals with fewer than 100 beds were not exempt from rolling
blackouts imposed by power companies, Jan Emerson, a vice president for the
California Healthcare Association, said yesterday.
"The PUC had that 100-beds-or-more rule on the books since 1980, but they
came to realize that there is no magic number when you are putting people's
lives in jeopardy," Emerson said.
The PUC decision, made on Tuesday, "takes the decision out of the hands of
the power companies" and ensures electricity for all hospitals, she said. San
Diego Gas & Electric Co. has been cooperative about maintaining power to
hospitals during rolling blackouts here, Emerson said, but the state's other
two companies, Southern California Edison and Pacific Gas & Electric, have
not been.
She said that during blackouts of March 19 and 20, about a dozen hospitals
lost power, ranging in size from the 750-bed Long Beach Medical Center to the
40-bed Adventist Health Redbud Community Hospital in Clear Lake, north of San
Francisco.
A lawsuit filed March 22 on behalf of the hospitals, and backed by the health
care association, forced the commission to change its policy, Emerson said.
The decision was well-received in San Diego County.
"We had been assured by SDG&E that we would be given a high priority to keep
our power on during a rolling blackout," said Corey Seale, chief executive
officer for the 47-bed Fallbrook Hospital. "But we're very pleased by the PUC
action because this guarantees us service absolutely even during rolling
blackouts."
Utility companies have argued that hospitals have backup generators that can
kick in during rolling blackouts, Emerson said, "but that can take 10 to 15
seconds to occur, and for someone undergoing open-heart surgery, that delay
could be fatal."
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Quick fix proposed for power problems

Clean-air waivers part of GOP package
By Toby Eckert
COPLEY NEWS SERVICE
April 5, 2001
WASHINGTON -- A key House Republican said yesterday he is drafting emergency
legislation to help California and other states facing power crises this
summer, and hopes to put it on a fast track for passage.
Rep. Joe Barton, R-Texas, indicated his proposal would allow waivers of
clean-air regulations that critics say hamper power generation, but would not
include electricity price controls sought by California officials. Barton
backed away from the controversial idea of plugging nuclear-fueled Navy
vessels into the power grid.
Barton -- who chairs the House energy and air quality subcommittee -- said he
hopes to "get some bipartisan consensus" before actually introducing
legislation. But his approach already is alienating some Democrats.
"The clean-air moves would be an enormous problem," said a spokesman for Rep.
Henry Waxman, D-Los Angeles, a subcommittee member. "If you're not doing
(price controls) and instead weakening clean-air laws, you're not really
doing anything."
Capitol Hill sources said Barton won't introduce a bill if it appears
subcommittee members from Western states would be able to attach language
calling for price controls. He is also awaiting a green light from the White
House, the sources said.
Democrats from California, Oregon and Washington, joined by House Minority
Leader Richard Gephardt, D-Mo., introduced a bill Wednesday that would
require federal regulators to impose wholesale price controls in the West for
the next two years and order refunds for high electricity prices dating back
to June 1, 2000. New power plants would be exempt from the price limits,
which would be based on the cost of producing power, plus a profit margin.
In a speech to the National Energy Marketers Association, Barton said he
hopes his subcommittee can pass a bill shortly after Congress returns April
22 from its Easter recess. It would be the first move by Congress to address
the power crunch roiling California and the West and looming in other
regions.
"California is too big a part of our economy, too big a part of our
population base. We can't just say, 'Let California take care of
California,'?" Barton said. " .?.?. Unless we pass a law that says, 'Summer
shall not start in California until September the first,' we've got to do
something right now to help them this summer."
Barton refused to say exactly what he would propose. But he indicated that a
draft bill he planned to circulate among subcommittee members would parallel
proposals he sent to the White House recently.
They included directing the EPA to waive nitrogen oxide emission limits on
power plants if a governor declares an electricity emergency, increasing the
use of backup generators, allowing the start-up of mothballed nuclear power
plants, providing federal funding for the expansion of a crucial Central
Valley power conduit known as Path 15 and directing the Federal Emergency
Management Agency to make plans for blackout response.
Barton said "technical reasons" sidelined his proposal to use nuclear-powered
Navy vessels to keep the lights on in California.
"Plus, you've got some national security issues. Do you really want a nuclear
aircraft carrier that might need to be dispatched to the South China Sea tied
up to the grid in San Diego?" he added.
The Bush administration was said to be less than impressed with the idea.
Barton said he didn't "have any definitive answers" yet from the White House
on his proposals.
Barton did not waver in his opposition to price controls, dismissing them as
"a political expedient that can hold down the price until the next election."
President Bush also opposes price limits.
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Treasurer Urges Disclosure of Power Cost

Energy: Angelides warns that $10-billion bond issue to finance purchases
can't be sold otherwise. Davis, who has resisted such a move, sees a chance
of more blackouts.

By MIGUEL BUSTILLO and DAN MORAIN, Times Staff Writers

?????SACRAMENTO--State Treasurer Phil Angelides warned Wednesday that he
cannot sell a record $10 billion in bonds to finance purchases of electricity
unless the state reveals the price it is paying for power--something Gov.
Gray Davis has refused to do.
?????The warning came as Davis acknowledged that his efforts to secure enough
electricity to meet demand could fall short, raising the possibility of more
blackouts.
?????"The real crunch," Davis said Wednesday, "will be in May and June and
late April"--much earlier than the usual peak in August, September and early
October. Angelides said he cannot secure the largest municipal bond offering
in American history until Wall Street can see what California is spending on
power and what it expects to spend in the future.
?????"You can't go to the marketplace to sell $10 billion in bonds and say,
'We don't have a public plan,' " Angelides said.
?????Angelides announced that he has secured $4.1 billion in short-term
"bridge" financing to repay the state for power purchases until the bonds are
issued. That deal remains clouded, in part by the utilities' resistance to
using customer payments to repay the bonds promptly.
?????The governor is scheduled to give a five-minute televised address on
energy at 6:05 tonight, expected to be carried by all Los Angeles television
stations.
?????In addition to discussing the potential for more blackouts, Davis is
expected to outline his efforts to expand power production, renew his call
for Californians to cut electricity use and address the question of rate
hikes.
?????"I'm certainly going to share with [Californians] the progress we've
made and what we have to do together over the near term to get through this
challenge," Davis told reporters. " . . . We have to accept responsibility
for solving the problem. I'm going to lay out exactly how to do that."
?????Sensing the urgency, the Legislature spent much of Wednesday pushing
forward a $1.2-billion package of conservation bills crucial to helping
California escape widespread power outages during the hot season.
?????And in another move to boost summer supplies, the California Energy
Commission approved two "peaking plants" under a new fast-track, 21-day
permit process ordered by Davis.
?????Designed to produce power to meet sudden demand, such plants are a major
part of the governor's plan to help avert blackouts this summer, and
commissioners approved them unanimously. But they expressed qualms about the
vague standards in place for the plants--one to be built near San Diego, the
other in Palm Springs--in part because the facilities have been exempted from
the usual environmental reviews.
?????Most experts assume that peaking plants are pressed into service only
when demand for electricity is highest. But the facilities approved Wednesday
are capable of operating for as much as 85% of the time.
?????The partnership that owns the plants--a venture between Shell Oil and an
arm of engineering giant Bechtel Enterprises--is in talks to sell electricity
to the state for 10 years or more. But current contracts call for the sale of
500 hours of electricity for the next three years, said John Jones, a
representative of the partnership.
?????The company would sell the rest of its electricity on the open market,
presumably at higher prices--and not necessarily in California.
?????Suggesting that the facilities may not fit the definition of peaking
plants, outgoing Commissioner Robert Laurie called for more public disclosure
about the implications of Davis' emergency order.
?????"They may be large; they may be small," Laurie said. "They may operate
300 hours; they may operate 8,000 hours."

?????Measures Focus on Cutting Consumption
?????The conservation bills that lawmakers addressed Wednesday--supported by
environmentalists and the business community alike--represent the largest
such investment in history and are designed to get Californians to cut energy
consumption this summer.
?????The measures would provide everything from rebates for buyers of new,
efficient refrigerators to free power-saving lightbulbs for poor people. All
told, the measures are expected to save California roughly the amount of
electricity produced by eight power plants.
?????Legislators had hoped to get the bills to the governor's desk by the end
of this week, but some turbulence slowed the progress.
?????The trouble began Tuesday, when Assembly Democrats and Republicans from
agricultural areas said they would not vote for the Senate bill, SB 5X, until
it was amended to include programs to help agriculture. Concluding that
opposition might stall the bill in the lower house, Assembly leaders agreed
to the amendments, including one that protects agribusiness from blackouts.
?????That move infuriated the bill's author, Sen. Byron Sher (D-Stanford),
and started a war of words between the houses.
?????"What they did and the way they did it I found a little untoward," said
Senate Leader John Burton (D-San Francisco), calling the agricultural
interests "greedy."
?????In the end, the bill cleared the Assembly by a vote of 74 to 1
Wednesday. It now returns to the Senate. A second conservation bill, AB 29X
by Assemblywoman Christine Kehoe (D-San Diego), containing more than $400
million more for conservation programs, also awaits action there.
?????While the governor has been pushing for the bills, their price tag
exceeds what he has pledged to spend on conservation, and he is expected to
trim the legislation once it arrives on his desk.

?????Concerns About Depleting Treasury
?????Angelides, meanwhile, sent a letter to Davis outlining his problems in
issuing the $10 billion in bonds needed to repay the state for the power it
has been buying on the spot market. To avert mass blackouts, California made
its risky foray into the power-buying business in January after the state's
two largest utilities said they were nearly bankrupt and generators would no
longer sell to them.
?????The state has been buying power at the rate of roughly $50 million a
day. A Davis-sponsored plan calls for the $10 billion in bonds to repay the
state; the bonds, in turn, would be retired by utility customers through
their monthly bills.
?????That plan was based on the premise that the state would be able to
stabilize, and eventually lower, the price of electricity by entering into
long-term contracts with power suppliers. Those lower prices have yet to
materialize, raising increasing questions about whether $10 billion will be
enough.
?????"I think there is no doubt that if we continue to chunk out general fund
money without end, what's going to happen is that we're going to deplete our
treasury, we're going to harm the very programs that we care most about, and
our credit rating will come down," Angelides said.
?????The governor's finance director, Tim Gage, said such fears are
unfounded. Officials have planned all along to release some details on
California's power purchases to the Public Utilities Commission so the panel
could determine how much money is needed to repay the bonds, he said: "I
would think that any information required to sell the bonds will be provided.
. . . I don't know how specific it's going to have to be."
?????Also on Wednesday:
?????* The Assembly and Senate passed a bill placing price caps on large
power users in San Diego, currently the only area in California where some
are feeling the full sting of the deregulation law adopted in 1996. San Diego
was the first and only area where state regulators lifted price caps, the
expected outcome of deregulation. The result last summer was that bills
doubled or tripled virtually overnight.
?????The bill, SB 43 by Sen. Dede Alpert (D-Coronado), would protect medium
and large power users such as businesses, school districts and hospitals from
the full cost of electricity on the open market. Homeowners and other small
consumers are protected under legislation approved last year.
?????* Lawmakers in both houses announced legislation that would place a
windfall profits tax on power companies that sell electricity to California
at excessive prices. "It's time to gouge the gougers," said Assemblywoman
Dion Aroner (D-Berkeley), a sponsor of the Assembly proposal.
?????In the upper house, a bill (SB 1X) that would tax power producers'
profits at an unspecified rate and rebate the money to taxpayers cleared its
first committee hurdle. Davis said he has "an open mind" about the
legislation.
?????Power producers said a windfall tax would do nothing to solve the
fundamental problem--a shortage of electricity--and would have an
inflationary effect because the expense would be passed on to consumers.
?????* California Public Utilities Commission President Loretta Lynch said no
additional electricity rate hikes will be necessary if Californians conserve
energy and electricity producers don't raise prices.
?????Lynch, speaking to reporters after a speech Wednesday at the UCLA
Anderson Business Forecast quarterly meeting on the economy, also said
conservation efforts endorsed by Davis will help keep prices down by reducing
demand.
?????"If we conserve, some of those sellers will get cut out," said Lynch.
---
?????Times staff writers Julie Tamaki, Seema Mehta, Nancy Vogel, Stuart
Silverstein and Jenifer Warren contributed to this story.
------------------------------------------------------------------------------
----------------------------------------------------------------

House GOP Moves to Draft Plan to Give the West Summer Energy Aid

By RICHARD SIMON and RICARDO ALONSO-ZALDIVAR, Times Staff Writers

?????WASHINGTON--Congressional Republicans are drafting an emergency bill to
help the West cope with a summer of predicted electricity turmoil, offering
such possible measures as aid to ease a notorious bottleneck in the
California transmission system and directing federal disaster officials to
prepare for power outages.
?????The move came as Democratic criticism of the Bush administration's
response to the power crunch intensified Wednesday. The administration has
become more defensive about criticism that it has left California on its own
to solve its crisis.
?????Rep. Joe Barton (R-Texas), the influential chairman of the House energy
and air quality subcommittee, said he is splicing together the emergency
legislation and hopes to introduce it when Congress returns from the Easter
recess.
?????"We can't just say, 'Let California take care of California,' " Barton
said at an energy conference in Washington.
?????Although the bill will not contain the price caps sought by Democrats
and a handful of Republicans, Barton said in an interview that he will allow
amendments in support of price controls during committee deliberations.
?????"They will have a chance to see whether the votes are there," Barton
said. "I don't think the votes are there, but I see no reason why [supporters
of price controls] can't have the full right to offer an amendment."
?????A list circulated by GOP staff in recent weeks includes a range of ideas
such as relaxing environmental rules, subject to a governor's request;
increasing federal energy assistance to low-income consumers; firing up
mothballed power plants; and directing federal facilities to reduce energy
use by 10%.
?????Some of the ideas are more practical than others. Referring to a
proposal to connect nuclear ships to the electricity grid, Barton said: "Do
you really want a nuclear aircraft carrier that might need to be dispatched
to the South China Sea tied up to the grid in San Diego?"
?????On the issue of relaxing clean air rules--another sensitive point for
Democrats--Barton said his bill would not make permanent changes in
environmental requirements. Instead, it would grant governors the flexibility
to allow power plants that have exceeded emissions limits to temporarily keep
operating during emergencies.
?????That, he contended, would be less harmful than one likely alternative:
individuals and companies relying on their own generators during blackouts.
"It doesn't make a lot of sense to allow diesel generators to kick in and
shut down units that use natural gas," Barton said.
?????Separately, Sen. Frank Murkowski (R-Alaska), chairman of the Senate
Energy and Natural Resources Committee, has asked for an inventory of all
possible energy sources in the West and "what actions will be necessary to
bring those sources online or increase their current generation."
?????But Democrats said that without price controls, Republican-sponsored
bills would be of little help this summer to California.
?????"If it doesn't provide wholesale price caps, it doesn't do what is
needed to help California," said Phil Schiliro, chief of staff for Rep. Henry
A. Waxman (D-Los Angeles).
?????House Democratic Leader Richard Gephardt of Missouri joined a group of
House Democrats from California, Oregon and Washington in unveiling price
control legislation.
?????Rep. Peter A. DeFazio (D-Ore.) accused the Bush administration of
conducting "faith-based regulation" of energy prices. "Flip the switch and
pray the lights come on, and that you'll be able to afford the bill at the
end of the month," he said.
?????The administration contends that price controls will discourage
investment in new power plants. "Price caps don't work," Barton said in
remarks to the National Energy Marketers Assn. "Price caps aren't going to
get you more supply."
?????Sen. Dianne Feinstein (D-Calif.) is preparing to introduce another price
control bill in the Senate. Acknowledging Bush's opposition to price
controls, she said her proposal seeks only "cost-based rates."
?????Price control supporters say they can structure the controls to ensure
that power suppliers recover their costs and make a "reasonable" profit. They
also say they can exempt new power plants in order to address Bush's concerns.
?????Barton warned that the federal measures are unlikely to prevent
blackouts altogether.
?????"It's going to be a tough summer out West. . . . I don't see any
scenario where you don't have severe blackouts on a consistent basis this
summer," he said.
------------------------------------------------------------------------------
-------------------------------------------------------------------

California's Electricity Woes Power Up Northwest

Bonneville agency's sales to Golden State keep rates low for customers up
north. But doubts remain on how long the region can benefit from its federal
dams.

By KIM MURPHY, Times Staff Writer

?????PORTLAND, Ore.--As California searched last summer for surplus
electricity to keep its air conditioners humming, the Bonneville Power
Administration stepped forward to help.
?????How much did the marketing agency charge for each of the 489,000
megawatt-hours it shipped south, power generated by the massive federal
hydropower dams in the Northwest?
?????If you guessed $22.39, the amount BPA charges public utilities in
Seattle, think again. The average price was three times that. And at the
height of the power-marketing frenzy, Bonneville got $750 a megawatt-hour, 33
times what public utilities and private firms in the Pacific Northwest were
paying.
?????As power generators throughout the West profited from California's
energy appetite last year, so too did Northwest customers: BPA netted $400
million from sales to the Golden State, which helped hold down rates for
private electricity users here who already pay the lowest rates in the
nation--half of what Californians pay.
?????And major aluminum, steel and chemical companies across the
region--which not only pay lower rates but also have the right to purchase
certain allotments of energy produced by the federal dams--stand to pocket
$1.8 billion in the next few months by reselling or exchanging their shares
so Bonneville can help California out of its crisis.
?????How long, Northwestern politicians wonder, can the region hold onto the
exclusive benefits of a multibillion-dollar network of 29 federal dams on the
Columbia and Snake rivers--legendary edifices such as Bonneville and Grand
Coulee?
?????How long, others ask, should it be able to?
?????California's two Democratic senators--Dianne Feinstein and Barbara
Boxer--have questioned the fairness of locking in low power rates "for a
select group of consumers, to the detriment of tens of millions of others
whose taxes also paid for the facilities that generate and manage that power
source."
?????Said David Luken of the Edison Electrical Institute, a coalition of
investor-owned utilities: "It would be as if California took all the revenues
from offshore oil and used it to hold down gasoline prices in Los Angeles."
?????Critics estimate that BPA routinely sells its power to customers in the
Northwest for about $1 billion a year less than it could earn at market
rates. Last year, the gap spread to about $3 billion. The BPA is the major
reason homeowners in Seattle are paying 5.4 cents a kilowatt-hour for
electricity; Southern California Edison customers pay 10.2 cents.
?????After suspending sales to California late last year because the power
the BPA was able to generate in the face of an extreme drought was needed in
the Northwest, the agency briefly resumed sending electricity south last
month--dispatching between 600 to 1,000 megawatts an hour for about eight
days between March 7 and March 21.
?????Although officials would not disclose the negotiated price, the market
rate for power then ranged from $210 to $350 a megawatt-hour.
?????Despite the windfall sales to California, however, the BPA has its
problems. With contracts to deliver much more power than it can generate, BPA
has said it would have to institute rate increases totaling $3 billion a year
or more unless it can wean substantial blocs of customers off of federal
power.
?????The belt-tightening threatens the region's aluminum industry and
ratepayers in Washington state, Oregon, Montana and Idaho--some of whom
already have seen their electric bills rise 50% or more over the last few
months.
?????The looming fiscal emergency is so severe that Oregon Gov. John
Kitzhaber recently proposed seeking a temporary reprieve from most of BPA's
annual $732-million debt repayment. That is money to reimburse federal
taxpayers, who funded the region's massive system of concrete and generators.
?????Most Northwestern political leaders are loath to miss a Treasury
payment--as many believe that would leave the agency ripe for plunder.
?????That is the region's greatest fear: that California's hefty
congressional delegation will make a grab for the agency's power.
?????The debate over who controls BPA--and who benefits from it--promises to
emerge as a key question before Congress as the West's energy woes continue.
?????Several Northwestern legislators have proposed buying BPA back from the
federal government in an attempt to lock in benefits for regional ratepayers.
Congressional lawmakers last year countered with a proposal to force
Bonneville to sell low-cost power to private utilities in California. Some
also proposed auctioning BPA power at market rates--ending the cost-based,
regional-preference formula.
?????BPA contracts with about a dozen users--companies such as Alcoa, Kaiser
and Reynolds--that have guaranteed the energy-intensive aluminum industry
access to a fifth of Bonneville's power at rates lower than those paid by
other customers have come under particular scrutiny.
?????The contracts are so lucrative that Kaiser is expected to earn up to
$500 million this year by shutting down its factories and remarketing its BPA
power allocation.
?????BPA cites the aluminum industry's value as a reliable, steady-load
buyer--as opposed to residential utilities, whose fluctuating loads are
harder to serve.
?????But Seattle energy analyst Kevin Bell calls the industry contracts "an
incredibly bad deal." Unable to generate enough power to meet its
commitments, the BPA has been forced to buy power on the open market at 40
cents a kilowatt-hour, supply it to firms such as Kaiser for 2 cents, and
watch Kaiser sell it again for 40 cents.
?????It is, in fact, only the recently deregulated electricity market that
has made BPA power an attractive deal. In the mid-1990s, clients were
flocking away from Bonneville to cheaper generators. Aluminum companies at
the time agreed to prices that were higher than what was available elsewhere,
gambling that the market price would go up.
?????"If we're going to talk about why Bonneville has preferential rates in
the Northwest, shouldn't we also talk about why California has preferential
rates for federal power in California?" said acting BPA administrator Steve
Wright. "Federal policy is, in general, the indigenous electrical power
resources in a region are dedicated to the loads in that region. The power
from Hoover Dam goes to the people in the Southwest. The Central Valley
Project goes to people in Northern California."
?????Bonneville for years has enjoyed a mutually beneficial power exchange
with California. Although the agency often profits from surplus power sales
to California, the majority of the power it has sent south over the years has
been either at low, long-term rates to such cities as Burbank, Glendale and
Pasadena, or as part of an exchange program in which California returns twice
as much as it borrows.
?????And while Bonneville ratepayers profited from the brief period of
sky-high wholesale power rates last summer, its sales represented less than
1% of the California power market and probably had the effect of lowering,
not raising, overall market rates, BPA officials said.
?????Indeed, Bonneville often sold power to California at less than its own
cost-based rates during the first two years of deregulation after 1998.
?????And Northwestern legislators point out that the hydropower dams, for all
their advantages, have come at considerable cost to the region: Two wild
rivers now are throttled. The price for trying to bring back endangered
salmon has reached nearly $4 billion so far, most of it borne by BPA
ratepayers.
?????The question of sharing the hydropower bonanza outside the Northwest
never came up until the 1960s--with the construction of two major power
arteries linking Bonneville's transmission grid with California. The
846-mile-long link between Celio, Ore., and Sylmar is the world's biggest
direct current power line.
?????Before agreeing to the transmission links, Northwestern politicians
insisted on a "regional preference" for BPA power, giving the Northwestern
states first crack at power generated on the Columbia.
?????It is no different today.
?????"Unless we control the destiny of Bonneville, we're not going to control
the Northwest region," said Oregon state Senate President Gene Derfler, who
has proposed a regional takeover of BPA. "California is definitely a threat
at this point. They would take our power, all of it, and say, 'Thank you.'
And what are we going to do about it? They have 52 congressmen; the Northwest
states have 15."

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Davis Campaign Losing Steam
Energy crisis generates possible challengers for governor in 2002
Carla Marinucci, John Wildermuth
Thursday, April 5, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/04/05/M
N113404.DTL
Until this week, most Democrats simply scratched their heads over talk about
who might be crazy enough to launch a primary challenge to Gov. Gray Davis in
2002.
After all, the Democratic governor has amassed $26 million in campaign cash,
had 60 percent approval ratings and was being talked about as a guy on the
2004 Democratic presidential list.
That was before the phrases "rolling blackout" and "Stage 3 alert" came into
the California lexicon.
Davis again found himself on the defensive last weekend over the energy
crisis -- but it was in front of a home crowd of Democrats gathered at the
state party convention. Democratic Controller Kathleen Connell opened fire on
the governor, urging him to get off the dime and stop blaming the GOP for the
power crunch.
Meanwhile, grumbling among the party faithful was rampant -- the result of
his failure to cultivate relations with Democratic legislators and grassroots
activists alike, some said.
So, in the semidarkened Anaheim arena where a Stage 2 alert was in effect,
the Demo buzz turned to what might happen in the event the governor's polls
tank, the lights continue to flicker -- and the pressure is on to throw him
over the side and save themselves.
It's all just talk -- but here are some of the names being floated as
possible opponents:
-- State Treasurer Phil Angelides: Angelides, a strong supporter of state
acquisition of power utilities, got national media attention last month when
he announced his proposal to fix the energy crisis -- including the creation
of a state public power authority to provide new generating plants. He talked
tough, and won an enthusiastic response at the convention, when he warned:
"Out-of-state generators: If you do not take your foot off our throats . . .
you may leave us no option but to (take) your power plants."
A successful developer, Angelides is one of the few Democrats who may not be
intimidated by Davis' $26 million war chest. "If he's invested wisely in the
past few years, that'd be chump change," said one insider.
-- State Controller Kathleen Connell: Connell blasted Davis last weekend,
telling The Chronicle that "the emperor has no clothes" on the energy crisis
and that voters will soon tire of him putting blame on former Gov. Pete
Wilson.
The governor's people say the talk was born of desperation: She faces term
limits as controller and is lagging in the polls in her race for Los Angeles
mayor.
-- State Sen. Don Perata: Yes, a real longshot, some delegates said, but the
politically hungry and talkative East Bay pol has been offering tough
assessments of Davis' performance on energy recently. He'd have a lot of work
in getting more name ID statewide, but Perata is a master at corralling free
media. Lately, he's been on the tube, morning and night, far more than Davis,
with proposals on energy and education -- two of the governor's favorite
topics.
In addition to the governor's race, candidates are maneuvering for so- called
"down ballot" stateside contests next year.
No widely known Democrat is expected to challenge Lt. Gov. Cruz Bustamante or
Attorney General Bill Lockyer for their current spots.
But term limits will be putting plenty of politicians out of work, and the
Democrats' sweep of statewide offices in 1998 has left few open spots for the
ambitious.
Some of the Democratic primary races shaping up:
-- Secretary of state: March Fong Eu, who held the job from 1974 to 1994,
before term limits, has announced she's running again. John Garamendi, the
state's first elected insurance commissioner and a former longtime
legislator, is in, as is Michela Alioto, who lost to incumbent Republican
Bill Jones four years ago. San Francisco Assemblyman Kevin Shelley also is
considering a run.
-- Insurance commissioner: Judge Harry Low has not yet decided whether he
will try to keep the office he was appointed to last year after Republican
Chuck Quackenbush resigned amid scandal. If he doesn't, word is that Sen.
Jackie Speier, D-Hillsborough, may run.
-- State Board of Equalization: San Francisco Assemblywoman Carole Migden,
another victim of term limits, is looking to replace Democrat Johan Klehs in
a district that would extend from the Oregon border to Santa Cruz.
"I've got $1 million in the bank, and I know the area," said Migden, who
expects little competition for the seat. "I'd also be the first woman to
serve on the board." Besides, she said, "It will be nice to get into my car
and drive up to Humboldt County to talk to people. It will get me away from
some of the head games in Sacramento."
E-mail the authors at cmarinucci@sfchronicle.com and
jwildermuth@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?A - 7
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Crisis Takes Toll On State Economy
DAVIS'S SPEECH: Possible tax on generators
Lynda Gledhill, Greg Lucas, Chronicle Sacramento Bureau
Thursday, April 5, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/04/05/M
N108119.DTL

Sacramento -- On the eve of a statewide television address by Gov. Gray
Davis, action by lawmakers stalled on nearly $1.4 billion in state programs
to stimulate energy conservation.
Penalizing generators for huge profits they have raked in during California's
energy crisis is just one point Davis may bring up during tonight's speech.
"I'm of an open mind about that subject," he said after a two-hour meeting
with Assembly Republicans. "I generally don't think making a profit is wrong,
but these profits have been excessive."
The governor also is expected to discuss recently approved rate increases,
sweeping conservation efforts and new power plant construction when the
cameras come on at 6:05 p.m.
The unusual address -- the first by a California governor in nine years --
comes amid growing criticism that Davis has not done enough to solve the
deepening crisis as well as his perceived refusal to keep Californians
informed.
"A lot of what he has been doing and what he's set in motion is not
particularly well known to the average person out there," said Garry South,
Davis' chief political adviser. "It's hard in a state like California to
project specific bits of information outside the context of a paid media
campaign."
Others see the address as a strong indicator that Davis realizes he is losing
favor with voters.
Earlier this year, Davis was widely seen as a leader in resolving the mess.
DAVIS SLIPPING IN POLLS
That has changed. Recent polls by Assembly Democrats and the Service
Employees International Union have shown Davis' popularity -- and that of
other incumbent lawmakers -- dropping like a stone.
As the crisis deepens, there are mounting calls in Sacramento for the state
to use the power of eminent domain to take over private power plants.
California's flawed 1996 deregulation plan required major utilities to sell
many of their power plants to private companies. State Sens. Don Perata,
D-Oakland, and Jackie Speier, D-Hillsborough, are among those calling for the
state to start seizing them.
Such a drastic measure is little more than talk right now.
Drawing just as much attention is a bill by Assemblywoman Ellen Corbett, D-
San Leandro, that would impose a windfall-profit tax on the generators.
GENERATORS' PROFITS UP
Many generators have seen their bottom lines swell as wholesale electricity
prices skyrocketed. Lawmakers have yet to define "windfall profits," but some
favor penalizing generators that sell electricity at rates higher than
regulators deem "fair and reasonable."
The tax would allow some of the profits to be returned to consumers or to the
state, which has spent around $4 billion buying electricity since Jan. 17.
Although any windfall-profit tax has a long way to go before reaching Davis'
desk, the governor said yesterday that it is an idea worth considering.
"I'm not saying I would sign it or not sign it," Davis said, "but having a
bill working its way through the Legislature is not an entirely unpleasant
effect."
Anything that might help consumers is sure to please Davis, who is taking
heat because of a Public Utilities Commission decision allowing utilities to
raise rates by an average of 40 percent.
TIERED INCREASES
The increase would be tiered, meaning those who consume the most would pay
the most. Davis, who frequently said he did not want rates to go up, has
denied knowing about the PUC increase.
Davis told Assembly Republicans yesterday that he would mention the increase
during tonight's address. That prompted some lawmakers to speculate he may
endorse a smaller increase and soften the blow by touting subsidies and
rebates for those who conserve electricity.
Conservation has long been the keystone of Davis' energy plan. The governor
is pushing lawmakers to pass nearly $1.4 billion in energy conservation
programs so he can sign the bills before tonight's address. Such an effort is
sure to go down to the wire, however, because the bills sputtered yesterday.
The bills are a cornucopia of grants, rebates, low-interest loans and other
expenditures intended to reward Californians who cut down on consumption.
"This is aimed at giving Californians commonsense tools to begin energy
conservation as soon as possible," said Assemblywoman Christine Kehoe, D-San
Diego.
But the bills stalled yesterday amid partisan squabbling. The Senate held up
an Assembly bill that would spend $408 million on various conservation
efforts because it objected to changes the Assembly made to a Senate
proposal.
The $1.1 billion Senate bill would set aside $240 million in cash and
conservation assistance for the state's poorest ratepayers. The Assembly
passed the bill yesterday after adding several provisions benefiting the
agriculture industry. Senate Democrats complained the amendments penalized
urban consumers.
Davis has become a tireless cheerleader for conservation, but he realizes it
won't be enough to end the crisis.
Yesterday, he indicated for the first time that he would support allowing
private companies and other large users to cut the utilities out of the loop
entirely by contracting directly with generators for power.
Lawmakers in January passed legislation barring such contracts amid fears the
state would have no one to sell power to. But Davis said yesterday that such
a move could preserve the state's creaking electrical grid during the dog
days of summer.
E-mail Lynda Gledhill and Greg Lucas at lgledhill@sfchronicle.com and
glucas@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?A - 1
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San Jose Looks Past the Energy Crisis
Big server farm OKd in hope the electricity will be there
Maria Alicia Gaura, Chronicle Staff Writer
Thursday, April 5, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/04/05/M
N142441.DTL

Even as the blackouts roll and state budget reserves are drained to purchase
electricity, some Silicon Valley officials are confident that California's
energy crisis will be relatively short lived.
That may explain why a proposal to build the world's largest server farm
sailed through San Jose's approval process this week, despite the fact that
the project will consume as much electricity as all the homes in Bakersfield.
"The state is predicting that there will be a whole bunch of new electrical
power being generated in the next two or three years," said San Jose
Councilman Chuck Reed. "We could eventually be back in the position where
(generators) are begging people to buy their power, like they did in the
1980s. "
The fact that San Jose-based U.S. DataPort wants to build here at all
indicates that even energy-dependent businesses are betting on a rapid
solution to California's energy crisis.
"I am confident about that, and I think the rest of my colleagues in the area
are as well," said Grant Sedgwick, president and CEO of San Jose based U. S.
DataPort. "It won't happen overnight, but in practical terms, we are
embarking on a five- to six-year project right now. I think that halfway
through, this (energy crisis) will be a part of history."
The project approved by the San Jose City Council Tuesday night -- industry
insiders prefer the term "Internet data center" to the less-dignified "server
farm" -- will be the world's largest, able to handle as much as 15 percent of
global Internet traffic.
The $1.2 billion project will comprise 10 huge air-conditioned warehouses on
174 acres, stacked with the computers that run the Internet. The facility is
expected to consume 180 megawatts of electricity when fully built out. There
are scores of smaller server farms in the Silicon Valley area, but none that
comes close to the size, scope and energy draw of the U.S. DataPort facility.
What is significant about all such data centers is that any interruption of
power wreaks havoc on their equipment. In recognition of the current
precarious state of California's electricity grid, U.S. DataPort will build a
small natural-gas fired power plant capable of producing 30 megawatts of
reliable power to supply phase one of its project. That supply will be backed
up more than 80 enormous diesel generators capable of switching on without
missing a beat.
But in order to acquire city permits for additional buildings, the company
will have to devise a plan for additional energy generation on-site, and come
up with a way to eliminate the backup generators that run on highly polluting
diesel fuel.
The company will not necessarily be required to build the extra generating
capacity, or to eliminate the generators. Everything depends on what happens
to California's economy and energy situation in coming years.
"We will be self-sufficient (in energy) for the first couple of years," said
John Mogannam, senior vice-president of U.S. DataPort. "After that, we do
believe that the energy problem will be behind us, and there will be
sufficient energy available on the grid.
"But the City Council has given us a very strong message that we need to seek
ways to (eventually) remove those diesel engines from the site. Building a
full-sized power plant is one option that we will be looking into."
U.S. DataPort is now building a similar-sized data facility in Virginia that
will be powered by a 250-megawatt gas-powered turbine, Mogannam said.
Something similar might work in San Jose, although any final decision on
whether to build will be years away.
Company officials will also study a variety of alternative energy sources,
with the hope that improved technology may make such options viable in the
coming years.
Opponents of the San Jose server farm charge that key portions of the project
are illegally vague. The Santa Clara Valley Chapter of the Audubon Society
may consider a lawsuit challenging the council's approval of the project.
"The biggest potential issue here is that the law doesn't allow you to break
a project into little segments and sneak it into a community," said Craig
Breon, executive director of the group. "If your true plans are to build a
250-megawatt plant in the Alviso area, you have to inform the community. You
have to study it in the environmental documents."
Especially troubling is the suspicion that council members approved the
project with an eye on uncertain future scenarios, Breon said. "They are
talking about a single power plant, but in the meantime we are getting more
diesel with this project than at any other single site in the Bay Area," he
said. "Any way you look at it, it's a major air pollution source."
Mogannam acknowledged that plans for completing the project, including
construction of a power plant, were vague, but pointed out that the city had
final say over any plans for the site.
E-mail Maria Gaura at mgaura@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?A - 15
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More Unpaid Power Plants Face Closing
Owners slam PUC silence about bills
David Lazarus, Chronicle Staff Writer
Thursday, April 5, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/04/05/B
U224271.DTL
As state officials struggle to reduce California's mounting energy debts,
smaller power companies warned yesterday that more plants will shut down --
increasing the likelihood of blackouts -- until they get paid all the money
they are owed.
The California Cogeneration Council, an association of small, gas-fired plant
owners, appealed to the Federal Energy Regulatory Commission for help in
recouping sky-high operating costs from utilities.
The council's move followed a lawsuit filed Tuesday against PG&E Corp. by one
plant operator, Dynamis Inc. The company charges that it was forced to shut
down because PG&E has yet to pay for more than $3 million worth of power.
"You're going to see more lawsuits and more plants closing," council
Executive Director Ann MacLeod said in San Francisco. "The blackout situation
is just going to get worse."
Smaller generators -- known in industry parlance as "qualifying facilities"
or "QFs" -- are owed hundreds of millions of dollars by PG&E and Southern
California Edison for electricity received since last fall.
Half of the roughly 600 QF plants were shut down last month, contributing to
rolling blackouts throughout the state. The plant owners said they were
unable to pay for the natural gas needed to keep their facilities running.
In response, the California Public Utilities Commission voted last week to
require utilities to pay the QFs for all future power purchases. However, the
PUC avoided the thornier question of money already owed to the generators.
It also changed the way smaller generators calculate their costs, lowering
the amount that can be charged for natural-gas expenses.
Moreover, the PUC has yet to determine how the limited funds collected from
ratepayers will be divided among the various parties now in line with their
hands out -- QFs, utilities and the state itself, which has spent more than
$4 billion purchasing juice on behalf of PG&E and Edison.
A final decision still may be weeks away. Nevertheless, PUC members trumpeted
last week's order as a solution to all the QFs' troubles.
"At a time when every megawatt is needed, we cannot afford for any production
to be lost due to lack of payment," Commissioner Carl Wood said.
"This allows us to get supply back online," PUC President Loretta Lynch
agreed. "It will get the lights back on in California."
Or will it?
"The PUC is dead wrong," MacLeod said. "It doesn't add up. There's still the
gaping hole of the bills that are past due."
For example, Berry Petroleum Co. near Bakersfield operates three small plants
that provide 100 megawatts to California's electricity system -- enough power
to light 100,000 homes. The company estimates it is owed $27 million by PG&E
and Edison.
Jerry Hoffman, Berry's chief executive officer, said he has had to shut down
four of five generating turbines at his plants, and expects the fifth turbine
to be idled by the end of this week.
"We just can't cover our costs," he said. "And we're not alone. There are a
lot of other QFs shutting down."
Hoffman said he was bewildered by assertions from Gov. Gray Davis' office
that the state is entitled to recoup its energy expenses before anyone else.
"I don't understand how the state can just step to the front of the line when
all this money is owed to us," he said. "We ought to be paid first because we
were generating power first."
In the case of Dynamis, the company shut down its 42-megawatt plant in
February after PG&E paid only 15 cents on the dollar for more than $3 million
in outstanding bills.
"Dynamis simply does not have the financial resources to continue extending
credit to PG&E, particularly given PG&E's refusal to make any past due
payments and with no assurance of payment for any future deliveries," said
Michel Gaucher, the company's owner.
Dynamis is suing for its back payments as well as suspension of its long-
term contract with the utility.
An average 40 percent rate increase approved by the PUC last week will result
in an additional $4.8 billion being collected from consumers each year.
But not one cent will go toward paying off about $14 billion in debt racked
up by PG&E and Edison because of soaring wholesale electricity prices.
That debt has prevented the utilities from making good on their obligations
to QFs, and it may be months before PG&E and Edison are once again on firmer
financial footing.
Until then, many of the generating firms say they will be closing their
doors, which will only exacerbate California's approaching summer of energy
discontent.
"The PUC's decision not to pay back payments was like a 2 by 4 over the
head," MacLeod said. "It told the plant owners that things are just going to
get worse."
E-mail David Lazarus at dlazarus@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?D - 1
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California governor plans to address state on energy
JENNIFER COLEMAN, Associated Press Writer
Thursday, April 5, 2001
,2001 Associated Press
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2001/04/05/nation
al0614EDT0503.DTL
(04-05) 03:14 PDT SACRAMENTO, Calif. (AP) -- While Gov. Gray Davis prepared
to speak to the state Thursday night about California's energy crisis,
economic forecasters predicted the power crunch would lead to higher taxes
and scrapped public projects.
Davis said Wednesday he hadn't written his five-minute address, but that he
planned to discuss ``the progress that we've made and what we have to get
through.''
Among other things, he was expected to talk about the more than 40 percent
rate increases approved last week by the Public Utilities Commission for
customers of the state's two largest utilities, Pacific Gas and Electric Co.
and Southern California Edison Co. He has asked California television
stations to carry his remarks live.
California has been hit with rolling blackouts and tight power supplies
blamed in part on soaring wholesale electricity costs.
On Wednesday, the state got more bad economic news: The UCLA Anderson
Business Forecast said Californians would face higher taxes and a tighter
state budget because of the billions of state dollars being spent on
emergency power. The blackouts and the state's scrutiny of private power
suppliers also threaten to scare away new businesses, the report said.
Facing continued refusal from federal energy regulators to cap high energy
prices, Davis said Wednesday he would be willing to support a
windfall-profits tax on electric generators that have made a fortune selling
power to California this year.
A bill to that effect was introduced Wednesday in the state Assembly. It
would tax gross receipts that ``significantly exceed'' the cost of producing
power and tax profits of power marketers who have bought power and later sold
it at much higher rates.
``We continue to allow some electricity generators and middlemen to reap
enormous profits on their sales of electricity into the state. This
profiteering must stop,'' Democratic Assemblywoman Ellen Corbett said.
Duke Energy spokesman Tom Williams said he doubted a tax on a selected
industry would be legal. He added that such a tax would discourage generators
from building new power plants in California.
``The governor has made very clear that he is trying to do whatever he can to
increase the amount of generation in California and reduce the price.
Windfall-profits taxes do neither of these,'' Williams said.
Davis said he generally opposes treating profitable companies in that manner,
``but these profits are outrageous and are at our expense. The only things
companies understand is leverage.''
For the first time, Davis also said the state should let companies buy their
power from generators instead of going through the utilities.
The Utility Reform Network and the head of the PUC oppose the idea. They
argue residential customers and small businesses unable to contract with
generators would get stuck with the bill for the billions of dollars the
state has and will spend buying electricity for the customers of the
cash-strapped utilities.
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Critics question effectiveness of energy rebates
DON THOMPSON, Associated Press Writer
Thursday, April 5, 2001
,2001 Associated Press
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2001/04/05/state0
301EDT0100.DTL
(04-05) 00:01 PDT SACRAMENTO (AP) -- Lawmakers Wednesday debated spending
$1.1 billion on conservation programs for energy-strapped California, even as
some critics questioned the effectiveness of rebates and other incentives in
cutting power use.
State officials are counting on consumer conservation to help get California
through high summer power demand as the state faces a tight power supply and
high wholesale energy prices.
The Assembly on Wednesday approved a $710 million conservation package
designed to complement a $408 million conservation measure awaiting Senate
action. Each bill must return to the other house before going to the
governor.
Gov. Gray Davis four weeks ago asked lawmakers to approve $404 million in new
conservation spending to augment $424 million in existing programs. He said
the conservation efforts together could cut 3,700 megawatts from this
summer's power use. That's enough power for more than 2.7 million households.
The measures include rebates for fluorescent lightbulbs and energy-efficient
home appliances.
Such programs appear popular with consumers; Southern California Edison
recently started publicizing its rebates with bill inserts and door hangers,
and in two weeks has received 3,500 responses from interested consumers.
San Diego Gas & Electric distributed what was supposed to be a three-month
supply of energy-efficient lightbulbs in two months, and likely will soon
exhaust $19.4 million in residential conservation incentives that was
supposed to last all year.
Yet critics question whether rebate programs produce the energy savings they
promise.
``Most of these programs end up being a wash,'' said Jerry Taylor, director
of Natural Resource Studies at the conservative Cato Institute in Washington,
D.C.
Many residents who claim the rebates would have purchased the
energy-efficient products anyway, and the incentives aren't likely to
convince those uninterested in conservation to buy expensive energy-efficient
products, Taylor said.
Some programs also can have unintended consequences, he said.
Installing energy-saving air conditioners, for instance, can result in a
``rebound effect'': People rationalize that they can afford to use their
air-conditioning more, Taylor said.
And people who buy new refrigerators often simply move their old ones to the
basement or garage as a spare, he said.
Legislators and utilities are trying to avoid some of the pitfalls, mainly by
offering bonuses to people who turn in their old appliances.
Edison, for example, says it takes into account those who would have
purchased energy-efficient appliances without the rebates.
Even discounting those ``free riders,'' residential rebates are expected to
cut more than 100 million kilowatt hours this year, said Lynda Ziegler,
Edison's director of business and regulatory planning.
That's enough to power 16,700 homes for a year.
Utility-offered rebates vary by company.
Pacific Gas and Electric Co. offers $75, Edison $100, and SDG&E $100 to $150,
depending on the model, for Energy Star-rated refrigerators that generally
sell for more than $1,000.
Some groups contend legislators and utilities haven't been aggressive enough
in promoting conservation.
Five conservation groups joined forces Wednesday to accuse lawmakers of
taking too long to act.
One of them, the California Public Interest Research Group, released a report
touting conservation and renewable energy programs as the key to resolving
electricity problems across the West.
The San Diego-based Utility Consumers Action Network questions whether
utilities have done their best to publicize incentives that in fact take
money out of their corporate pockets.
In a sharply worded letter to PG&E President and CEO Gordon Smith last week,
the state's top utility regulator, California Public Utilities Commission
President Loretta Lynch, said the utility isn't moving quickly enough to
publicize conservation programs.
Smith replied that the programs PG&E instituted late last month ``are ahead
of schedule and exceeding expectations.''
Utilities have made rebates easier to obtain, said Edison's Ziegler and UCAN
energy analyst Jodi Beebe.
``Up until recently it was incredibly difficult for your average Joe to get
their hands on these rebates,'' Beebe said.
Beebe said the information still doesn't reach many consumers at the point of
sale.
Most grocery stores don't carry energy-efficient light bulbs, for instance;
consumers have to make a special trip to a home improvement store. Retailers
often fail to do enough to publicize rebates on specific appliances, Beebe
said.
``It may have some sort of energy-efficient label on it, but people see the
price tag and walk away,'' she said.
That was the case Wednesday at Filco Discount Centers in Sacramento, where
several customers made energy efficiency a top priority -- but steered away
from the top-dollar appliances that carry the Energy Star label and typically
qualify for utility rebates.
Ernest and Monica Marks of Sacramento said they have cut power use in half to
counter soaring electric rates.
But they turned away from an Energy Star refrigerator after one look at the
$1,399 price tag.
They and other Filco customers were unaware of rebates, and a trio of
salesmen there said that is typical.
``People are going to buy energy-efficient appliances whether there are
rebates or not,'' said salesman Mark Brandes. ``The rebates are nice, but I
can't say that it spurs any sales.''
Consumers who can afford the more expensive models are lured by energy-use
savings that manufacturers say can top $100 a year on clothes washers and
dishwashers, Brandes said.
UCAN's Beebe and lawmakers including Senate leader John Burton, D-San
Francisco, worry that means the rebates won't go to the residents who need
them most: those with lower incomes who often buy old used appliances.
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Developments in California's energy crisis
The Associated Press
Thursday, April 5, 2001
,2001 Associated Press
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2001/04/05/state0
939EDT0163.DTL
, , -- (04-05) 06:39 PDT Here is a look at developments in California's
energy crisis:<
THURSDAY:< ?-- Gov. Gray Davis addresses the state on energy, planning a 6:05 p.m. ?five-minute broadcast from his office. ?-- No power alerts were called during the morning as energy reserves stayed ?above 7 percent. ?WEDNESDAY:<
-- Economic forecasters say Californians will pay higher taxes, out-of-state
investments could dry up, and public projects will be scrapped because of the
state's power crisis. The UCLA Anderson Forecast says the worst economic
threat could come from state government itself and its scrutiny of private
power suppliers, which along with blackouts and brownouts, could scare new
businesses away.
-- The state is free of power alerts as reserves stay above 7 percent.
-- The Legislature sends Davis a bill extending a rate cap for San Diego Gas
& Electric's residential and small-business customers to medium and large
businesses.
-- The Senate Appropriations Committee sends the Senate a $408 million energy
conservation measure that would provide grants and loans to improve energy
efficiency at homes, businesses and government agencies. The state Energy
Commission estimates the bill could save 1,700 megawatts this summer, enough
power for nearly 1.3 million homes.
-- An Assembly committee rejects a bill by Assemblyman Dean Florez,
D-Shafter, that he calls an alternative to Gov. Gray Davis' plan to buy the
transmission lines of financially strapped Southern California Edison,
Pacific Gas and Electric Co. and San Diego Gas & Electric Co.
Florez' bill would create special districts of each utilities' properties,
including their land, transmission lines, power plants and even their
corporate offices. Each district would issue bonds against the property, and
the state would assess a tax on that property to repay the bonds. If a
utility defaulted on the taxes, the state would be first in line to take the
property after paying the balance of the bonds.
-- Congressional Democrats including Reps. Mike Honda and Anna Eshoo of
California announce legislation that would impose power rates based on the
cost of service and let Western states recover overcharges by power
suppliers. Honda accuses the Federal Energy Regulatory Commission of failing
to protect California utility customers by taking such steps on its own.
<
WHAT'S NEXT:< ?-- The Davis administration continues negotiations with Edison, PG&E and San ?Diego Gas & Electric Co. over state acquisition of their transmission lines. ?-- FERC holds a conference Tuesday in Boise, Idaho, on Western energy issues. ?-- Edison and PG&E are expected to file their 2000 earnings reports April 17. ?-- The Assembly plans to resume hearings in its inquiry into California's ?highest-in-the-nation natural gas prices April 18. ?< ?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 that the state's electricity deregulation law bars them from
passing onto ratepayers, and are close to bankruptcy.
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.
,2001 Associated Press ?
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Sharp dispute on economic impact in California
Posted at 11:11 p.m. PDT Wednesday, April 4, 2001
BY JENNIFER BJORHUS

Mercury News

In the midst of California's energy angst comes a report from the state's
pre-eminent economic forecasters that may surprise many.
The UCLA Business Forecast, issued Wednesday, concludes that the billions the
state could spend on power will do little more than dent the state's $1.25
trillion economy. Calling the state's rolling blackouts a ``nuisance,''
economist Christopher Thornberg concludes that ``an hour without power can be
viewed as an extended coffee break for most businesses.''
That cheerful prediction drew sharp criticism from other economists and the
business community, but none took issue with a more ominous point highlighted
by the report: There is a dearth of information about just what economic toll
the energy crisis will take on the world's seventh largest economy.
What is the bill for a 36 percent increase in electricity rates, soaring
natural gas bills, the lost output of companies shut down by outages and
costly state electricity purchases?
State financial analysts do not know.
And neither does anyone else, it seems, although estimates range as high as
$100 billion.
Although he expressed doubt about being able to determine the financial hit,
Thornberg said, ``I have a feeling that eventually I'm going to have to sit
down and try.''
In his report, Thornberg estimated the state would spend $30 billion on
electricity. But he did not calculate the total financial impact of high gas
bills or the impact the crisis will have on such things as disposable income,
productivity, inflation and job growth.
Still, Thornberg said, he thinks the crisis will drive up business costs here
just 1 or 2 percent.
``I don't think it's that big a deal,'' he said.
Tell that to dairy processors who have thrown out spoiled milk, or plastics
manufacturer Paul Strong, who reports his Simi Valley company lost $250,000
last year when it was forced to shut down while molten plastic hardened in
the molds.
``Overly cavalier,'' said Allan Zaremberg, president of the California
Chamber of Commerce, explaining that rolling blackouts are a serious problem
for his members.
``Ridiculous,'' snorted Michael Boccadoro, executive director of the
Agricultural Energy Consumers Association.
As part of its state budget-making, California's Department of Finance has
started revising its economic forecast for California to account for power
problems. The analysts will issue the revision around May 15, said the
state's chief economist Ted Gibson.
The Bay Area Economic Forum, too, is working with McKinsey & Company to study
the economic effects on the region. The group expects to finish its analysis
in about two weeks.
For now, lawmakers and others trying to craft solutions are dealing with
dribs and drabs of numbers. Gov. Gray Davis has refused to release details of
the state's power purchases, prompting several news organizations to sue and
other Sacramento politicians to question his decision.
While California operates in the dark, Washington state has already done an
analysis.
State fiscal analysts in Washington did a small study of the energy check
being handed to the state. They concluded that rising electricity and natural
gas prices will erode disposable income by $1.7 billion a year and slow job
growth by half a percent, costing 43,000 jobs that otherwise would have been
added over three years. Energy problems could also tip the state into
recession, the study warns.
``It's a worst-case scenario that presumes nothing is done,'' said Ed
Penhale, spokesman for the Washington Office of Financial Management. ``It's
pretty basic modeling.''
Various California politicians have taken a shot at estimates.
State Controller Kathleen Connell has said the state will spend $26.8 billion
buying energy over the next 18 months, rate increases will cost ratepayers $7
billion and bond financing will cost $12.4 billion. That alone totals about
$46 billion, not including $9 billion to buy the utilities' power grids.
Steve Cochrane, senior economist at Economy.com near Philadelphia, Pa.,
warned that the increase in retail electricity prices will cut disposable
income, slow the California economy and push an already high inflation rate
higher.
Unless businesses save on power costs through more conservation, the increase
in electricity costs alone will push up the price of goods and services
produced in California about 6 percent. Already, he pointed out, the area's
6.5 percent inflation is double the nation's.
Cochrane's team is trying to build a model to measure the impact, he said,
adding that he is ``much more alarmed'' than Thornberg.
``The whole country is watching this,'' Cochrane said.
He said slowing job growth, slowing retail sales, lost productivity and
reduced disposable income, together with energy purchases could total $100
billion.
More worrisome, Cochrane said, are the long-term effects on the California
economy over the next 10 years. Higher energy costs will make businesses
think hard about expanding in the state, he said. And wiping out the general
fund surplus means the state will not have the cash to spend on things like
new schools and public works projects, undertakings that produce jobs.
Jack Kyser, chief economist for the Los Angeles County Economic Development
Corporation, agrees. Kyser estimated that rolling blackouts during just two
weeks in January alone cost businesses in his area around $500 million.
``Maybe it's because I'm too close to it. I think that this has the potential
to seriously affect the state,'' said Vince Signorotti, spokesman for
CalEnergy, a geothermal generator in southern California that is suing
Southern California Edison for money it has not been paid for power. ``To
ignore the colossal impact that this could have, it's sort of myopic.''

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

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Gov. Davis prepares to address state on energy
Posted at 6:40 a.m. PDT Thursday, April 5, 2001
BY JENNIFER COLEMAN

Associated Press Writer

SACRAMENTO (AP) -- While California Gov. Gray Davis prepared to address the
state Thursday night on energy, economic forecasters predicted his
constitutents will pay higher taxes, watch out-of-state investments evaporate
and suffer scrapped public projects because of the ongoing power crisis.
The UCLA Anderson Forecast says the worst economic threat could come from
state government itself and its scrutiny of private power suppliers, which
along with blackouts and brownouts, could scare new businesses away.
Davis addressed some commercial concerns Wednesday by breaking with his
appointees on the Public Utilities Commission by saying private companies and
other large power users should be allowed to contract directly for power with
generators.
Critics of allowing direct access include PUC President Loretta Lynch and The
Utility Reform Network, who say residential customers and small businesses
unable to garner such contracts will get stuck with the bill for the billions
of dollars the state has and will spend buying electricity for the customers
of three cash-strapped utilities.
Word came from California's treasurer Wednesday that the state had secured
$4.1 billion in loans to help pay back the state's power buys.
Facing continued refusal from federal energy regulators to cap high energy
prices, Davis reassessed the tools at his disposal Wednesday, saying he is
open to supporting a windfall-profits tax being proposed by lawmakers on
electric generators that have made a fortune selling power to California this
year.
Assemblywoman Ellen Corbett, D-San Leandro, introduced a windfall-profits tax
bill Wednesday that would tax gross receipts that ``significantly exceed''
the cost of producing power.
It would also tax profits of power marketers who have bought power and later
sold it at much higher rates. The rate of the tax was not specified in the
bill, and Corbett said she expects the details to be worked out later.
``We continue to allow some electricity generators and middlemen to reap
enormous profits on their sales of electricity into the state. This
profiteering must stop,'' said Corbett.
Senators on the Revenue and Tax Committee have also inserted similar language
into a pending bill.
Tom Williams, spokesman for Duke Energy, said he doubted a tax on a selected
industry would be legal. The tax would discourage generators from building
new power plants in California, he said.
``The governor has made very clear that he is trying to do whatever he can to
increase the amount of generation in California and reduce the price.
Windfall profits taxes do neither of these,'' said Williams.
``Clearly it would have an adverse affect on our decisions on new investment
or following through on our planned investments,'' he said.
Davis said Wednesday he generally opposes treating profitable companies in
that manner, ``but these profits are outrageous and are at our expense. The
only things companies understand is leverage. I'm not saying I'll sign it and
I'm not saying I won't sign it.''
For the first time, Davis also said the state should let companies buy their
power from generators instead of going through the utilities.
A January law that allowed the state to begin buying power for two nearly
bankrupt utilities barred such side contracts.
``That was done originally with the thought the state would have more power
and no one to sell it to if companies got off the grid,'' Davis said. ``But
our problem is the opposite this summer. If companies want to get off the
grid, we should encourage, not discourage that.''
The Democratic governor's comments came after he met behind closed doors for
more than two hours with Assembly Republicans, who have sharply criticized
his handling of the energy crisis.
``I think everyone agreed there are no political winners unless we resolve
this challenge,'' Davis said. ``There were a lot of suggestions in there I'm
willing to adopt.''
For instance, he agreed that San Diego Gas and Electric customers should have
a different benchmark for receiving 20 percent rebates under his program for
consumers who cut their energy use by 20 percent this summer.
Unlike other Californians, San Diego residents faced soaring rates last
summer and began conserving then, so Davis said they should have to cut 20
percent from 1999 energy use levels instead of using last summer as a
starting point.
Davis said he hasn't written the remarks he will make during a five-minute
address at 6:05 p.m. Thursday that he has asked California television
stations to carry live.
However, he said he will ``share with them (viewers) the progress that we've
made and what we have to get through.''
He is expected to talk about the more than 40 percent rate increases approved
last week by the PUC for customers of Pacific Gas and Electric Co. and
Southern California Edison Co.

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Too much hot air about too little power
Thursday, April 5, 2001
To deal more directly with the energy crisis, Assembly Republicans last week
replaced Assemblyman Bill Campbell of Orange as their leader with Assemblyman
David Cox of Sacramento. Mr. Cox has some good ideas, but we would urge him
not to use the energy crisis, tempting as it may be, for pure political gain.
His mission should be to fix the mess as much as possible before the summer
crunch is upon us.
Mr. Cox is a former Sacramento County Supervisor and served on the Sacramento
Municipal Utility District Board of Directors, giving him some experience in
the electricity field. In an interview, he outlined the party's main goals,
which we found encouraging:
l "We will continue to introduce plans and bills that expedite new supply,"
he said. He criticized Democratic solutions, including Gov. Gray Davis'
proposal to buy the power grid and Assembly Bill 1X, which gave the
government the authority to use bonds to buy power. Neither creates any new
energy, Mr. Cox said. "There is one solution, putting more electrons into the
system," he insisted. He said some Democrats also understand that fact.
l "Get the QFs back on line in a contractual situation," he said. The
qualifying facilities are small producers, usually of alternative sources
such as wind and geothermal power. "They have to see some prospect of getting
the money that's owed to them" by the utilities, which have withheld payments
because of their strapped financial situation. The QFs limited their
production during last month's blackouts. The QFs supply one-third of the
state's power and are crucial to limiting blackouts this summer.
l Conservation.
And, he said the GOP opposes rate increases. He believes natural gas prices
will decline as the weather moderates in Western states and demand slackens.
He said, of course, that the attempted 1996 "deregulation" was flawed. But he
believes real deregulation can work, as it has in other states "if you have
12 percent to 15 percent more supply than demand. You then have competition
and competition brings down rates." By contrast, California has to import
about 20 percent of its power.
Republicans are a minority in both houses of the Legislature. But they
obviously hope to score political gains against the reigning Democrats, who
so far have not been able to shape and communicate an approach to weathering
and recovering from the crisis. Mr. Cox's ideas generally are good -
obviously increasing supply is key - but the Republican opposition to retail
rate increases seems as na<ve (and unbelievable) as the governor's.
The hard truth is that energy prices everywhere have risen, including not
only natural gas but gasoline and diesel fuel.
We would reiterate to Mr. Cox and to the GOP to minimize politically
motivated positions and focus on the merits of a strong recovery plan.
California needs to move beyond politics and toward solutions. Mr. Cox should
help lead the way.

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More pain predicted in electric crisis
Most economists say increases in utility bills will take some toll on the
state's condition - sooner or later.
April 5, 2001
By MARY ANN MILBOURN
and KATE BERRY
The Orange County Register
Californians haven't yet felt the full economic effect of electric rate
increases, but it's coming, many regional economic experts said Wednesday.
The rate hikes are like a $5 billion tax, said economist Anil Puri, dean of
the school of business and economics at California State University,
Fullerton.
"It will have a negative impact on consumer confidence as well as on the
pocketbook," he said. "Prices in general are going up, there are fewer jobs
and falling incomes. Every little bit adds to that misery. You can't ignore
it."
Economists differ about when and how strongly the effect of rising
electricity prices will be felt. That's in part because the effects aren't
yet showing up in economic surveys.
Businesses and consumers, however, report that they are already hurting
because of rising power costs.
Steven Zimmerman, managing director of the Standard & Poor's bond rating
agency, said it's hard to determine right now how much of the state economy
is already being affected by the rate increases and how much is just the
overall slowdown.
"If the energy crisis goes on for some length of time, it will affect the
economy," said Zimmerman, speaking Wednesday at the quarterly UCLA forecast
conference.
Economist Esmail Adibi, director of the Anderson Center for Economic Research
at Chapman University in Orange, said the 9 percent electricity rate increase
in January had little effect because it was offset in large part by a
quarter-percent sales tax cut.
"But the newest increase will be about $4.8 billion in extra cost," said
Adibi, who released his own economic forecast in December. "It's going to
have some negative impact."
The economist who foresees the smallest effect is UCLA visiting Professor
Christopher Thornberg, who told the quarterly UCLA economic forecast
conference that electricity prices would have relatively little economic
effect on the long-term economy.
Thornberg said electricity is such a small part of the overall cost of doing
business that even the companies that have to bear the greatest burden,
paying up to 36 percent more for power, will see little effect on their
bottom line.
Consumers, he said, will be paying more, but it should not affect their
overall spending.
"Certainly it's going to sting. Certainly it's going to decrease profits, but
it's not that big a hit," he said.
Puri, who will release his own economic forecast in May, said Thornberg
appeared to be understating the short-term effect of the rate increases.
UCLA economist Tom Lieser expects that the electricity crisis will have an
effect not only on business, but also on government services, because of the
$14 billion in bonds the state is expected to sell to pay off its electricity
purchases.
"It's nothing that will bankrupt us, but it's money that could have been used
on something else," Lieser said.
UCLA economists, for example, believe what remains of the state surplus will
be used to finance K-12 education, but budgets for universities, prisons,
health care and welfare will not get the funds that had been expected.
Locally, the rate increases are affecting the Orange County budget.
Diane Thomas, county spokeswoman, said only $13.3 million was budgeted for
this fiscal year for electricity and natural gas, about the same as what was
spent last year.
But by the end of the fiscal year on June 30, the county expects to have
spent an additional $2.6 million on electricity and natural gas. Officials
tentatively expect to budget about $18.6 million for fiscal 2001-2002.
Dick Collins, president and chief executive officer of Astech Manufacturing
in Santa Ana, said the rate increases are hurting now.
"We had a 15 percent increase (in electricity costs) in January and (expect)
a 40 percent increase next, so we're talking a 50 percent to 60 percent
increase," said Collins, whose company makes exhaust systems for airplane
engines. "To say that doesn't have an impact is laughable."
He said power costs have run about 5 percent of his total sales, but now he's
looking at a more than 50 percent increase in his electric bill.
Because he needs reliable power, Collins said he is also investing in a
backup diesel generator for $250,000 - 20 percent of his annual capital
budget.
"I think (Thornberg) is na<ve," Collins said.
Consumers, too, are having a tough go of it, said Eugene N. Cramer, a retired
San Clemente engineer, who got hit by San Diego Gas & Electric's increases
last summer.
"When our utility bills went up $300, we didn't buy as much, we decided to
forgo a vacation," he said.
Register staff writer Chris Reed contributed to this report.

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'Windfall tax' on power profits?
Assembly Democrats target profiteering.
April 5, 2001
By Daniel Taub
Bloomberg News
SACRAMENTO - Electricity generators and traders whose profits in California
are deemed to be excessive would pay a "windfall profits" tax under a plan
endorsed by Democrats in the state Assembly.
Assembly Bill 128-X, introduced Wednesday in the Assembly, would impose the
tax retroactive to Jan. 1. The bill's authors haven't decided what percentage
above a generator's or trader's cost to deliver electricity would be deemed
"windfall profits."
"The intent of the bill is to discourage profiteering," said Assemblywoman
Hannah- Beth Jackson, a Democrat from Santa Barbara and one of the bill's
authors.
California's two largest electric utilities, PG&E Corp.'s Pacific Gas &
Electric and Edison International's Southern California Edison, are on the
verge of bankruptcy. They racked up more than $14 billion in losses over the
past year buying power at prices higher than they were allowed to charge
customers.
Gov. Gray Davis has dubbed generators "out-of-state profiteers" who collected
billions of dollars from electricity sales while pushing PG&E and Edison
toward insolvency. California's power-grid manager has alleged that
generators and traders overcharged California by $6.8 billion between May and
February.
Generators criticized Assembly Bill 128-X as being unnecessary and a
disincentive to power sellers wanting to do business in California.
"We have said the rates that we have charged have been just and reasonable
and therefore there is no basis for a windfall tax," said Steve Stengel,
spokesman for Houston-based Dynegy Inc.A windfall-profits tax "does nothing"
to solve the power shortage in California, said Richard Wheatley, spokesman
for Houston-based Reliant Energy Inc., which operates power plants in the
state. The state experienced two days of blackouts last month after power
demand outstripped available supplies.

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PUC chief takes issue with utilities' claims on power crisis
April 5, 2001
By KATE BERRY
The Orange County Register
Loretta Lynch, president of the California Public Utilities Commission, said
Wednesday that California is "in a war" with sellers of electricity -
corporations that she said have drained much of the value out of the
California economy.
Lynchaddressed more than 300 business executives at UCLA's quarterly Anderson
economic forecast conference.
Of the state's electricity crisis, Lynch sought to dispel five myths she said
businesses and consumers believe about the state's power problems:
Utilities claim they were not allowed to enter long-term contracts, which
would have lowered prices. On the contrary, Lynch said utilities were given
the authority nine times to enter contracts to hedge their prices going
forward.
The utilities plan to pass on real electricity costs to consumers on their
bills if they win pending court cases.
Lynch said the utilities are responsible for the risk of higher costs.
"The utilities made their bargain and the Federal Energy Regulatory
Commission blessed that bargain," she said.
Increased electricity supply would cause prices to drop.
"It's not simply a question of supply because if it were, prices would track
demand," Lynch said.
Instead, prices in California remain high during periods of very low demand
including at night, in early morning hours and during winter months when
there is less consumption. In December 1999, when consumption in California
was less than 20,000 megawatts at 10 p.m. on the average day, costs averaged
$24 a megawatt-hour, Lynch said. By comparison, in December 2000, during
periods of the same consumption, electricity prices averaged $212 a
megawatt-hour.
Early rate hikes would have solved everything.
Electricity prices began skyrocketing in December, Lynch maintains, because
FERC lifted a $250 cap on wholesale prices.
"Without price caps, all we do is enable further gaming of the market," she
said.
The market will impose price discipline on energy sellers.
Lynch claimed the decisions that led to deregulation were based on ideology,
not facts. The ideology, she said, led people to assume power generators
would be curbed by market forces. Instead, the generators were able to take
advantage of those forces, she said.

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State borrows $4.1 billion for power
Governor, Water Resources Department must reveal details on buys for three
struggling utilities.
April 5, 2001
By Alexa Haussler
The Associated Press
SACRAMENTO - California has secured $4.1 billion in loans to help pay back
state money spent to buy power for three financially struggling utilities,
the state treasurer said Wednesday.
To close the deal, Gov. Gray Davis and the state Department of Water
Resources must release details of how much the state has spent and expects to
spend on the power buys, Treasurer Phil Angelides said.
The loans are needed to preserve state government's financial health, he
said.
"If we continue to chunk out of the general fund without end, we're going to
deplete our treasury, we're going to harm the very programs that we care
about and our credit rating will come down," Angelides said.
Angelides delivered a letter to Davis on Wednesday detailing the terms of the
loan and pressing him to reveal details of the state's past and expected
power purchases. Davis' director of finance, Tim Gage, said Angelides' letter
was "old news."
"The treasurer is well aware of the extensive due diligence being conducted
by the Department of Water Resources in preparing the revenue requirements
and cash flow analysis for power purchases to be submitted to the (Public
Utilities Commission)," Gage said.
Davis last week asked lawmakers to approve spending another $500 million to
buy power on behalf of the state's three strapped investor-owned utilities,
Southern California Edison, Pacific Gas and Electric and San Diego Gas &
Electric, raising state money committed to the power buys to $4.7 billion.
Davis administration officials told several key Democratic Assembly members
last month that the state's power-buying for the utilities could cost $23
billion by the end of next year.
Angelides said the loans would be provided by J.P. Morgan, Lehman Brothers
and Bear Stearns and would be offered at a 5.38 percent interest rate as long
as they are paid back by Aug. 29.
The state expects to pay them back after issuing revenue bonds in May to
raise more money for its power buys, he said. Those bonds will eventually be
repaid by Edison and PG&E customers.
The DWR has bought power for the utilities since early January, when Edison
and PG&E disclosed they were on the verge of bankruptcy and electricity
suppliers began denying credit.
Edison and PG&E say they have lost more than $14 billion since June due to
high wholesale power costs the state's deregulation law blocks them from
recovering from their customers. The San Diego utility is also struggling
with soaring wholesale prices, although unlike the other two much larger
utilities, it has not characterized itself as near bankruptcy.
Standard & Poor's credit-rating agency has had the state under review for
possible downgrade since its power-buying began.

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Electricity notebook
Davis to discuss power crisis in televised address.
April 5, 2001
SACRAMENTO - Gov. Gray Davis, in his first statewide television address
targeting California's energy crisis, tonight will discuss last week's
increase in electricity rates and his attempts to ease the state's power
crisis.
The Democratic governor's five-minute remarks are scheduled for 6:05 p.m. and
will be carried by stations across the state, according to Davis press aide
Steve Maviglio.
"The governor will discuss rates. No discussion of electricity would be
complete without rates. But there are other things. He will also talk about
conservation, generation and the solvency of the state's utilities," Maviglio
said.
Davis has said the recent decision by the state Public Utilities Commission
to boost electricity bills by as much as 36 percent was premature and based
on insufficient data.
He said this week he would soon offer his view of whether rates should have
been increased.
The governor has said for months it was his "hope and expectation" that
electricity rates would not be raised. But in recent weeks he said he would
consider seeking an increase if the "good of the state" required it.
Utility owner, state differ on value of firm's share
SAN DIEGO - Sempra Energy, owner of California's third-largest utility, wants
$1.4 billion for its part of the state's power grid, while state officials
have offered $1.2 billion, Sempra Chief Executive Stephen Baum said.
California officials want to buy the power-transmission assets of
California's utilities to help Edison International and PG&E Corp. pay more
than $14 billion in power- buying debt.
For the plan to work, the state needs the systems of all three utilities,
Baum said.
Edison reached a tentative agreement with the state to sell its power lines
for $2.76 billion last month.
After Edison's final agreement, rescue pacts are expected to be reached with
PG&E and then Sempra, Joseph Fichera, the state's top energy crisis adviser,
said last week.
Sempra will move quickly to close an agreement once its turn comes, Baum
said.
"I hope it goes through and I hope it goes through soon," Baum told an
investors' conference in New York.
San Diego-based Sempra can invest money from the sale more profitably in
power plants in the United States and abroad, he said.
The Legislature would have to approve the transactions.
Blackouts are "inevitable" this summer in California, when demand for
electricity will outstrip supply on the hottest days by as much as 5,000
megawatts, or enough to light 5 million U.S. homes, Baum said.
"I don't see a significant demand reduction and there's not going to be
enough power generation in place," Baum said.
Register staff writer John Howard and Bloomberg News contributed to this
report.

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California Regulators Face Backlash

By MICHAEL LIEDTKE
AP Business Writer
SAN FRANCISCO (AP) via NewsEdge Corporation -
Some Californians have turned to song and rhyme to vent their anger at the
commission that approved electricity rate increases for customers of the
state's cash-strapped utilities.
``Your stench of unspoken arrogance disgusts us,'' said San Francisco
resident David Alt, reading an acerbic poem.
``I'm reading now by candlelight, wrapped in blankets day and night,'' rapped
retired teacher Wellingby Boyce of Davis, drawing applause Tuesday at a
meeting of the Public Utilities Commission.
The commission last week approved rate increases of more than 40 percent for
customers of Pacific Gas and Electric Co. and Southern California Edison Co.
On Wednesday morning, the state was free of power alerts as reserves stayed
above 7 percent. State power grid officials issued a Stage 2 alert _ meaning
reserves were below 5 percent _ on Monday after transmission lines were
downed by high wind, interfering with electricity imported from the
Northwest.
Commissioner Geoffrey Brown dismissed the protesters at Tuesday's meeting as
unruly ``self-appointed activists'' who were long on rhetoric and short on
solutions.
Commission President Loretta Lynch said she believed the protesters conveyed
widespread frustration over the rapidly rising price of power.
``I'm glad people are upset because it means they are paying attention,''
Lynch said. ``Hopefully, we can all band together against the energy
wholesalers responsible for this mess.''
The majority of protesters belonged to the Green Party and a group called
Public Power Now, which are pushing the state to seize control of the
regulated utilities and California's electricity plants.
On Monday, the Public Utilities Commission agreed to investigate the parent
companies of PG&E and SoCal Edison, as well as Sempra Energy Corp., the
holding company for San Diego Gas and Electric, for possible financial
misconduct.
The companies said they have done nothing wrong and described the PUC
investigation as a waste of time.
The inquiry will focus on whether PG&E Corp. and Edison International milked
the nearly bankrupt utilities for cash and hoarded profits from their
unregulated businesses that should have been used to help bail out the
utilities.
Forced to pay more for electricity on the wholesale market than they could
charge their customers under the state's 1996 energy deregulation law, the
two utilities say they have run up combined debts of about $14 billion over
the last 10 months.
Gov. Gray Davis has promised that electricity from new plants will stay in
California, but it is unclear if new power plants can be forced to sell their
electricity to the state, The Sacramento Bee newspaper reported Wednesday.
Attorneys for the state Energy Commission, which has a role in approving new
large power plants, said they believe the state cannot stop them from
exporting power, even in exchange for a rushed environmental review of their
projects.

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ICF Consulting Study Predicts Turning Point in Wholesale Power Markets

FAIRFAX, Va., April 4 /PRNewswire/ via NewsEdge Corporation -
ICF Consulting recently completed the Fourth Edition of its Bulk Power
Outlook subscription study, which concludes that the outlook for the
wholesale power markets is at a turning point. After years of generation
capacity shortages, the number of new plants under construction promises an
end to shortages in one to three years in practically every U.S. regional
power market.
ICF Consulting does not believe this turning point will occur everywhere at
the same time. California, other western states, and some other markets face
potentially serious shortages this summer. "California faces potentially
severe problems this summer," says Judah Rose, managing director of ICF
Consulting's wholesale power practice. "However, even California can expect
to be in balance within three years and prices will moderate and extreme
price spikes will occur less frequently. Also, we are very concerned about
New York City for this summer."
ICF Consulting's previous three editions of Bulk Power Outlook strenuously
warned that the lack of construction would result in extremely high prices
reaching thousands of dollars per MWh. "Since 1995, we advised everyone to
develop generation and/or secure it, even peaking facilities, because prices
were going to skyrocket," says Rose. "At the time, ICF Consulting was the
only entity to anticipate correctly the current high prices and shortages.
Today a different approach is needed."
Using the same ICF Consulting IPM(TM) power model from previous studies, this
Outlook predicts that the current level of plant construction is enough to
solve shortages. Since construction takes two to three years, relief will not
be available this summer. In a few markets, construction is more than
sufficient -- e.g., ERCOT (Texas). "Regulators, consumers, and producers need
to be sensitive to current difficulties and base decisions on future
developments," says Rose. "Moderating oil and gas prices over the same period
also will help lower power prices. In addition, a return to normal hydro
conditions by 2002 will further reinforce the effects of new plant
construction."
The implications of this change in wholesale market conditions are far
ranging. First, regulators can expect market conditions to be more supportive
of deregulation, especially if they facilitate private-sector initiative.
Second, power plant developers will need to be more selective. Third,
unregulated retail sales will be more feasible, reversing a trend of
significant problems in developing retail businesses. "Our findings are not
that markets don't work but rather they don't work perfectly, especially when
barriers combine with lack of experience. We can clearly see a powerful
market response to four years of high prices," Rose concludes.
For more information on this topic or to obtain a copy of Fourth Edition Bulk
Power Outlook study, contact Judah Rose at 703-934-3342 or Elizabeth Kaiga at
703-934-3497.
ICF Consulting, with more than 30 years of experience, is one of the world's
leading professional services firms advising clients on managing global
resources in a sustainable way. ICF Consulting helps clients optimize energy
resources, meet environmental challenges, foster economic and community
development, enhance transportation projects and policies, and manage
information technology resources. ICF Consulting's 800 employees are based in
16 offices around the globe, including offices in Bangkok, Fairfax, London,
Los Angeles, Melbourne, Moscow, New York, San Francisco, Toronto, and
Washington, D.C. The firm reported gross revenue of $109 million in 2000. For
additional information, please visit our Web site at
http://www.icfconsulting.com .

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Thursday, April 5, 2001

By Kathleen McFall
kmcfall@ftenergy.com

Worldwide energy consumption is projected to grow by 59% over the next two
decades, according to International Energy Outlook 2001 (IEO), a report
released last week by the U.S. Energy Information Administration (EIA). The
IEO is an annual projection of worldwide energy trends for the subsequent
20-year period.

A whopping half of the projected growth is expected to occur in the
developing nations of Asia (including China, India and South Korea) and in
Central and South America, where strong economic growth is expected to spur
robust demand for energy.

The report predicts, in a base-case scenario, that oil prices will remain at
current levels of $25 to $28 per barrel until 2003 when they return to the
price trajectory anticipated in last year's outlook for the mid-term. Last
year, the agency forecasted world oil prices would be $22 per barrel in
constant 1998 U.S. dollars ($36 per barrel in nominal dollars) at the end of
the projection period.

"Persistently high world oil prices, stronger than anticipated economic
recovery in Southeast Asia and robust economic growth in the former Soviet
Union (FSU) have all impacted the mid-term outlook for world energy use," the
current report said.

Natural gas will dominate
The report forecasts that natural gas will remain the fastest growing
component of primary world energy consumption. Over the next two decades, gas
use is projected to nearly double*reaching 162 trillion cubic feet in 2020.
Natural gas is expected to account for the largest increment in electricity
generation (accounting for 41% of the total increment in energy used for
electricity generation).

"Gas use surpassed coal use (on a Btu basis) for the first time in 1999, and
by 2020 it is expected to exceed coal use by 44%," said the report.

While the official forecast is that natural gas will dominate world energy
growth and realize substantial market growth based on extrapolation of
current fundamentals, concern is percolating among some industry players
about the potential demand destruction that could accompany high gas prices,
at least in U.S. markets.

"If we continue to see $5 and $10 gas prices over any extended period of
time, the likelihood that natural gas will capture the market opportunities
that are presented is remote," said Bill Hobbs, president of energy marketing
and trading at Williams Cos. Inc.

In the U.S, high natural gas prices have industry insiders pondering the
possibility of new coal or nuclear plants, an option that just last year
would have seemed politically infeasible.

"I think a healthy gas price is in the $2.50 to $3 range," said Hobbs, as
reported by Reuters, after addressing the Ziff Energy North American Natural
Gas Strategies Conference in Houston.

Recent EIA projections for the domestic gas industry are above these levels.
It is "unlikely that wellhead prices will decline to the level of $2 per
thousand cubic feet of one year ago," Mary J. Hutzler, EIA's director of
forecasting, told a House committee late in March. "In 2001, the average
wellhead price is projected to be about $4.70 per thousand cubic feet."

Nuclear grows, renewables slow
Worldwide, nuclear power will continue to remain viable during the forecast
period, said the IEA report. Global consumption of electricity generated from
nuclear power is expected to increase from 2,396 billion kWh in 1999 to 2,636
billion kWh in 2015 before declining to 2,582 billion kWh at the end of the
forecast period.

"Most of the growth in nuclear capacity in the reference case is expected to
occur in the developing world (particularly developing Asia), where
consumption of electricity from nuclear power is projected to increase by
4.9% per year between 1999 and 2020," said the report. Nuclear growth from
new plants in the industrialized world is not anticipated except in France
and Japan.

Renewable energy use is projected to rise by 53% between 1999 and 2020, but
its current 9% share of total energy consumption will drop to 8% by 2020. The
agency attributes this to the fact that renewable energy will remain costlier
than fossil fuel alternatives. "Despite recent high prices, over the long
term energy prices are forecasted to remain relatively low, constraining the
expansion of hydroelectricity and other renewable resources," the report
said.

"Much of the growth in renewable energy over the next two decades is
attributed to large-scale hydroelectric projects in the developing world,
particularly developing Asia, where China, India and other developing nations
(Malaysia, Nepal and Vietnam, among others) are already building or planning
to build hydro projects that each exceed 1,000 MW," concluded the agency.

Energy intensity improves
In the IEO forecast, energy intensity*energy consumption per dollar of gross
domestic product*in the industrialized world is expected to improve
(decrease) by 1.3% per year between 1999 and 2020, about the same rate of
improvement observed between 1970 and 1999.

"Energy use per person generally declined from 1970 through the mid-1980s,
and then tended to increase as energy prices declined. Per capita energy use
is expected to increase slightly (in the U.S.) through 2020, as efficiency
gains only partially offset higher demand for energy services," said EIA's
Hutzler in her congressional testimony. Energy intensity is also projected to
improve in the developing countries*by 1.4% per year*as their economies begin
to behave more like those of the industrialized countries as a result of
improving standards of living.

Extrapolation of all these trends leads to predictions of growth in carbon
dioxide emissions of 5.8 billion metric tons carbon equivalent in 1990 to 7.8
billion metric tons in 2010 and 9.8 billion metric tons by 2020.

"The rate of worldwide energy and carbon emissions growth would be
considerably higher, except for continued improvements in energy intensity,"
the report said.

Not surprisingly, much of the rise in carbon emissions will occur in the
developing world, where emerging economies are expected to produce the
largest increases in energy consumption despite current low emissions
relative to industrialized countries. Developing countries account for 81% of
the projected increase in carbon dioxide emissions between 1990 and 2010 and
account for 76% between 1990 and 2020. For context, the U.S. produces about
20% of the existing carbon emissions.