Please see the following articles:

Sac Bee, Wed, 5/16:  "Double power punch: Rate hikes set; blackout blues
ahead"

Sac Bee, Wed, 5/16:  "An energy council expects five times the outages
forecast"

Sac Bee, Wed, 5/16:  "Generator, environmental groups strike deal "

Sac Bee, Wed, 5/16:  "Blackouts may create shortage of water: State officials
warn that supplies for drinking and fire hydrants are vulnerable because
pumps can fail during power outages"

Sac Bee, Wed, 5/16:  "Dan Walters: Rate raise -- Genuine conflict or tightly
scripted political melodrama?"

Sac Bee, Wed, 5/16:  "Budget reserve plan stirs up a fight: Gov. Davis backs
drawing down the emergency fund. Others say it could lead to tax hikes or
massive cuts"

Sac Bee, Wed, 5/16:  "Democrats lay out energy plan: Leaders call for caps on
wholesale prices and tax breaks for oil and gas production"

Sac Bee, Wed, 5/16:  "Judge names panel in PG&E case"

SD Union, Wed, 5/16:  "SDG&E area spared for now by big rate hikes"

SD Union, Wed, 5/16:  "State credit rating takes another hit over energy
crisis"

SD Union, Wed, 5/16:  "House Democratic plan calls for power price caps"

SD Union (AP), Tues, 5/15:  "Southern California Gas plans pipeline expansion"

SD Union (AP), Tues, 5/15:  "Cheney's energy plan will offer no quick fixes
on gasoline prices"

LA Times, Wed,  5/16:  "$5.7-Billion Energy Rate Hike Is OKd"

LA Times, Wed, 5/16:  "State Has Lost Global Lead in 'Green' Power"

LA Times, Wed, 5/16:  "All-Out Attack on Bush Energy Plan Is Readied"

LA Times, Wed, 5/16:  "A One-Two Punch in the Budget"

LA Times, Wed, 5/16:  "260 Hours of Summer Blackouts Predicted"

LA Times, Wed, 5/16:  "Your new electric bill"   (Graphic)

LA Times, Wed, 5/16:  "Just Not Enough Electricity"  (Audio from Gil
Alexander, Calif. Edison)
http://www.latimes.com/business/reports/power/gr_bill010516.htm#

SF Chron, Wed, 5/16:  "The power behind the POWER
Business as usual for PG&E's well-connected board"

SF Chron, Wed, 5/16:  "The Power behind the POWER
PG&E board doesn't suffer from energy crisis "

SF Chron (AP), Wed, 5/16:  "California electric rates jump to second highest
in country"

SF Chron (AP), Wed, 5/16:  "Industry sees worse-than-expected summer power
shortages"

SF Chron, Wed, 5/16:  "Contra Costa acts on energy
Hiring freeze, lawsuits planned by supervisors"

SF Chron, Wed, 5/16:  "Memo suggests Texas firm manipulated gas market "

SF Chron, Wed, 5/16:  "Bush follows stump script on energy
Policy announcement today was presaged in Michigan talk"

SF Chron, Wed, 5/16:  "PUC tags consumers with huge rate boost
ELECTRICITY BILLS: Burden shifts from business to heavy residential users"

SF Chron, Wed, 5/16:  "Davis finds his ramrod for risky energy bill "

SF Chron, Wed, 5/16:  "Energy at a Glance"

SF Chron, Wed, 5/16:  "PUC tags consumers with huge rate boost
NEWS ANALYSIS
Politicians see no need to promote urge to conserve"

SF Chron, Wed, 5/16:  "SAN JOSE
County conserving its air conditioning"

Mercury News, Wed, 5/16:  "California rate hike hits homes, businesses"

Mercury News, Wed, 5/16:  "Electricity users struggle to meet savings target"

Mercury News, Wed, 5/16:  "What is the baseline on electricity bills, and why
has
it become so important?"

Mercury News, Wed, 5/16:  "California PUC approves power rate hike plan"

Mercury News, Wed, 5/16:  "Energy report may lead to new battle on drilling
along California's coast"
Mercury News, Wed, 5/16:  "Energy plan gives GOP the jitters"
(Commentary)

OC Register, Wed, 5/16:  "Biggest rate hike in state history"

OC Register (AP), Wed, 5/16:  "Democrats want energy price limits"

OC Register, Wed, 5/16:  "Energy notebook
Electricity-bond delay lowers state credit standing"

OC Register, Wed, 5/16:  "Burden falls on residents"

OC Register, Wed, 5/16:  "Anaheim Mills runs out of gas"

OC Register (AP), Wed, 5/16:  "Judge: Memo hints at gas market abuse"

Energy Insight, Wed, 5/16:  "Power in the Northeast thinking locally, acting
locally"

Individual.com (AP), Wed, 5/16:  "PG&E, State Regulators Spar in Court"

NY Times, Wed, 5/16:  "Bush Task Force on Energy Worked in Mysterious Ways"

WSJ, Wed, 5/16:  "California Could Face Cash Crunch Soon --- Spending on
Power Worries Treasurer,
and Moody's Cuts State Bond Ratings"
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Double power punch: Rate hikes set; blackout blues ahead
By Carrie Peyton
Bee Staff Writer
(Published May 16, 2001)
The shouts and chants, boos and catcalls were the sound of the other shoe
dropping.
Seven weeks after state regulators voted to raise electric rates for
customers of Pacific Gas and Electric Co. and Southern California Edison by
$5 billion annually, Tuesday they sorted out just who will pay and just how
much.
Some of the state's biggest industries will have to spend 50 percent more for
their electricity, starting June 1.
Even so, their cost per kilowatt-hour will be about half that paid by the
most electricity-guzzling homeowners and renters. Their bills, overall, would
increase 37 percent under a complex, five-step rate scale.
The decision dismayed representatives of small consumers and big businesses
alike, and triggered an outpouring of rage from those who said the state
instead should seize power plants from owners who have jacked up wholesale
prices.
"Shame, shame, shame, shame," protesters chanted after the 3-2 vote by the
state Public Utilities Commission before a packed auditorium in San
Francisco.
"This is a cave-in to the big industrial lobby and the big agricultural lobby
that's been on the warpath for the last week," said Mike Florio, an attorney
with The Utility Reform Network, a Bay Area consumer group.
For weeks, the commission has been backing away from ideas floated by PUC
President Loretta Lynch, who argued that substantially lower charges paid by
big businesses for decades need to be leveled out, to come closer to
residential and small-business rates.
A proposal she outlined in March would have raised some business rates at
some hours up to sixfold. But by last week, the largest business increases in
two different proposals had come down to no more than 55 percent. On Tuesday,
that was lowered again to 49 percent.
Even so, the decision was criticized by commissioner Richard Bilas as a
"disastrous rate design ... (that) will send the California economy into a
recessionary death spiral."
He warned that businesses will shut down or flee the state, with consequences
that will ripple through the economy as jobs and taxes are lost. Bilas and
Henry Duque, the two remaining Republican appointees on the five-member
commission, voted against the rate design proposed by Lynch. It was supported
by commissioners Geoffrey Brown and Carl Wood, who, like Lynch were appointed
by Gov. Gray Davis.
"Every consumer in California is justified in feeling outrage at the rates we
approve today and the bills they will have to pay tomorrow," Lynch wrote in
her 69-page decision, blaming the increases on "wholesale price gouging" and
inaction by federal regulators.
Lynch said the new rates will fuel conservation, but business interests have
argued that so many power users are fully or partly shielded that it will
blunt the conservation signal that could be sent by even higher rates.
Under Tuesday's decision, agricultural rate hikes were capped at 15 percent
to 20 percent, partly in response to Davis' urgings.
The governor, who had urged the commission to go easier on agriculture and
enact a lower overall increase, said in a statement that the rate hikes made
"modest improvements" over earlier proposals but "my plan represented a more
balanced approach."
The rate hikes also spare households that use less than 130 percent of a
minimal "baseline" amount to comply with a state law passed this year.
Pacific Gas and Electric's baseline varies depending on the region and the
season.
Households that qualify for special low-income rates or special medical rates
also won't face increases.
For other residential power users, electricity will get progressively more
expensive, but only above 130 percent of baseline, so overall bills won't
rise as sharply.
Under the five new residential rate tiers, a PG&E customer whose use tops out
in the third tier would pay an additional $6 a month, increasing an average
$76 bill about 5 percent to $81, the PUC calculated.
Those whose usage rises into the fourth tier would pay about 18 percent more
per month, seeing their bills rise from $122 to $143, and those whose usage
creeps into the fifth tier would pay an extra $85, or 37 percent of their
total bill, which would increase from an average of $232 to $317, the
commission said.
Small businesses would face increases ranging from 34 percent to 45 percent.
While the percentage increases would seem to favor smaller consumers, the
underlying rates are highest for residential customers.
Households with usage above 130 percent of baseline will now pay PG&E an
average of 22 cents per kilowatt-hour for the additional power, Lynch
calculated. That compares with 16.7 cents for small businesses, 14.2 cents
for agriculture, 15.4 cents for large commercial users and 12.2 cents for
industrial users, she wrote.
It was the comparatively lower rates for the biggest users that angered
advocates for residential consumers.
"I don't know why they feel compelled to give those guys a break when they're
the ones who wanted us to get into this deregulation mess in the first
place," said TURN's Florio.
But Bill Booth, who represents the California Large Energy Consumers
Association, said the decision is "a horrible result for business. This is
going to have a really negative effect on the economy."
Agricultural interests were more upbeat, with Ron Liebert, an attorney for
the California Farm Bureau Federation, praising the decision for recognizing
"the unique difficulties agriculture faces," including dwindling water
supplies, higher pumping costs and higher fuel costs for farm equipment.
The rate hikes allow PG&E and Edison to collect an additional $700 million
over the next year. That amount represents revenue that the utilities would
have collected if they had been able to immediately impose the rate hike
March 27, the day the increase was approved.
The rate hikes affect customers of PG&E and Southern California Edison, the
state's two largest investor-owned utilities. They don't affect customers of
ratepayer-owned systems such as the Sacramento Municipal Utility District,
where locally elected officials set rates. SMUD raises its rates an average
of 22 percent this month, driven partly by the same turbulence in wholesale
electricity markets that has sent PG&E into bankruptcy.

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

An energy council expects five times the outages forecast
By Dale Kasler
Bee Staff Writer
(Published May 16, 2001)
In the bleakest assessment yet of California's summertime energy shortage, an
industry association Tuesday predicted the state will suffer five times as
many rolling blackouts as previously forecast.
Moreover, the group said the blackouts will be twice as widespread --
affecting twice as many Californians at a time -- as any the state has
experienced this year.
The North American Electric Reliability Council predicted 15 hours of
blackouts a week through September, vs. about three hours under assumptions
released by the Independent System Operator, which runs California's power
grid. The council's prediction sharply contrasted with predictions by Gov.
Gray Davis, who has said the state will avoid major problems this summer.
"All indications are, there are going to be chronic problems this summer,"
said Tim Gallagher, manager of technical services at the reliability council.
He said Californians for the first time can expect blackouts during odd hours
and on weekends, instead of just the late-afternoon hours when electricity
consumption usually peaks.
A Princeton, N.J., nonprofit group funded by the energy industry and
dedicated to monitoring the nation's power supplies, the reliability council
said electricity supplies may be iffy this summer in the Pacific Northwest,
New York, New England and Texas. The only state where it predicted blackouts
was California.
Taking note of the ISO's study, the council was far more pessimistic about
the levels of available power this summer from California's existing
hydroelectric, nuclear and natural gas-fired generating plants. It also
predicted fewer imports from out of state and said California will get less
power than expected from the host of new power plants scheduled to begin
operation over the summer.
The council did say the demand for power is likely to be less than the ISO
estimated, thanks to the impact of conservation programs and a hefty rate
increase approved by the Public Utilities Commission. But the council said
conservation programs are likely to generate only a third of the savings
predicted by state officials.
California has experienced six days of rolling blackouts this year, including
two last week, the result of hydropower shortages, unexpected plant shutdowns
and the financial crisis facing the state's two main utilities, Pacific Gas
and Electric Co. and Southern California Edison.
The second blackout, on Jan. 18, was the most widespread, cutting power to
750,000 homes at a time.
The reliability council said the average blackout this summer will be twice
as bad, taking down 1.6 million homes at a time.
Predicting the impact of summertime blackouts has become something of a
cottage industry, with various independent consultants forecasting billions
in economic losses. Recently a consultant hired by top business lobbyists
said the state will lose 135,000 jobs if it suffers 110 hours of blackouts --
less than half as many hours as predicted by the reliability council, which
is owned by 10 Regional Reliability Councils whose members come from all
segments of the electric industry.
The effect on the business climate remains to be seen. "We really have no
experience with this," said chief economist Ted Gibson of the California
Department of Finance.
Various industry analysts have predicted anywhere from 20 to 36 days of
rolling blackouts this summer. The ISO has said the state could face
blackouts any day when total demand exceeds 40,000 megawatts, which happened
34 times last summer.
The ISO, which is scheduled to update its summer forecast next week, didn't
predict the number of hours of blackouts. But the reliability council fed
ISO's assumptions into its computer model and came up with 55 hours of
blackouts this summer. Using its own, more pessimistic assumptions, the
council estimated 260 hours, or about 15 hours a week.
"It wouldn't shock me," said Severin Borenstein of the University of
California Energy Institute. "It's a little high, compared to the other
estimates, but there's a lot of uncertainty about what's going to be
available in state and out of state."
The ISO had no comment on the council's projections, but Davis' office said
the forecast is overly pessimistic.
"Their calculations are based on the worst conditions occurring all day,
every day," said Davis spokesman Steve Maviglio.
He said the council overlooks the expected supplies from new "peaker" power
plants and two Orange County plants that will fire up this summer after five
years in mothballs. The report also underestimates the level of power that
neighboring states will sell to California, he said.
"They assume it's going to be blazing hot in Phoenix, Portland and San
Francisco all on the same day (drastically reducing imports), and that never
happens," Maviglio said.
Davis has tried recently to minimize the impact of blackouts, saying: "We'll
get through the summer without major disruptions. A couple of difficult days,
but no major disruptions."
The council and the ISO are far apart in their assessment of supplies. The
ISO, for instance, predicted that the state will get nearly 2,600 additional
megawatts of power by July from new plants under construction, enough
electricity for nearly 2 million homes. The council said new plants typically
don't operate at full efficiency when they're starting up. Its prediction:
500 megawatts, or enough for only 375,000 homes.
Similarly, the ISO said the drought will curtail hydro supplies by 1,000
megawatts. The council said the shortfall will reach 2,400 megawatts by
August.
And while the ISO figured unexpected plant shutdowns will erase 2,500
megawatts of power, the council predicted the damage will be more than 4,500
megawatts.

The Bee's Dale Kasler can be reached at (916) 321-1066 or dkasler@sacbee.com.

Generator, environmental groups strike deal
By Tom Knudson
Bee Staff Writer
(Published May 16, 2001)
Days after state regulators gave Duke Energy the go-ahead to expand its Moss
Landing Power Plant near Monterey Bay last fall, documents show four
environmental groups made their own deal with the utility giant.
The four signed an agreement not to "participate in any lawsuit (or)
regulatory challenge" that might slow or stop the project in exchange for a
financial concession: $1 million from Duke for environmental "monitoring and
research."
Balancing power generation and environmental protection always has been
difficult. But today, as power-starved California scrambles to find and
permit new energy sources, some fear the Moss Landing agreement shows that
money can sway even environmentalists -- and tip the scales too far in favor
of economic development.
Environmentalists who signed the agreement, though, said that despite their
concerns about the plant expansion, they had little chance of stopping it,
especially after it was approved by the California Energy Commission and
Central Coast Regional Water Quality Control Board.
So they took the potentially controversial step: entering into an agreement
with Duke for financial resources to pay for studies of the plant's impact on
the marine environment.
Other environmentalists, though, criticized that approach.

Mitigation payments
Duke Energy's efforts to modernize the Moss Landing Power Plant resulted in
mitigation payments to environmental and other groups, including:
$7 million to the Elkhorn Slough Foundation to mitigate the plant's use of
seawater.
$425,000 to the Monterey Bay Sanctuary Foundation over three years to monitor
heated seawater discharge in the ocean.
$1 million to the Monterey Bay Sanctuary Foundation over five years to
monitor water quality through a program sponsored by Save Our Shores, the
Center for Marine Conservation, the Friends of the Sea Otter and the Otter
Project.
$100,000 to the Marine Mammal Center to relocate its triage center for
injured animals onto power plant property.
$3.4 million to the Moss Landing Chamber of Commerce over 20 years for
infrastructure improvements in the Moss Landing community.
$100,000 to design and construct a boardwalk for additional beach access in
Moss Landing.
$60,000 for an environmental assessment for a proposed Elkhorn Slough Circle
Trail. If approved, Duke would provide an additional $250,000 endowment to
maintain the trail.
Source: Duke Energy, North America

"It is very disheartening," said Carolyn Nielson, a retired teacher who along
with some other local residents is waging a battle against what they consider
an environmentally harmful power plant cooling system.
"These environmental groups have the expertise, the biologists, the
attorneys," said Nielson, who has taken her case to the State Water Resources
Control Board. "We could have been much more successful with their help. But
there wouldn't have been any financial reward in it for them."
Such criticisms are off-base, according to Warner Chabot, regional director
for the Center for Marine Conservation, a national environmental group that
was among those to sign the deal. He said environmentalists got the best deal
possible in the current energy climate.
"Look at what's happening with power plant approvals in California right
now," said Chabot, referring to the state's push to bring new energy sources
on line.
The Moss Landing project -- which is scheduled to add 1,060 megawatts in
2002, enough to serve one million homes -- is a key part of that energy
expansion plan.
No money will go to the four environmental groups -- the Center for Marine
Conservation, along with Save Our Shores, Friends of the Sea Otter and the
Otter Project. It will be routed, in five yearly installments of $200,000
each, to the Monterey Bay Sanctuary Foundation, a nonprofit organization that
helps support sanctuary programs, including scientific research.
Chabot helped found the sanctuary foundation and sits on its board. He said
the money will be used to monitor the health of Elkhorn Slough, a
biologically rich estuary that borders the plant and is linked to Monterey
Bay.
"Not a dime comes to the Center for Marine Conservation," he said. "Not a
penny comes to me."
Duke representatives said the controversy about the arrangement has been
stirred by a handful of people.
"It's a million dollars worth of water quality studies," said Duke spokesman
Tom Williams. "Our whole effort wasn't to try to buy anybody off. It was
designed to help increase people's comfort level where there wasn't a comfort
level."
The $1 million agreement signed in November is part of a package of more than
$12 million in Duke payments to civil, government and environmental groups in
connection with the plant modernization.
The heftiest award -- $7 million to the Elkhorn Slough Foundation, a
nonprofit environmental organization -- was negotiated by state agencies to
"mitigate" environmental impacts of the plant.
Formed in 1982, the slough foundation exists to promote "the wise use and
conservation of Elkhorn Slough and surrounding wetlands," its Web site says.
However, some environmentalists say the state-approved mitigation plan is
inadequate.
"If you want to say, 'Who did Duke roll with a big chunk of money?' I would
say they rolled the California Energy Commission and the Regional Water Board
for the price of mitigation," Chabot said. "The agencies got bought off
cheap. And the environment got taken to the cleaners."
Duke's Williams strongly disagreed. Environmental mitigation "must be based
on science, not on buying anybody off," he said. "That is inappropriate, and
we would not participate in that.
"That suggestion is offensive to us. And it should be offensive to any
environmentalist."
Bob Haussler, head of the Energy Commission's environmental protection
office, said the mitigation plan is biologically sound. "We are confident it
will improve the slough ecosystem," he said.
Madeline Clark, a local businesswoman and founder of Monterey Parkway -- a
citizens group that scrutinizes local public works projects -- called the
recipients of Duke's payments a "shopping list" of government agencies,
environmental groups and civic organizations. She was particularly critical
of the $1 million deal with environmental groups.
"You know what bothers me?" Clark said. "Environmental groups get tons of
donations. Their purpose is to protect and defend the environment. If a big
corporation like Duke can come in and buy them off, I have a real problem
with that."
Construction began in November on Duke's project to add 1,060 megawatts of
natural gas-fired electrical capacity to the Moss Landing plant, purchased
from PG&E in 1998.
If the expansion is finished next year, as scheduled, it would account for
more than 30 percent of all new generation in California in 2002.
"This is a big deal," said Williams, the Duke spokesman. "It will be the
largest plant in California. If that plant is delayed a month or two, we lose
the summer of 2002. And that affects not only Duke Energy, but the state of
California."
Opponents say it's not the power they oppose, but the plant's cooling system,
which will pump about 1.2 billion gallons of seawater each day from Moss
Landing Harbor. Such pumping, they say, will degrade Elkhorn Slough. They
argue for an alternative cooling system, such as towers that recirculate
water.
"Basically, what that plant will do is take 25 percent of the volume of the
harbor and slough, run it through a pipe and dump it back into the ocean with
much of the marine life cooked and dead," said Steve Shimek, executive
director of the Otter Project.
For Shimek and other environmentalists, scientific studies commissioned by
Duke during the permitting process left key questions unanswered about the
plant's impact on the environment.
"There was no scientific evidence that would literally point to Duke causing
harm to the environment," said Vicki Nichols, executive director of Save Our
Shores. "We felt we didn't have strong standing to sue."
Instead, the environmentalists began negotiating with Duke for financial
payments for studies of environmental impacts of the modernization project.
The process "gave me tremendous pause and great concern," Nichols said. "I
knew there was going to be some perception that we were doing the wrong
thing."
She was right.
"As far as I'm concerned, with the price-gouging going on by the energy
wholesalers, they are just receiving stolen goods," said Clark, of the
citizens group.
Her skepticism was sharpened by the recent disclosure that Duke Energy
approached Gov. Gray Davis with a secret deal offering financial concessions
if the state dropped lawsuits and investigations into the power generator.
Chabot, with the Center for Marine Conservation, discouraged any comparison
between the two offers, calling it "grossly unfair and inaccurate."
Regardless of what was intended with the payments, Nielson said they stain
the process. "It is so destructive in terms of making everyone cynical," she
said.
Shimek took a different view. "We convinced Duke to spend $1 million toward
monitoring that, frankly, five years from now could very well come back to
haunt them," he said.
"Did we do the right thing? I have no idea. Did we try our best? Yes, we
did."

The Bee's Tom Knudson can be reached at tknudson@sacbee.com.

Blackouts may create shortage of water: State officials warn that supplies
for drinking and fire hydrants are vulnerable because pumps can fail during
power outages.
By Chris Bowman
Bee Staff Writer
(Published May 16, 2001)
State health authorities are notifying public water utilities to secure
emergency water and backup power so fire hydrants won't run dry and drinking
water remains safe during blackouts.
The notice, which is being issued this week to all 8,700 public water systems
in the state, also advises utilities to warn the public that tap water could
turn cloudy or contaminated during a prolonged power outage at the utilities'
well pumps.
The Department of Health Services also suggested alerting consumers to
"immediately discontinue any non-essential water usage" during water outages
or low water pressure.
Clamping down on water use, particularly outdoor irrigation and car washing,
reduces the chances of water systems losing pressure or running dry, state
officials said.
Loss of pressure can introduce bacterial contamination into the
drinking-water supply. Water pipes inevitably leak, and the leakage that
mixes with soil can get sucked back into the system through cracks in the
underground delivery network. The effect, called back-siphonage, is similar
to sipping water through a straw.
As a precaution, the state health notice advises water utilities to increase
monitoring for harmful microbes in areas that lose power.
Changes in water pressure also can churn up sediment settled in pipes,
causing tap water to turn brown or cloudy. Consumers are advised to open hot-
and cold-water faucets when normal water service is restored to flush the
lines until the water turns clear.
The state health advisory comes at the beginning of air-conditioning season
that threatens to drain California's power-short supplies on hot days.
The Association of California Water Agencies is telling its members to
"prepare for multiple, multi-hour power outages: 80-100 hours of power
outages (during the summer) based on average assumptions, up to 1,000 hours
if things get worse."
At issue are the electrical pumps that extract water from wells and keep
supplies flowing at a constant rate through underground networks of municipal
water mains and pipes.
The state Public Utilities Commission has exempted services "necessary to
protect public health and safety" from planned blackouts that power managers
impose to avert a collapse of the state's electricity grid.
The exemption, however, does not apply to water-supply or sewage-treatment
systems, which rely on electric pumps to keep raw wastewater from spilling
out of utility holes.
As a result, water-supply systems are at risk, even for firefighting
agencies, which are exempt from the blackouts.
"Those who provide the necessary water for those services should likewise be
exempted," said the water-utilities association, which is pressing the PUC
for an exemption from blackouts.
PUC officials said that most water utilities have adequate backup generators,
though they have agreed to further consider the utilities' case. Many of the
generators were bought in anticipation of the Y2K computer havoc that largely
failed to materialize.
State health and local utility officials said those generators would prove
critical if the power outages became more frequent and prolonged as expected
this summer.
In its notice to utilities this week, the state health department says it
"encourages all utilities to secure backup power capabilities and to
routinely test their emergency power generating equipment. ... In addition,
storage should be maintained as full as possible."
The advisory also asks utilities to update their "disaster response plans" so
the state can better help utilities in emergencies.
Cliff Sharpe, chief of the health department's drinking-water enforcement for
Northern California, said small community water systems are at greatest risk
because they lack adequate water storage.
But larger systems such as those in the Sacramento area could have delivery
breakdowns if the outages at the well pumps last more than two hours, he
said.
Officials at Citizens Water Resources, which serves 180,000 residents in the
unincorporated areas of metropolitan Sacramento, said it has water-sharing
arrangements with the city of Sacramento and other suppliers in the event of
a water outage.
Having enough power to deliver the water, however, is an open question, said
Herb Niederberger, Citizens operations manager. The utility has several
portable generators and many more on order to install at its wellheads.
Still, officials said they would need the help of residents to make sure the
system gets by. They are asking residents to confine outdoor watering from
midnight to 10 a.m.
"If the blackouts occur during peak hours of energy use and many customers
are using their sprinklers, we'll lose pressure immediately," Niederberger
said.

The Bee's Chris Bowman can be reached at (916) 321-1069 or cbowman@sacbee.com
.

Dan Walters: Rate raise -- Genuine conflict or tightly scripted political
melodrama?

(Published May 16, 2001)
California's historic -- and terribly flawed -- experiment in the generation,
transmission and pricing of electric energy began as a drive by big
industrial and commercial power customers to reduce their costs.
At the time, California was mired in the worst recession since the Great
Depression, hundreds of thousands of jobs had disappeared and business
executives were complaining about the high costs of operating in the state.
Improving the "business climate" had become an oft-chanted political mantra,
and executives wanted power supplies by competitive bid outside the regulated
utility grid.
The demands of business for "direct access" to competitive power morphed,
thanks to an unfortunate meeting of minds between academic theorists and
vote-hungry politicians, into a broad scheme that was called "deregulation"
but was really a hybrid shaped by powerful interest groups.
Among the many ironies that attach themselves like lamprey eels to the
state's energy crisis is that the big users that wanted to reduce their costs
now are being saddled with sharp spikes in power rates to ease the immense
debts the utilities and the state have amassed. And that irony comes with a
tale of political intrigue.
During late 2000 and early 2001, business leaders, worried that the utilities
were being driven into bankruptcy and power supplies could be interrupted,
repeatedly urged Gov. Gray Davis to allow utility rates to rise. The
Democratic governor rebuffed the pleas for months, agreeing only to a token
and supposedly temporary increase in January. But in April, with the state's
own treasury being hammered by power purchases, Davis relented and agreed to
allow rates to rise by around one-third.
How that came about is still a bit mysterious. Davis acted after the state
Public Utilities Commission, controlled by his appointees and headed by a
former political adviser, unveiled its own rate increase scheme, one heavily
oriented toward imposing most of the burden on business rather than
residential customers. Davis insisted that the PUC had acted on its own,
which produced nothing but guffaws in the Capitol.
PUC President Loretta Lynch plowed ahead with her $5 billion plan, business
executives howled and on Sunday, just as the commission was poised to act,
Davis publicly rejected it. "My plan raises sufficient revenues to deal with
the problem without putting an undue burden on California consumers and
business that might hurt the economy," Davis said. The next day, Lynch
postponed adoption of her plan, saying it was undergoing revisions, and on
Tuesday a new version, somewhat closer to the governor's and less onerous to
business, was unveiled. Davis, it became apparent, had interceded with other
commissioners, including newly appointed Jeff Brown, to lessen the impact on
agriculture and business.
Consumer groups howled about what they characterized as a sellout to
business, arguing that the executives who pressed for deregulation in the
mid-1990s should swallow the rate increases that result from the failure of
the scheme to increase competition and lower power costs. But during a PUC
meeting disrupted by anti-rate increase protesters, the scheme was approved
on a 3-2 vote.
What no one outside Davis' immediate circle knows is whether all of this was
a genuine conflict between the governor and Lynch, the one-time political
strategist he chose to head the PUC, or whether it was a setup to make Davis
appear to be a moderate who saved business from killer utility rates. Davis
is certainly no stranger to the triangulation approach to political issues;
he has often positioned himself as the protector of business, and collected
huge amounts of campaign cash from business groups. And the situation is more
than faintly reminiscent of several incidents that occurred during the Jerry
Brown governorship, when Davis was Brown's chief of staff.
Perhaps it was a genuine conflict, but it certainly has all the earmarks of a
scripted melodrama, with Davis casting himself as the rescuer of business
damsels in distress.

The Bee's Dan Walters can be reached at (916) 321-1195 or dwalters@sacbee.com
.

Budget reserve plan stirs up a fight: Gov. Davis backs drawing down the
emergency fund. Others say it could lead to tax hikes or massive cuts.
By John Hill
Bee Capitol Bureau
(Published May 16, 2001)
Budget reserves are for a rainy day, Gov. Gray Davis says -- and it's
starting to rain.
But what if the rain keeps falling and turns into a deluge?
That was one of the questions being asked at the Capitol the day after the
Democratic governor released his revised budget proposal for the fiscal year
that begins July 1.
Among an array of cuts and transfers, Davis proposes to draw down the state's
reserve by $900 million -- from $1.9 billion to $1 billion.
Davis says the reserve was meant to get the state through times such as this,
when a sudden drop in the stock market takes a chunk out of state revenues.
But others, including some Democrats, question whether Davis' plan leaves
enough of a reserve to avoid the need for taxes or massive budget cuts a year
from now.
"The thing we find most egregious is the reduction in surplus," said Assembly
Republican leader Dave Cox of Fair Oaks. The Republicans have advocated a
reserve of $4 billion just for the state's future electricity purchases, in
addition to a reserve for other contingencies.
Wall Street seemed to take notice as well. On Tuesday, Moody's, one of the
three leading credit rating agencies, lowered its rating for California's
general obligation bonds from Aa3 to Aa2.
Moody's cited the failure of the Legislature to approve a bill that would
have allowed the immediate sale of bonds to repay the state treasury for
electricity purchases the state has been making since January. The bill,
which required a two-thirds majority, was blocked by Assembly Republicans,
forcing a 90-day wait for the massive bond sale.
But Moody's also cited Davis' budget proposal, which it said "leaves little
cushion for additional bad news." Moody's downgrade follows a similar move
last month by Standard & Poor's and will increase the state's costs of
borrowing.
Sen. Steve Peace, D-El Cajon, agreed that the state could find itself in dire
straits next year without a big enough reserve. Peace, chairman of the state
Senate Budget Committee, said a $4 billion reserve "is on the low end of
where we ought to be."
Peace said the state may be headed into a period similar to the budget
disarray of the recession of the early 1990s.
"Having lived through the early '90s experience and having less confidence in
the institutional ability to deal with a crisis environment, I think it would
be wiser to operate on more conservative expectations," he said.
But Ted Gibson, chief economist at the state Department of Finance, said the
early '90s "was a once-in-the-past-century event" that occurred largely
because the state's economy was so dependent on the aerospace industry. High
technology, while suffering a slowdown, "is more diverse in what they do and
where they sell," he said, and can be expected to bounce back.
The state budget increasingly lives and dies with the stock market. The
income tax on stock options and capital gains has grown as a percentage of
general fund revenues from 5.6 percent in the mid-1990s to nearly one-quarter
in the current fiscal year. That number drops to 16 percent in Davis' revised
budget proposal.
But while the sudden drop of the stock market dealt the state a severe blow,
Gibson said, the pain is unlikely to last because stock prices historically
rise.
"I would argue that the big drop in stock market income has to be considered
a one-time affair, and is not going to provide a huge drag," Gibson said.
Gibson and other economists believe the economy will lag the rest of this
year, but gradually improve in 2002 and 2003, avoiding full-blown recession.
Gibson said the administration prepared for the sudden downturn by using
stock market windfalls for one-time expenditures that didn't have to be kept
year after year.
But Republicans say Davis has not done enough in his new proposal to cut
year-to-year spending, relying instead on transfers between accounts and
using the reserve to make ends meet.
"If we do not make good decisions this year, we absolutely are putting
ourselves in some very challenging territory for next year's budget," said
Assemblyman George Runner, R-Lancaster.
Runner questioned Davis' claim that he had kept a lid on spending.
"It's interesting to say that and have government grow by a third in the
three years you've been in office," he said.

The Bee's John Hill can be reached at (916) 326-5543 or jhill@sacbee.com.

Democrats lay out energy plan: Leaders call for caps on wholesale prices and
tax breaks for oil and gas production.
By David Whitney
Bee Washington Bureau
(Published May 16, 2001)
WASHINGTON -- House Democrats called for price controls on wholesale
electricity rates and for tax incentives to spur oil and gas production
Tuesday, but emphasized they are not asking Americans to trim their
lifestyles or stop driving gas-guzzling cars to cut energy consumption.
The Democrats' initiative is an effort to take the steam out of the energy
strategy President Bush will unveil Thursday. That proposal is expected to
emphasize opening new areas to oil and gas exploration and building hundreds
of new power plants, but will not include temporary price caps on
electricity. Many in California and the West regard caps as crucial to curb
runaway prices.
California Democrats also expect that the Bush administration will call for
reopening areas off the California coast to oil and gas leasing, and they
will announce today a resolution in opposition to any such proposal.
At a luncheon with reporters, House Democratic Leader Dick Gephardt said he
thinks the energy crisis can be solved without "sacrificing" the environment.
"Most people want an energy policy that is consistent with the Clean Air and
Clean Water acts," Gephardt said.
Gephardt criticized the administration for pressing to open the coast of
Alaska's Arctic National Wildlife Refuge to oil drilling, saying it would
take too long and produce too little oil to help the current crisis. But
Gephardt said the government should approve tax incentives to hasten
construction of a natural gas pipeline from the North Slope because those
reserves could be a great help for electricity generation.
Gephardt released a 19-page report by the House Democratic Caucus' energy
task force that calls for various tax incentives to promote conservation,
sales of new energy-saving cars and appliances, and home and office
weatherization.
Gephardt said Democrats favor such incentives over mandatory measures to
lower fuel consumption in cars and trucks -- ideas that in the past have been
traditional rallying cries among Democratic representatives.
The task force report, titled "Principles for Energy Prosperity," includes a
cover photograph of a family washing a sport-utility vehicle next to a
wilderness photo of a snow-capped mountain.
Gephardt said he believes that government incentives will work to bring
energy supply and demand into balance without infringing on lifestyle
choices.
"We need to spawn efficiency so that Americans can get what they want -- low
(energy) prices and a clean environment," he said.

The Bee's David Whitney can be reached at (202) 383-0004 or
dwhitney@mcclatchydc.com.

Judge names panel in PG&E case
By Claire Cooper
Bee Legal Affairs Writer
(Published May 16, 2001)
SAN FRANCISCO -- The federal bankruptcy administrator Tuesday defended her
appointment of an unusual committee of ratepayers in the Pacific Gas and
Electric Co. case, saying it's the only way to protect the public.
Ratepayers are entitled to a place at the table, said U.S. Trustee Linda
Ekstrom Stanley, because of "the possibility they will be asked to fund a
plan that pays PG&E's creditors and shareholders."
PG&E has challenged Stanley's legal authority in naming the committee, which
would have broad powers to investigate and negotiate alongside the utility
and its creditors. Judge Dennis Montali will hear oral arguments on the
matter Friday.
"It could be argued the state of California has abandoned ratepayers in the
bankruptcy case," Stanley said in a brief filed with Montali on Tuesday. "As
an alternative to the state's appearance, a committee broadly representative
of virtually all ratepayer constituences is essential to assure the
ratepayers' interests are protected."
PG&E contends that only the state could represent ratepayers. The state has
bowed out, citing its 11th Amendment right of sovereign immunity.
Stanley said the creditors' committee, a standard participant in bankruptcy
proceedings, also cannot speak for consumers in this case because the
creditors may lack a strong interest in pursuing claims against power
generators and the utility's parent company, PG&E Corp.
In asking Montali to disband the committee, PG&E objected particularly to the
inclusion of leaders of Consumers Union and The Utility Reform Network,
groups that sometimes have thwarted PG&E in state regulatory hearings. Others
on the ratepayers' committee represent a diverse mix of organizations,
ranging from the California School Boards Association to the California
Manufacturers & Technology Association.
Two organizations -- the Greenlining Institute and Latino Issues Forum --
have criticized Stanley for not making the committee more inclusive.

The Bee's Claire Cooper can be reached at (415) 551-7701 or
ccooper@sacbee.com.

SDG&E area spared for now by big rate hikes

Edison, PG&E customers hit hard by state action
By Craig D. Rose?
UNION-TRIBUNE STAFF WRITER
May 16, 2001
In the preview of a movie SDG&E customers don't want to see, the state Public
Utilities Commission walloped customers of California's other major utilities
with electricity rate increases as high as 50 percent yesterday.
The historic increases follow a PUC decision in March to raise electricity
bills for Pacific Gas and Electric and Southern California Edison customers
by a total $5.2 billion annually.
That decision, however, did not specify how the increase would be allocated.

Yesterday's vote ordered rate increases of up to 37 percent for residential
customers and up to 49.5 percent for business customers. The 3-2 vote drew
howls of protest from demonstrators at the commission's San Francisco
meeting.
Similar increases are expected for San Diego Gas and Electric's 1.2 million
customers in coming months. Public hearings for the SDG&E raises are expected
next month.
Although yesterday's rate increase allocation was stunning, commission
President Loretta Lynch warned of worse increases ahead unless the Federal
Regulatory Energy Commission caps wholesale power costs.
"Unless and until the FERC decides to enforce the law, even these
astronomical new average rates may prove inadequate to cover exorbitant
wholesale electricity prices in the California market," Lynch wrote in the
approved rate increase decision.
The PUC was pressed to raise rates in order to cover California's cost of
purchasing electricity. The state took over purchasing power earlier this
year as utilities moved toward insolvency.
The utilities said that with customer payments frozen under terms of the
state's deregulation law, they were unable to pay the soaring cost of
wholesale power. Critics noted the same utilities transferred billions in
payments to parent companies and shareholders during the first years of
deregulation.
The new increases for the 9 million customers of PG&E and Edison will begin
appearing in June bills but will be retroactive to March, when the rate
adjustment was approved.
Consumer groups said yesterday's vote was delayed by a day because of frantic
lobbying by business interests seeking to shift a greater share of the new
costs onto residential ratepayers.
Mike Florio, senior attorney for The Utility Reform Network, the San
Francisco-based consumer group, calculated that last-minute lobbying by
businesses advocates pushed about $105 million more of the increase onto
residential customers, compared to an earlier version of the rate increase
allocation, which was also written by Lynch.
"This decision shows how desperately we need control over our electric system
and how costly deregulation has become for California," Florio said.
Demonstrators at the PUC session yesterday suggested the commission is
failing to protect the public and should henceforth be called the "Private
Utilities Commission." Others issued calls for seizing power plants.
Commissioner Geoffrey Brown shouted back at protesters that rate increases
were necessary.
Under the rate design approved yesterday, homeowners able to keep electricity
use within 130 percent of the so-called baseline allowance will be spared
increases, as will the lowest-income customers and those with certain medical
conditions. The baseline is a minimum level of electricity, and it varies by
location. The baseline amount, measured in kilowatt-hours, is printed on
electricity bills.
The Office of Ratepayer Advocates within the commission estimates these
exemptions will shield more than 60 percent of all residential consumers.
Others will pay progressively more as their use rises, with the highest
increases of 37 percent for those consuming more than 300 percent of baseline
allowances.
Average industrial rates will increase about 49 percent, while agricultural
rates could rise as much as 20 percent for customers of PG&E and Edison.
The California Manufacturers and Technology Association warned of layoffs if
businesses are forced to pay a disproportionate share. But consumer advocates
said it was large-business interests that pressed for deregulation in the
first place.
"Once again residential and small-business ratepayers, the innocent victims
of deregulation, are being forced to pay for the debacle," said Doug Heller
of the Foundation for Taxpayer and Consumer Rights in Santa Monica.
Gov. Gray Davis, who resisted rate increases through the first months of the
power crisis, recently offered a proposal of his own to boost rates.
"While the PUC's revised rate increase made some modest improvements, my plan
represented a more balanced approach," Davis said.
All three commissioners appointed by Davis voted for the increase, while the
two commissioners appointed by former Gov. Pete Wilson were opposed.
Commissioner Richard Bilas, who voted against the increase, said it would
push the state into recession and was a "grave mistake." Henry Duque, the
other dissenter, objected to slapping customers who use more power with
higher percentage rate increases and urged more equal treatment. Both said
the increases would fail to encourage needed conservation.
But Commissioner Carl Wood said the increases were made necessary by FERC's
failure to cap wholesale power prices.
"Every consumer in California is justified in feeling outraged," Wood said.
"They are facing an unlawful price regime for a fundamental necessity. We
continue to look to the federal government to moderate prices."
Bilas, Duque and Lynch were not present in San Francisco for the vote but
participated in the meeting via telephone.

State credit rating takes another hit over energy crisis

Move should add to cost of bonds
By Craig D. Rose and Karen Kucher
UNION-TRIBUNE STAFF WRITERS
May 16, 2001
On the same day that the Federal Reserve lowered interest rates, a Wall
Street rating firm raised the cost of borrowing for California because of
deepening concerns about the electricity crisis.
Moody's Investors Service downgraded California's credit yesterday, pushing
it into a group of 12 states that has the firm's lowest rating.
That is still better than the Standard & Poor's rating for the state, which
last month downgraded California to among the three lowest rated states.
Lenders demand higher interest rates for loans to lower-rated borrowers.
The state treasurer's office was unable yesterday to quantify how much the
downgrades could cost California as it approaches a record $13 billion bond
sale this summer. The bonds are needed to pay for the soaring cost of
electricity.
In other energy developments:
?Federal regulators determined this week that no refunds will be ordered for
April's energy bills in California because the state's grid managers did not
declare any Stage 3 emergencies during the month.
In March, the Federal Energy Regulatory Commission decided refunds would only
apply to charges for power during the most dire shortages, when wholesale
electricity costs are highest. Critics have argued that power prices have
been far from "just and reasonable" during other periods as well.
The agency also has dismissed a request to reconsider the refund amounts it
directed power providers to pay for alleged overcharges made in January.
Southern California Edison and Pacific Gas and Electric had wanted providers
who allegedly overcharged for wholesale electricity to pay much larger
refunds than federal regulators envisioned. The commission has ordered power
providers to refund $124 million if they can't justify their prices.
FERC said its action is not subject to requests for rehearings at this point,
although such a request may be refiled when the commission issues its formal
order in the case.
?A FERC judge said yesterday that a memo in a case he is hearing implies the
natural gas market was abused to drive up California energy costs last year.
The memo "certainly has statements in it that could lead one to believe there
was an abuse" of the gas market, Curtis Wagner, the Federal Energy Regulatory
Commission's chief administrative law judge, said in a hearing in Washington.
California regulators have pointed to the memo to accuse Houston-based El
Paso Corp. of using its market power to inflate the price of natural gas sold
in California last year by as much as $3.7 billion.
El Paso Corp. owns a gas marketing company, El Paso Merchant, and one of the
largest pipelines connecting Southwest gas fields to California. The company
has denied the allegations.
Wagner wouldn't release the memo, dated Feb. 14, 2000, and attorneys wouldn't
discuss the contents.
The New York Times has reported that El Paso Merchant said in a Feb. 14,
2000, memo that it would have "more control" of gas markets because of a deal
it made with El Paso Natural Gas that gave it the right to ship 1.2 billion
cubic feet of gas a day on El Paso's pipeline.
Wagner's ruling is expected next month. The full Federal Energy Regulatory
Commission can accept or reject his ruling. The hearing began Monday and
should continue through next week.
?Southern California Gas Co., a division of San Diego-based Sempra Energy,
announced yesterday that it plans to add a 32-mile pipeline to its
transmission system to help it keep pace with growing demand.
The additional 6 percent of capacity would allow the company to deliver an
additional 200 million cubic feet of natural gas per day.
Natural gas fuels most of the plants that generate electricity in the state,
and demand increased dramatically as the electricity crisis worsened. The gas
company said the expansion is enough to fuel three 500-megawatt power plants.
The pipeline is expected to cost $40 million and to be completed by the end
of the year. It will extend from a company compressor station in Adelanto to
the Kern-Mojave Pipeline near Kramer Junction. El Paso Corp. and the Williams
Cos. own the Kern-Mojave Pipeline.
?The power crunch this summer may be worse than earlier estimates, with
California suffering blackouts on an average of 20 hours a week and possible
power disruptions in the Northeast if hot weather persists, an
industry-sponsored group reported yesterday.
The North American Electric Reliability Council said there may be as many as
260 hours of rolling blackouts in California during the summer months.
The Associated Press contributed to this report.

House Democratic plan calls for power price caps

By Finlay Lewis?
COPLEY NEWS SERVICE
May 16, 2001
WASHINGTON -- House Democratic leaders yesterday unveiled a plan for coping
with the nation's energy crisis that includes caps on wholesale electricity
prices in California and across the West.
The plan mixes other short-term approaches such as emergency energy funds for
schools with long-range conservation measures that would improve automobile
gas mileage and provide tax credits for energy-efficient homes and cars.
At a news conference outside a Capitol Hill gas station, House Minority
Leader Dick Gephardt and several colleagues scolded the Bush administration
for crafting its own energy plan in secret with energy industry executives.
They also chided President Bush for ignoring his own campaign rhetoric about
pressuring OPEC to lower the price of imported crude oil.
The president tomorrow will travel to Minnesota and Iowa to announce the
administration's energy plan, created by a task force headed by Vice
President Dick Cheney. The administration plan is expected to focus on
developing new-energy resources, but will not include price caps.
Gephardt said, "We do not accept the belief that this administration
apparently has, that we have to drill our way out of this problem, that we
basically have to sacrifice our environment to solve the problem."
In California, Gov. Gray Davis praised the plan from fellow Democrats for
recognizing that the state's "electricity problem is a national issue that
demands immediate federal action."
The governor added, "No comprehensive federal energy policy should exclude
immediate and meaningful wholesale price relief in the West."
Following the Democratic news conference, White House press secretary Ari
Fleischer reiterated the Republican administration's opposition to price
caps.
"Price controls will cause more harm than good in the economy in terms of
people's ability to get energy," Fleischer said. "They will drive supply
down, they will create more demand."
Strategists for both political parties say that the political stakes posed by
the energy crisis could be substantial.
Democrats continued to link the administration with the oil industry, noting
that private energy corporation executives participated in the drafting of
the administration plan. Bush's and Cheney's backgrounds as energy company
executives have also been a point of contention for their critics.
Rep. Edward Markey, D-Mass., told reporters that the administration would
produce "a policy written by energy companies who want to use the Bush-Cheney
plan as a Trojan horse to take environmental and health laws off the books."
Democrats also quoted candidate Bush as last year demanding the Clinton
administration pressure the foreign oil cartel "to open (its) spigots."
"Today when crude oil prices stand at $28 a barrel, this White House is
silent," said Rep. Rosa L. DeLauro, D-Conn.
Fleischer shrugged off questions about the influence of American oil
executives on Cheney's task force. He also said the president is engaged in
"quiet" diplomacy with OPEC leaders.
In their plan, the Democrats are demanding a federal crackdown on "price
gouging" by the energy industry and call for limiting wholesale power prices
until March 2003.
They also urge Bush to keep open the option of drawing on the Strategic
Petroleum Reserve to counter future oil market disruptions, a policy the
administration rejected.
The Democratic plan outlines an array of tax credits, including up to $4,000
to encourage energy conservation with more efficient homes and vehicles.
Also proposed are short-term steps to help the poor and elderly with energy
bills, to encourage the use of mass-transit systems and car pools, and to
provide $200 million this year in emergency assistance to Western schools
staggered by energy costs.
For the longer term, the Democrats want more money for a low-income housing
weatherizing program, and efforts to boost domestic energy production.
The latter step calls for increased production on federal lands already open
for drilling and that account for 89 percent of the nation's proven oil and
gas reserves.
The proposals include tax incentives for domestic production of crude oil,
natural gas and "clean" coal.
The plan also calls for expedited pipeline construction, bolstered safety at
nuclear power plants, improved electricity transmission grids, expanded
refining capacity and encourages the development of renewable energy sources.
Fleischer noted that the Democrats had offered "some areas of overlapping
commonality" with the administration's plan.
However, Democrats spotlighted their opposition to the administration's call
for drilling in a small portion of Alaska's Arctic National Wildlife Refuge
and Bush's decision not to clamp down on carbon dioxide emissions from power
plants as he had promised during the campaign.
"I would note that their idea seems to be to drill, to dig and to detonate
our way out of this mess, and to throw away environmental protections," said
Rep. John Dingell, D-Mich.

Southern California Gas plans pipeline expansion

By Seth Hettena
ASSOCIATED PRESS
May 15, 2001
SAN DIEGO ) Southern California Gas Co., the nation's largest gas utility,
announced plans Tuesday for a $40 million expansion to keep pace with the
state's growing demand for electricity and ease the strains on its
transmission system.
Analysts say California's electricity crisis is threatening to exhaust the
state's supplies of natural gas, which fuels most electric generating plants.
A drought in the Pacific Northwest has cut hydroelectric power supplies,
putting pressure on natural gas-fired plants to make up the shortfall.
Southern California Gas, a unit of San Diego-based Sempra Energy, will add
capacity for enough gas to power three 500-megawatt power plants that could
provide enough electricity for 1.5 million homes. The expansion, combined
with $15 million in improvements to the transmission system announced in
March, will boost SoCal Gas' capacity by 11 percent.
Both projects are expected to be completed by the end of the year.
Two-thirds of SoCal Gas' natural gas is sold to power plants and industrial
users and demand from power plants has pushed the utilization of the
company's transmission system to 95 percent, up from historic levels of about
75 percent.
While Southern California Gas said it expects to meet its obligations to its
5 million residential and small business meters this winter, company
spokeswoman Denise King said the expansion "gives a little extra margin, a
little space on our system."
"This is kind of an assurance that we'll be able to provide reliable service
to all of our customers as we have in the past," she said.
But Mark Bernstein, an energy analyst with RAND Corp., a think-tank in Santa
Monica, said the expansion is "an insurance policy they'll cash in on."
"It's to make sure we don't have a gas crisis like we have an electric
crisis," he said.
"If you plan for the average they'll be just fine," Bernstein said. "But
there could be situations weather-wise or if things get worse on the electric
side, where they could begin to have supply problems."
Southern California Gas will build a 32-mile pipeline from near the town of
Victorville north through the Mojave Desert to the large Kern-Mojave
pipeline, which is owned by Williams Co. and El Paso Corp.
State regulators have alleged that the El Paso Corp., which controls more
than 40 percent of the natural gas capacity entering California, conspired to
drive up prices by curtailing supply. The cost of wholesale gas on the spot
market at the California border rose to as much as $14 per thousand cubic
feet, nearly three times the price elsewhere.
The Houston-based company blames the high prices on demand exceeding supply.
The accusations are the subject of hearings this week before the Federal
Energy Regulatory Commission.
King declined to address the allegations against El Paso.
"Our focus is to encourage the Federal Energy Regulatory Commission to put
temporary caps on natural gas coming across the interstate pipeline to help
in the solution toward natural gas prices," she said.

Cheney's energy plan will offer no quick fixes on gasoline prices

By Sandra Sobieraj
ASSOCIATED PRESS
May 15, 2001
WASHINGTON ) The energy plan that Vice President Dick Cheney hands off to
President Bush this week will offer no immediate relief for high gasoline
prices and no immediate answers to two of the politically trickiest issues
that Cheney's task force looked at ) nuclear waste and gas mileage standards.
In an interview with The Associated Press three days before the president
unveils his national energy strategy, Cheney did signal some distaste for
tightening gas mileage requirements, referring to them generally as a
"command-and-control approach."
The vice president, whose task force report already has been printed, said
Monday that the Transportation Department will be ordered to study so-called
corporate average fuel economy ) or CAFE standards ) after the National
Academy of Sciences releases its findings on the CAFE standards in July.
The standards have, to the automobile industry's satisfaction, remained
unchanged since 1975 despite the proliferation of gas-guzzling sport utility
vehicles, vans and pickup trucks.
Acknowledging that such standards "have made a contribution in the past" by
promoting fuel-efficient vehicles, Cheney added:
"Whether or not there are changes that are warranted, whether or not CAFE
standards or the command-and-control approach is the right way to go in all
of that ) we're going to look to the Department of Transportation for some
guidance."
The product of three months of Cabinet-level study and dozens of
consultations with interest groups, Cheney's energy recommendations will
center on increasing the nation's energy supplies though expanded nuclear
power, increased domestic oil drilling and more efficient movement of energy,
including electricity, natural gas and petroleum.
Bush, armed with polls showing conservation is popular, also will discuss
alternative energy sources when he releases the report Thursday during a trip
to Minnesota and Iowa.
On Tuesday, Cheney previewed the plan for advocates for solar, wind and other
renewable energy, who emerged from the private meeting and told reporters
that Cheney promised that his recommendations include:
)An extension of the wind energy production tax credit.
)A 15 percent residential tax credit for users of solar power.
)An order for the Interior Department to address permitting delays in
geothermal plants.
Cheney won unlikely ) but not unconditional ) support during a similar
private meeting Monday with labor leaders from the Teamsters and big building
trade unions who like what Teamsters president James Hoffa called "the
amazing hundreds of thousands of jobs" that new drilling and new pipelines
could create.
But, participants in the meeting said, Cheney would not guarantee that the
jobs would be union jobs or, in response to a question from the Steelworkers
union, that new pipelines would be made from U.S. steel rather than cheaper
imports.
"We still have to look at the details," Hoffa said.
In Monday's interview, Cheney bristled at suggestions that the administration
should be doing more to bring gasoline prices down. But he did leave open the
possibility of Bush backing a reduction of the 18.4 cent-a-gallon federal
gasoline tax, which is being proposed by GOP lawmakers fearing their party
will be blamed in the 2002 congressional elections if energy prices soar.
"It might help temporarily," Cheney said.
A letter signed by nearly 70 Democratic lawmakers Monday urged Bush to demand
relief from the OPEC oil-producing cartel and order a Federal Trade
Commission inquiry into potential price gouging.
"Your administration has done little at this late date to address the coming
crisis in gasoline prices," the Democrats' letter read.
Democrats and environmentalists have accused Bush and Cheney, both former
oilmen, of catering to the energy industry here at home.
Cheney said jawboning OPEC may bring America the "momentary joy" of lower
prices but the market would quickly respond with increases. The remarks were
in contrast to Bush, who promised during his presidential campaign that if
elected he would use his influence to tell OPEC, "Open your spigots!" White
House press secretary Ari Fleischer said Tuesday that the administration is
quietly and diplomatically talking with OPEC leaders.
On the Democrats' other request, Cheney said, "There's no reason to believe
there's price gouging." The only reason to order up an FTC investigation now
would be to give the appearance of having a solution, he said.
On nuclear power, Cheney wants to give utilities incentives to build more
nuclear plants, which would force the nation to deal with the problem of
nuclear waste.
Nevada's Yucca Mountain is the "furthest along and most advanced" high-level
nuclear waste repository, Cheney said. But, he added, "even there we're not
to the point yet where we can make a final decision."

$5.7-Billion Energy Rate Hike Is OKd
Power: PUC shifts some of the increase away from businesses and farms to
residential users. The rates, designed to reward those who conserve, are
retroactive to March 27.

By TIM REITERMAN and NANCY RIVERA BROOKS, Times Staff Writers

?????SAN FRANCISCO--Voicing fears for the health of California's economy, the
state's chief utility regulator Tuesday shifted some of a $5.7-billion rate
increase away from agricultural and industrial customers and placed it on
millions of residential customers, whose bills will rise $4 to $85 a month.
?????A sharply divided California Public Utilities Commission voted 3 to 2 to
approve a plan that will fundamentally change how customers of the state's
biggest utilities will pay for power. The rates are designed to reward those
who conserve and to punish those who don't.
?????The rate increase will begin appearing in June bills and is retroactive
to March 27, when the commission approved an average hike of 3 cents a
kilowatt-hour.
?????"Every consumer in California is justified in feeling outrage at the
rates we approve today and the bills they will have to pay tomorrow," said
the commission decision. "We share the sense of outrage."
?????Consumer groups accused the PUC of bowing to political pressure from
business interests. And business groups, which lobbied hard in recent days to
soften the hit to industry, said the PUC did not go far enough to protect the
state's economy.
?????The plan by PUC President Loretta Lynch was revised after the governor
openly criticized it and industry leaders mounted a fierce public relations
attack.
?????The final version covering 9 million Southern California Edison and
Pacific Gas & Electric Co. customers called for the following:
?????* Average residential rates will rise by 47% for Edison customers who
use more than 130% of their baseline, the amount deemed necessary to meet the
needs of a typical household. PG&E customers will experience a 55% increase.
The top rate for the heaviest users will rise 71% for Edison customers and
80% for those of PG&E. The two companies together have nearly 751,000 such
customers.
?????* A new five-tier system will be instituted for residential customers,
with rates rising as usage rises. The average bills rise less than the
average rates because the new rates affect only a portion of the bill.
?????* Industrial customers will see an average rate increase of 49%, which
is only slightly lower than Lynch's original proposal. But the PUC capped the
average rates at 12.9 cents per kilowatt-hour for industrial customers of
Edison and 12.3 cents for PG&E. The cap would limit increases for some
industrial customers, but it was unclear Tuesday how it would be applied.
?????* In response to Democratic Gov. Gray Davis' urgings, rate increases for
agricultural interests were capped at 15% to 20%, the smallest overall
increase among the customer groups.
?????* Small-business customers will see their rates rise by about 35%.
?????* Customers who use less than 130% of baseline, low-income customers and
people with special medical needs will have no increase.
?????The commission acted to help the state pay for the soaring price of
wholesale electricity. Under the deregulation of California's electricity
industry, the utilities were barred from passing along high electricity costs
charged by independent generators. In the process, PG&E and Edison were
pounded by debt, and the state was forced in mid-January to buy electricity
on their behalf.
?????The commission acknowledged that more rate increases may be necessary
unless federal regulators find a way to control the wholesale electricity
market.
?????In the six weeks after the rate increase was approved, the panel held
hearings and designed the rate structure--a process that normally takes at
least six months. A vote on the rate design was scheduled for Monday, but it
was postponed for a day to allow commissioners to review revisions that Lynch
made to her proposal over the weekend.
?????By approving Lynch's plan, the commission rejected one proposed by a PUC
administrative law judge who conducted the hearings. That proposal would have
resulted in lower rates for residential customers and higher rates for all
classes of business than the Lynch version.
?????The two dissenting votes were cast by Commissioners Edward Bilas and
Henry Duque, both appointees of former Republican Gov. Pete Wilson.
?????Duque criticized the plan for "favoring some customers while punishing
others. . . . Today's decision asks small businesses and some residential
customers to subsidize others. Subsidized consumption leads to more
consumption, not conservation."
?????Bilas said: "This crippling rate increase would have a ripple effect"
through California's economy and could drive out business.
?????"What we have here is an economic recipe for disaster," said Bilas.
?????Commissioner Geoffrey F. Brown, a Davis appointee, tried to negotiate
more favorable treatment of industry after recently speaking with Bilas and
the governor's office. Lynch made some changes that reduced the rate increase
for industry slightly, to about 49% on average. Brown had hoped to lower the
increase to about 43%.
?????At the meeting Brown said he had "great hesitancy" about some of the
rates in Lynch's proposal but would back it.
?????"At the end of the day we need to raise the money to meet the electrical
needs of California," he said. "We cannot walk away from it. We cannot put
our heads in the sand.
?????"California now has the opportunity in this time of crisis to conserve,
to break the fever, to beat back the looters."
?????Protesters interrupted Brown and Commissioner Carl Wood, crying, "Seize
the plants! The governor has the power." One demonstrator was ejected by
California Highway Patrol officers.
?????The Utility Reform Network accused the commission of caving in to
business interests and said the revisions in Lynch's plan added more than
$100 million to the amount to be paid by residential customers.
?????"They put too much of the increase on the residential customers," said
Mike Florio, senior attorney for the group.
?????After the hearing, Brown went face-to-face with Florio in the building
courtyard. He said the amount shifted from industry to residential customers
was closer to $40 million and he angrily denied that industry influenced his
vote.
?????Edison is still assessing how the rates would affect customer bills,
said Akbar Jazayeri, director of revenue and tariffs. He noted that the new
rates will apply only to the usage in each tier, not to the entire bill.
?????"It doesn't mean because your usage is 1,000 kilowatt-hours that your
entire bill will be charged at the highest rate," Jazayeri said.
?????The PUC estimated that the average monthly Edison residential bill will
rise between $4, or 6%, and $71, or 37%, depending on usage. The average
monthly PG&E residential bill will increase between $5 and $85, the PUC said.
?????The Foundation for Taxpayer and Consumer Rights estimated that the
average monthly household electricity bill will increase by $36 in Edison
territory and $39 in PG&E territory.
?????"Once again, residential and small-business ratepayers, the innocent
victims of deregulation, are being forced to pay the price for the
deregulation debacle, while the special interests that foisted deregulation
upon us get off easy," said Doug Heller, consumer advocate for the Santa
Monica-based group.
?????But business interests also were unhappy with the PUC rate decision.
?????"We're still up in the 50% range for industrial users," said Jack
Stewart, head of the California Manufacturers and Technology Assn. "It is
going to make it very difficult for many companies to stay in business in
California. Many companies who are large energy users will not be able to
sell products profitably."
?????The manufacturers along with such influential organizations as the
California Chamber of Commerce and California Business Roundtable led an
intense lobbying and public relations effort aimed at reducing rate hikes for
commercial and industrial users.
?????"There is no issue that I have hit on harder with the governor's office
over the past year," Stewart said, contending that rate increases should be
spread evenly among residential, commercial, agricultural and industrial
users. "It is critical for California business."
?????Stewart met with Commissioner Brown last Thursday. But although he
thought he had made headway, the increase approved Tuesday, though modified
somewhat, falls heaviest on big industrial and commercial users.
?????Agricultural interests fared better than commercial and industrial
users, receiving a maximum 20% increase, pared down from the original
proposal of about 25%.
?????"We're clearly happy," said Michael Boccadoro, a lobbyist for the
Dolphin Group, which represents major farming interests such as Gallo,
Boswell Land and Paramount Farms.
?????With a lighter than normal snowpack, farmers will receive less water
from reservoirs this summer. As a result, farmers will be forced to use more
electricity as they run pumps to draw on ground water for irrigation.
?????"The agriculture industry has put on a very strong and collective
effort," Boccadoro said. "The point that the commission picked up is that
agriculture is one of the few industries that will be forced to use more
power this summer."
---
?????Reiterman reported from San Francisco; Rivera Brooks from Los Angeles.
Times staff writers Dan Morain in Sacramento and Marla Dickerson in Los
Angeles contributed to this story.

Copyright 2001 Los Angeles Times

State Has Lost Global Lead in 'Green' Power
Electricity: As the crisis worsens, California has been overtaken on solar
and wind energy. Still, alternative producers remain key players.

By MITCHELL LANDSBERG, Times Staff Writer

?????A quarter of a century ago, California stood at the vanguard in the
development of alternative energy worldwide. With Gov. Jerry Brown lighting
the way--and enduring no small measure of ridicule for doing so--the state
took the lead in finding ways to coax electricity from the sun and wind,
underground steam and agricultural waste.
?????Today, as the state struggles with the worst electricity crisis in its
history, it is no longer the global leader in exploiting what loosely falls
under the rubric of "green" energy.
?????Japan now generates more than 15 times as much electricity from solar
energy as does California, despite having about half the usable sunlight.
Germany produces more than triple the wind energy.
?????And although California remains the undisputed U.S. leader in
alternative energy production, Texas, home of the American oil industry, is
among several states threatening to supplant its leadership by mandating the
rapid growth of renewable power generation over the next decade.
?????Not that renewable energy has become irrelevant in California.
?????The state, in its moment of crisis, is counting on alternative
power--the most reliable and cheapest source of power--as never before.
Without the megawatts these producers pump into the grid, the odds of
blackouts would be even higher and the pressure to raise rates even greater.
?????Moreover, renewable energy producers now hold immense financial power
over the fate of the state's second-largest utility, Southern California
Edison. At any time, they could drag Edison into Bankruptcy Court--and have
threatened to do so--if it doesn't pay them the $500 million it owes for past
deliveries of electricity.
?????With their costs vastly surpassing their income, some producers have
simply shut down, draining precious megawatts from the grid. A spokeswoman
for the California Independent System Operator, which oversees the state's
power network, pegged the reduction in output by small producers Tuesday at
1,400 megawatts. About half that shortfall, she said, was due to payment
problems.
?????The situation has grown so severe that today the Federal Energy
Regulatory Commission is holding a hearing on whether to order the renewable
power generators back on line.
?????Leaders in the alternative energy industry--which has grown from its
techno-hippie roots to become the province of large, mainstream
corporations--say they are optimistic that their future will be brighter.
Eventually, they are certain, renewable energy sources will become
mainstream; fossil fuels--oil, coal and natural gas--will become, once again,
fossils.
?????And yet, for all that, here's the harsh reality: For the past decade,
alternative energy has played a shrinking role in the state's overall
electricity mix, and that is almost certain to accelerate as the state
rebounds from its crisis the old-fashioned way, by building more power plants
that convert fossil fuels into electricity.
?????Many in the utility industry argue that there is no choice. Most
alternative energy sources remain too expensive or inconvenient to play a
major role in the state's power mix now, they say.
?????In fact, leaving aside hydroelectric power, which fluctuates widely
during drought and flood cycles, the production of renewable energy in
California actually declined slightly between 1990 and 1999. During the same
period, the use of fossil fuels for electricity increased substantially.
?????With 13 new, conventional power plants licensed but not yet completed,
it seems certain that renewable sources of energy will provide a still
smaller percentage of the state's power in the next few years.
?????Those who have championed alternative energy for the past three decades
rue the opportunity that could be lost.
?????"This state and its ratepayers invested heavily in renewable energy
technologies," said Hal Harvey, president of the Energy Foundation, a
nonprofit organization dedicated to encouraging sustainable energy.
?????"We paid a premium for that, but we succeeded in making these
technologies five, six, 10 times cheaper than they were. . . . Ironically,
this state paid for that revolution but is not taking advantage of it."
?????If anyone needed a reminder of how far California has come in its
development of alternative power--and the consequences of failing to keep up
that investment--it came in March, when alternative energy generators began
to close their plants after enduring months of missed payments by the
financially strapped utility companies.
?????Although the state government had spent billions picking up the
utilities' tab for conventional power, it too had balked at paying the small
alternative producers.
?????The result: the first deliberate statewide blackouts since World War II.

?????A Small Step Taken in 1976
?????On May 21, 1976, a small item appeared on the back pages of the Los
Angeles Times.
?????"Homeowners and businesses can earn state tax credits of up to $1,000
for purchases of solar energy equipment under a bill signed by Gov. Brown,"
it said. It went on to quote the governor as saying: "It was a small step,
but it was an important step."
?????He might have added that it would be little noted nor long remembered.
?????Yet that small step helped nurture a budding interest in alternative
energy in California, whose native tinkerers were just then exploring ways of
reducing their reliance on the traditional electricity grid, then powered
primarily by oil, large hydroelectric plants and nuclear power.
?????Ross Burkhardt was typical. An electrician by training and a hippie by
inclination, he was living in a tepee in the hills of Mendocino County in the
late 1970s when he and many of his friends began looking for cleaner forms of
power. Burkhardt was among those who had migrated to the rural counties north
of San Francisco in the hope of living a simpler, more independent
life--which meant, for a time, life without electricity.
?????Life without power turned out to be a bit of a drag. For one thing, it
meant life without a stereo. Burkhardt and others began stringing wires to
the batteries of their cars, trucks and vans to power their tunes and lights.
That worked for a while, until people started getting up in the morning to
find their car batteries stone dead.
?????In about 1978, Burkhardt had had enough. "I decided to make a windmill
one day," he recalled. He bought an old computer tape drive motor for $20 at
a junk shop and turned it into a generator. He used a knife to carve a
42-inch-long 2-by-4 into a blade, then mounted the blade and motor on a pole.
Then he hooked up the whole mess to a truck battery.
?????Eureka! When the wind blew, the windmill turned, generating electricity
that was fed into the battery. He was creating enough power to keep his tepee
lighted and his stereo cranking, and he wasn't damming any rivers or
splitting any atoms or polluting the air. And there was a bonus, Burkhardt
said: "It was all free!"
?????Burkhardt would later move into a somewhat more permanent home and take
advantage of Brown-era tax credits to buy solar panels that he is still
using. Others were doing the same thing and creating ever more sophisticated
technology to maintain life off the electrical grid.
?????And the state itself was investing heavily in alternative energy. In
Brown's first term, California allocated $23.7 million to demonstrate the
efficiency of solar, wind, geothermal, cogeneration and small hydroelectric
generation. By 1980, renewable and alternative sources made up 5% of the
state's electricity generation.
?????At the same time, the federal government, still reeling from the Arab
oil embargo, was developing its own alternative energy policies. A federal
law passed in 1978 required utilities to buy energy from any qualified
alternative producer.
?????How much to pay for alternative energy has always been an issue. Because
the "fuel"--the sun, wind, geothermal springs--is essentially free, most or
all the expense is in upfront equipment purchases, which can vary based on
the method of financing.
?????"You're basically prepaying your utility bill for 25 years," said Kevin
Best, director of sales and marketing for RealEnergy, a company that develops
electricity generation plants--renewable and conventional--for large real
estate developments.
?????The 1978 law got around the problem by declaring that utilities wouldn't
pay for alternative energy based on the actual cost, but based on the
utility's avoided cost--in other words, the money the utility would have
spent had it bought the energy from conventional sources.
?????In 1980, Ronald Reagan was elected president. In 1982, George Deukmejian
was elected governor of California. Their Republican administrations were
considerably less enamored of alternative energy than those of their
Democratic predecessors.
?????About the same time, the price of oil and natural gas began to drop.
Interest in energy alternatives sank with it. Natural gas was not only much
cleaner than coal, it was practically cheaper than air. Why mess with
alternatives?
?????"All of those energy concerns just dropped off the radar screens," said
Richard Worthington, a professor of politics at Pomona College who follows
energy policy.

?????9% Comes From 'Green' Sources
?????Twenty years later, California has nevertheless made major strides in
developing alternative energy. The state now obtains about 9% of its power
from "green" sources, not counting the 15% that comes from hydroelectric
plants. Taken together, they account for about one-quarter of the state's
power.
?????Yet advocates of renewable power say California could have done much
more. In a state blessed with abundant sun, wind and geothermal resources,
they say, the current crisis could have been avoided altogether with smart
green development.
?????The Japanese, Germans and Danes, among others, have vastly increased
their use of renewable energy by heavily subsidizing solar and wind energy
production, and by taxing fossil fuel plants on the theory that the pollution
they emit carries a cost to society.
?????Americans tend to view such policies as heavy-handed--even antithetical
to a free market economy. But some also argue that there has been a bias
within the utility industry against small, clean energy systems.
?????"I think engineers like to build big, complicated power plants," said
Angelina Galiteva, director of strategic planning for the Los Angeles
Department of Water and Power.
?????It's also true that even as the prices of alternative forms of
electricity dropped, they remained well above the cost of burning natural gas.
?????Until last year.
?????In January 2000, wholesale electricity was averaging about 3 cents a
kilowatt-hour. By January 2001, soaring natural gas costs had sent those
prices up to more than 30 cents a kilowatt-hour.
?????There is general agreement that wind power now costs about 5 cents a
kilowatt-hour--and will continue to drop. Estimates of geothermal costs range
from less than 5 cents to 7 to 10 cents a kilowatt-hour. Biomass--the burning
of wood chips, agricultural waste and the like--is probably about 8 to 10
cents a kilowatt-hour, and solar thermal energy--which uses mirrors to
concentrate the sun's heat to drive turbines--costs 10 to 15 cents.
?????Even the most expensive form of renewable energy, that produced by
rooftop panels of photovoltaic solar cells, has suddenly become competitive.
Estimates of the cost of photovoltaic energy range the widest--from as high
as 30 cents or more per kilowatt-hour to 10 cents or less after available
state and local subsidies.
?????But only in the worst-case scenario--someone buys the Cadillac of solar
systems, takes out a high-interest loan and mounts the panels in a fogbound
district of San Francisco--does solar energy exceed the current price of
off-the-grid, gas-fired electricity.
?????Most energy experts expect that to change. Natural gas prices, they say,
can't stay at their current levels. Still, most renewable producers say the
future looks rosy--if they can survive their months of nonpayment by the
utilities. The price of solar and wind energy, in particular, is dropping
every year, and could remain competitive even if natural gas prices do fall.
?????Galiteva, among others, sees solar energy as a future mainstay. The DWP
has been aggressively promoting solar power, offering to heavily subsidize
the cost of residential solar units and generating its own solar electricity
from collectors throughout the city.
?????"It's the technology of the future," Galiteva said. "I like to think
we're sitting on the cusp of a revolution and we just don't know it yet."

Copyright 2001 Los Angeles Times

All-Out Attack on Bush Energy Plan Is Readied

By ELIZABETH SHOGREN and GREG MILLER, Times Staff Writers

?????WASHINGTON--Minnesota environmentalists will taunt and jeer from a block
away when President Bush unveils his national energy strategy in St. Paul. A
coalition of green groups is expected to purchase TV time to attack the
administration manifesto in key markets. Congressional Democrats temporarily
commandeered a Capitol Hill gas station to plug their competing energy
initiative.
?????For the environmental community--and the Democrats in Congress who
support their causes--Thursday's roll-out of the Bush administration's
comprehensive energy plan will be the political equivalent of D-day.
?????"The environmental community is going to put more money into this than
any other campaign in its history because there is so much at stake," said
Phil Clapp, president of the National Environmental Trust. "What they are
assembling is an all-out attack on environmental protections."
?????Opponents of the administration's energy policies say they are preparing
to wage a ferocious battle with the energy industry and its congressional
allies to prevent what they fear could be the potential reversal of decades
of hard-won gains.
?????Even before it has been released, Sen. Harry Reid (D-Nev.) called the
Bush energy plan a "recipe for disaster" and stressed that "Democrats will
throw themselves on the train tracks" to stop it.
?????The energy policy showdown is shaping up as a critical test of the
political muscle and marketing savvy of environmental lobbyists. The outcome
will depend in large part on their ability to maintain alliances with Capitol
Hill Democrats--and some Republicans who face tough reelection battles--who
can help them kill the provisions they consider most harmful.
?????House and Senate Democrats have already produced alternate energy plans
that place more emphasis on protecting the environment and promoting energy
efficiency. That contrasts with an administration plan that is expected to
emphasize increased production of energy.
?????"We're not willing to kick the environment over, as the Bush
administration seems willing to do, to get more supply," said House Minority
Leader Richard A. Gephardt (D-Mo.).

?????Groups Coalesce in Opposition
?????Environmental groups, which are presenting a united front against the
administration plan, oppose many of its basic elements, including:
?????* Drilling for oil and gas on public land where extraction is now
prohibited or discouraged, such as on the coastal plain of the Arctic
National Wildlife Refuge in northeastern Alaska.
?????* Expanding electricity production from coal-fired plants, which
environmentalists argue will increase emission of harmful pollutants and
carbon dioxide, a contributor to global warming.
?????* Increasing electricity production by nuclear plants, an unacceptable
option to environmentalists, who generally consider the prospect of more
nuclear waste a risk too big to take.
?????Environmental activists also expect the administration to provide few
incentives to increase the use of renewable energy sources, such as wind
power and fuel cells, or to set out a clear plan for reducing emission of
carbon dioxide.
?????"When you're talking about constructing new power-generating sources,
you're talking about an infrastructure that will last for many years to come.
If we don't do it right, our grandchildren will suffer," said Scott Elkins,
Minnesota state director of the Sierra Club.
?????The Sierra Club and other environmental groups are organizing a protest
near the energy-efficient power plant that Bush plans to use as a backdrop
when he presents his energy plan to the nation Thursday.
?????Elkins said he was surprised by the scores of calls his office has
received from people who want to let Bush know they oppose his plan. Although
the 100-page document has not been released, its key principles have been
described by Vice President Dick Cheney, who headed the task force that
drafted it.
?????The callers expressed concern about the administration's expected
emphasis on fossil fuels and nuclear power to expand electricity supplies,
and its less aggressive embrace of efficiency improvements and energy
conservation, Elkins said.
?????"People are very disappointed. They didn't expect this out of Bush," he
said.

?????TV Ads Targeted to Certain Areas
?????It is those kinds of sentiments that environmentalists hope to encourage
with their multifaceted attack on the Bush energy plan. They intend to pool
funds to run television commercials "in places where people are undecided as
to what they think and where we think we can influence the debate," said Dan
Becker, an energy specialist at the Sierra Club. The groups with large
memberships, such as the 650,000-member Sierra Club, will mobilize members to
call, write and e-mail key lawmakers to urge them to oppose the
administration plan.
?????The business community in general and energy industry in particular are
backing Bush's plan. But recent polls have convinced them that
environmentalists may have the edge in public opinion, making them formidable
opponents.
?????"They're very good at casting a message," said William Kovacs, who
focuses on energy and environmental issues at the U.S. Chamber of Commerce.
?????Hundreds of local chambers and trade associations have formed the
Alliance for Energy and Economic Growth to press the business community to
counteract the grass-roots efforts of environmentalists.
?????"It's up to [the] American business community to educate the public
about the need for additional energy resources and the adverse impacts on our
quality of life and our economy if we don't get the additional resources,"
Kovacs said.
?????Environmentalists will have ready allies on Capitol Hill, where
Democrats have come to see battling the White House on green issues as one of
their most effective political strategies heading into the 2002 congressional
races.
?????House Democrats are planning to set up a "war room" Thursday to serve as
a command center for their attacks on the Bush plan. They launched a
preemptive strike Tuesday, unveiling a more conservation-focused proposal.
?????The House Democrats go head-to-head with the Bush team on several
issues. They oppose construction of new nuclear plants, relaxation of
environmental regulations and new drilling in Alaska. They are promoting a
number of short-term measures opposed by the White House, including the
release of crude oil from U.S. strategic reserves and the imposition of
temporary price controls on wholesale electricity supplies to California.
?????The Democratic plan calls for the government to impose "maximum feasible
fuel economy" standards for light trucks and sportutility vehicles. It would
increase funding for research into fuel cells and other alternative energy
technologies.
?????Consumers who buy energy efficient cars and homes would get tax breaks,
as would companies that embrace renewable fuels and reduce emissions. There
would also be a tax break to encourage construction of a natural gas pipeline
from Alaska to the Lower 48 states.
?????There are a few areas of agreement between Democrats and the White
House, including support of tax breaks for development of alternative energy
sources and weatherization of homes.
?????And like the White House, Democrats are being careful not to call for
consumer sacrifices to reduce energy consumption. Democrats "do not advocate
energy policies that will require rationing or reductions in our standard of
living," the plan states on its first page. Indeed, the cover of the document
features a photo of a happy family washing their sport-utility vehicle.
?????Reid, ranking Democrat on the Senate Environment and Public Works
Committee, predicted that Bush's plan will draw opposition even within
Republican ranks.
?????"I don't think [the battle] will be as big as people think because I
don't think he has the support of many Republicans," Reid said. "I think
he'll be brought back to the reality of what the nation needs and wants."

Copyright 2001 Los Angeles Times

A One-Two Punch in the Budget
Economy: Tech dive and energy crisis hurt bond ratings again. Analysts say
it's likely to get worse.

By MIGUEL BUSTILLO and DEBORA VRANA, Times Staff Writers

?????A perfect storm is brewing over California: A downturn in the state's
prized high-tech economy has coincided with a costly energy crisis, leaving a
once-bountiful state budget a shambles.
?????The cascade of tax revenues from stock options that caused the budget to
balloon in recent years has begun to dry up as the New Economy falters. At
the same time, the energy crisis is forcing the state to spend billions
buying electricity to avoid crippling mass blackouts.
?????The latest bad news came Tuesday, when Moody's Investors Service became
the second major credit rating firm to downgrade $25 billion in state bonds,
sounding an alarm over the "increasing financial risks associated with the
continuing energy crisis."
?????The downgrades not only add millions to the state's borrowing costs,
including projects in the next state budget, they further complicate a
troubled plan to float a record $13.4 billion in bonds to repay state coffers
for electricity purchases.
?????The move by Moody's came one day after Gov. Gray Davis announced that he
was dipping into the state's emergency reserve fund to finance a pared-down
budget for the fiscal year that begins in July. Already, a statewide sales
tax holiday has been canceled and $300 million in aid to local governments
has been deleted from the budget.
?????The spiraling events contributed to a financial picture that looks
increasingly bleak, according to analysts. With the long, hot summer looming,
it only figures to get worse, potentially developing into the worst fiscal
crisis the state has faced since the economic recession of the early 1990s.
?????"It's almost a Kafkaesque situation we find ourselves in," said state
Treasurer Phil Angelides. "California is the leading edge of the national
economy, which is the leading world economy. We have to take these current
problems with a grain of salt. But without a doubt, these downgrades are a
black mark that threatens to harm the state's reputation."
?????After years of worrying about little more than how best to spend surplus
billions, Gov. Gray Davis is now faced with his first tough budget battle.
And his initial response--draining emergency reserves rather than slashing
government spending--has raised eyebrows in Sacramento and on Wall Street.
?????Despite a pervasive aura of negativity, however, veteran state budget
officials profess optimism.
?????"Clearly, the revenue outlook has deteriorated," said Elizabeth Hill,
the state's nonpartisan legislative analyst. But compared to the budget
deficits of the past decade, Hill said, the current situation is still within
control.
?????"Most of us have lived though the $14-billion budget shortfall," she
said, referring to the 1990-91 budget season, when then-Gov. Pete Wilson was
forced to slash programs. "So we have seen us overcome serious economic
problems in the past."
?????Experts on the outside, however, were taking a more negative view. In
explaining its downgrade, Moody's said it was particularly concerned that
California had recently backed out on a $4-billion loan to reimburse the
budget for electricity purchases until bonds could be floated, and that the
bond sale had been delayed until August.
?????It was also concerned about the general decline in the state and
national economies, and Davis' plan to maintain only a minimal $1-billion
reserve, the firm said. Moody's action came less than a month after Standard
& Poor's lowered its rating on California bonds two notches.
?????The downgrade registered virtually no response on Wall Street on
Tuesday, in part because many bond traders and analysts have already reacted
to California's energy woes and actually expected a harsher action from
Moody's. The firm lowered the rating on $19.8 billion of general obligation
bonds from AA2 to AA3. The ratings on $5.7 billion in lease revenue bonds was
dropped from AA3 to A1.
?????In general, the lower the rating, the higher the interest the state must
pay those who buy its bonds. Thus, the downgrade threatens to increase the
price tag for state projects, such as $400 million in higher education bonds
Davis had proposed in his new budget.
?????"If anything, the market was surprised that Moody's was so kind," said
Bob Gore, a managing director and bond trader at Crowell Weedon & Co. in Los
Angeles. "I thought they'd take [the state] down to at least a single-A."
?????But it sparked a heated round of finger-pointing in Sacramento, with
Davis and other Democrats accusing Republicans of causing the state's credit
rating to slip by blocking the loan deal last week.
?????The GOP legislators attempted to force Davis into a new strategy on the
energy crisis by holding up a bill needed to secure the loan and sell the
bonds. But Davis refused and the Democratic-led Legislature passed a
majority-only bill instead.
?????"Last week, when Republican legislators decided to play politics and
block a vote on revenue bonds, I warned that their actions could have serious
consequences," Davis said in a statement Tuesday. "Today, the seeds of
Republican obstructionism are bearing their ugly fruit."
?????Republicans, in turn, blamed the downgrade on Davis, calling it a
denunciation of his entire plan to finance a way out of the energy crisis.
?????"Last I heard we were the minority here," said Assemblyman George Runner
(R-Lancaster), the GOP's budget point man in the lower house. "He's holding
us awfully accountable for what I believe he has gotten the state into."
?????Political differences over how to overcome California's financial
problems are sure to color debate over the next budget. But Angelides and
others hold out hope for a bipartisan solution. Angelides said he spoke with
Runner on Tuesday and left encouraged. But the current climate is ugly, he
conceded.
?????"We're at a place now where we've had a great thing going for a decade.
The mark of a great team is one that comes together when times are tough.
Unfortunately, we are showing some of the characteristics of a losing team."
?????Already, there are signs lawmakers plan to do what Davis did
not--further pare down the budget to meet the state's unpleasant new economic
realities. Hill, a respected voice among leaders in both parties, has already
written legislators suggesting they take an ax to Davis' spending plan.
?????But others maintain that the outlook isn't as bleak as Wall Street
credit rating agencies and other critics believe. Ted Gibson, the state's
chief economist, acknowledged that the state is in a precarious position, but
said it still boasts m one of the nation's highest rates of growth and
employment.
?????"The situation is manageable," Gibson said. "None of these things
help--the delay in the bonds is going to cost us money. But the state is in a
strong cash position. The economy, in the context of the rest of the United
States, is still doing pretty darn well. Once we get these [energy] bonds
sold, the picture will be considerably brighter."
---
?????Times staff writer Julie Tamaki contributed to this story.

Copyright 2001 Los Angeles Times

260 Hours of Summer Blackouts Predicted
Forecasts: Industry group says assumptions made by Cal-ISO are overly
optimistic.

By RICHARD SIMON, Times Staff Writer

?????WASHINGTON--California will experience up to 260 hours of electrical
blackouts this summer, an industry group predicted Tuesday in one of the
gloomiest assessments of the state's energy crisis.
?????In announcing its bleak calculations, the North American Electric
Reliability Council said that many of the assumptions made by the agency that
runs California's electrical transmission system appear overly optimistic.
?????That agency, the California Independent System Operator, has not made
any projections of the number of hours of blackouts. But it has said the
state could face 34 days this summer in which blackouts are possible,
assuming Californians use the same amount of electricity as they did last
summer.
?????The Princeton, N.J.-based reliability council said California is likely
to fall 4,500 to 5,500 megawatts short of peak demand each month this summer.
In other words, at the time of day when energy use is at its highest, the
state might not be able to serve the equivalent of about 3.75 million homes.
?????That is consistent with Cal-ISO's calculations of what could happen in
the worst of three possible scenarios for the summer but about 1,500
megawatts more than the agency's most likely scenario.
?????The newest projections are far more pessimistic than those issued
earlier this year by Cambridge Energy Research Associates, a
Massachusetts-based firm that predicted about 20 hours of blackouts this
summer. On the other end of the spectrum, Reliant Energy, a major owner of
power plants, has quoted consultants' projections that the state faces 1,100
hours of blackouts during all of 2001.
?????The reliability council said the state could experience power
emergencies during non-peak periods as well as those of peak electricity use.
The nonprofit corporation was formed after the 1965 blackouts in the
Northeast to promote electricity reliability.
?????In its 64-page assessment, the group questioned several assumptions made
by Cal-ISO and other analysts, including whether all of the anticipated new
electric generators will come into service in time.
?????"Since new generation requires a shakedown period during initial
start-up," the industry group said in its report, "it is unlikely that all of
the new generation will be on schedule and 100% available."
?????The council also projects that Californians will conserve less
electricity than state regulators hope--in part because of the newness of
rate increases and incentives designed to curb usage--and that the summer may
be warmer than normal.
?????A spokesman for Gov. Gray Davis disputed the forecast, saying it assumes
the worst.
?????"We are preparing for the worst and hoping for the best," said the
spokesman, Steve Maviglio.
?????He contended that the industry group underestimates the amount of
electricity expected to be available for purchase from the Northwest.
?????Cal-ISO spokeswoman Lorie O'Donley did not criticize the report
directly, saying that she did not know how its authors arrived at their
underlying assumptions. But she questioned the notion of forecasting
blackouts: "We don't think that's possible to do, given the variables that
are in play."
?????The report cautions that New York City and New England should be closely
watched, despite having adequate resources to meet demand, noting that they
are sensitive to long-term heat waves or higher than anticipated outages of
generating units.
---
?????Times staff writer Mitchell Landsberg contributed to this story.

Copyright 2001 Los Angeles Times

The power behind the POWER
Business as usual for PG&E's well-connected board
Matthew Yi, Chronicle Staff Writer
Wednesday, May 16, 2001
,2001 San Francisco Chronicle
URL: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2001/05/16/BU199770.DTL
While Pacific Gas and Electric Co. was heading down the road to bankruptcy,
its board of directors was running to the bank with 36 percent salary hikes,
routine meeting bonuses and potentially lucrative stock options.
In 1997, a year after energy deregulation in California, PG&E's directors --
16 at the time but since whittled to 10 -- gave themselves $8,000 pay hikes
even as the utility's finances began to spiral out of control.
The company's proxy statements show that the directors' $30,000 base salary
has stayed the same since, but the financial benefits of taking a seat in
PG&E's board room don't end there.
For each board or committee meeting, the directors get $1,000 bonuses just
for showing up -- and there have been as many as 29 meetings in a single
year.
In 1997 the amount of stock options available to each director was tripled,
from a limit of $10,000 to $30,000 per year.
It's all part of doing business in corporate America, experts say, especially
as a growing number of companies are governed by an ever-shrinking group of
people.
"You can make a career out of (being on boards)," said Paul Tiffany,
professor at Haas School of Business at the University of California at
Berkeley. "At an average of $50,000 per year (for each board position), you
can make a decent amount of money."
PG&E directors are no exception -- most of them also sit on boards of other
companies.
Eight of them also represent 30 different companies or organizations.
Many are San Francisco or Bay Area companies that have deep roots in the
region's economy.
"It is the secret geography of power in downtown San Francisco," said Gray
Brechin, an adjunct professor at UC-Berkeley who published a book on the
subject two years ago.
"These networks of power are like the roots of a forest that you walk over
every day. They are tangled together. . . . That's just how the financial
institutions work. And central to that is water and power," he said.
So it's not unusual to see overlap in executives or directors, he said.
According to PG&E records, lucrative contracts or money were given in 1996
and 1997 to Kaiser Permanente, $45.3 million; AirTouch Cellular, $2.5
million; Bank of America, $3.1 million; and Joint Venture: Silicon Valley
Network, which promotes South Bay businesses, $200,000.
PG&E director David Lawrence is chairman and chief executive officer of
Kaiser, while director C. Lee Cox was an executive at AirTouch at the time.
Director David Coulter was chairman and CEO of BofA. Rebecca Morgan was
president and CEO of Joint Venture while serving on the utility board in 1996
and 1997. She's not on the board now.
San Francisco law firm McCutchen, Doyle, Brown & Enersen also had a PG&E
contract; firm partner David Andrews joined the PG&E board last year.
None of the directors would comment, though PG&E spokesman Brian Hertzog said
the company has high standards for independence when it comes to board
members.
"These are relationships that are managed and formed as part of a regular
business at PG&E," he said. "They never reach the board level."
For example, the Kaiser contract is just one of several other health plan
options offered to PG&E employees, Hertzog said.
But a look at other companies that the directors represent reveals a who's
who of the region's powerful elite.
Andrews, 59, is also a board member at Union Bank.
Coulter, 53, is vice chairman of J.P. Morgan Chase & Co., but more notably is
the former chairman and CEO of BofA, which merged with NationsBank in 1998.
The bank's headquarters was moved to Charlotte, N.C., and Coulter was later
axed.
Cox, 59, is a longtime communications business executive who retired from
AirTouch.
William Davila, 69, is the former president and the familiar TV face for
supermarket chain Vons, which was sold to Safeway for $2.5 billion in 1997.
He also sits on the boards of Home Depot and Hormel Foods.
Besides his Kaiser position, Lawrence, 60, also is a director at Agilent
Technologies, a Hewlett-Packard spin-off.
Mary Metz, 63, is president of the nonprofit S.H. Cowell Foundation, named
after a San Francisco family.
Carl Reichardt, 69, is the retired chairman and CEO of Wells Fargo Bank.
Barry Lawson Williams, 56, is president of Williams Ventures in San Bruno.
Gordon Smith, 53, is PG&E's chairman and CEO. Robert Glynn Jr., 58, holds the
same posts for the utility's parent company, PG&E Corp. All of them sit on
the board for PG&E, which is the utility. All but Smith are on the board for
the parent company.
PG&E Corp. trades on the New York Stock Exchange.
In most cases, both boards meet concurrently. Last year, there were 13
corporation board meetings and 10 utility board meetings.
Directors' terms are for one year, and shareholders can re-elect them at
their annual meeting.
The fact that directors belong to multiple boards means that they essentially
work as the glue that binds the institutions together, experts say.
"It's all part of the modern corporate strategy," said Richard Walker,
regional economics professor at UC-Berkeley. "It cements relationships. . . .
It ties the key businesses, which represents the guts of the (region's)
industries."
However, those ties could also be the companies' greatest weakness, he said.
It's a problem of like-minded people telling each other that all is well,
which can make some companies vulnerable to failure, Walker noted.
Also, today's corporate boards have a difficult time really knowing the
details of the business because their attention is divided among several
companies.
"Implicitly, you have some powerful people . . . you have people with access
. . . and power," Berkeley's Tiffany said. "But 10 people meeting so
infrequently, you couldn't possibly manage PG&E. That's the structure that we
have, and it's not unique to PG&E."
E-mail Matthew Yi at myi@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?C - 1

The Power behind the POWER
PG&E board doesn't suffer from energy crisis
David Lazarus, Chronicle Staff Writer
Wednesday, May 16, 2001
,2001 San Francisco Chronicle
URL: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2001/05/16/BU95336.DTL

When PG&E Corp. Chairman Robert Glynn takes the stage at San Francisco's
Masonic Auditorium today for the company's annual shareholder meeting, the
first thing he will do is wipe some egg off his face.
In his address to shareholders at the Masonic in 1998, Glynn had good news to
report about California's burgeoning efforts to deregulate the state's
electricity market.
"Electricity rates are down 10 percent from where they were a year ago," he
declared. "And they are going to stay down for several years, and then they
will go down again.
"There is no product bought on a daily basis that has such a predictable
downward price trajectory," Glynn said.
Today, three years after that disastrously wrong forecast, PG&E's utility
subsidiary, Pacific Gas and Electric Co., is in bankruptcy court attempting
to crawl out from beneath more than $9 billion in debt -- the result of
soaring power prices stemming from the same deregulation scheme Glynn had
once championed.
Still, it's a fairly safe bet that he won't beg shareholders for their
forgiveness.
"I am not uncomfortable looking back on the positions we took," Glynn told
Chronicle editors and writers recently when asked about his company's role in
drafting California's 1996 deregulation law.
He said PG&E placed its considerable weight behind deregulation efforts
because it was what customers wanted, and "we didn't want to be on the other
side of our customers."
In fact, few if any PG&E customers fully understood
the highly complex legislation that ultimately would make California's
electricity market the most dysfunctional in the nation.
Rather, as a close reading of Glynn's speeches in recent years reveals, he
viewed deregulation as a prime business opportunity that would allow PG&E to
pay off past debts and expand its operations nationwide.
"In effect, we are trading our monopoly in half of one state for a wide- open
market opportunity in all 50 states," he told the San Francisco Commonwealth
Club in late 1997.
And in his address at PG&E's 1999 shareholder meeting, Glynn said he backed
deregulation "so that we could be solidly positioned to capture the economic
benefits of this gigantic opening of the North American marketplace."
All that changed, of course, when California's wholesale electricity prices
spiked sharply higher last summer and the state's two largest utilities, PG&E
and Southern California Edison, rapidly found themselves teetering on the
brink of financial ruin.
Since then, numerous other states have halted or reversed their own
deregulation plans, and California's experiment -- in which PG&E was "a
leading force," according to Glynn -- is now universally held up as an object
lesson in how not to restructure an electricity market.
To be sure, Glynn and PG&E are not solely to blame for California's current
troubles, and neither they nor anyone else could have anticipated the surge
in wholesale prices charged by out-of-state power companies.
"The whole structure of deregulation was put together poorly," said Douglas
Christopher, an energy-industry analyst at investment bank Crowell, Weedon &
Co. in Los Angeles. "People worked with what they could, but the whole thing
was a mess."
At the same time, he said PG&E's management exacerbated the utility's
problems by not taking sufficient countermeasures until last December --
almost half a year after California's energy woes surfaced. "That's just
amazing," Christopher said.
In hindsight, it has become clear that Glynn and PG&E made a series of
missteps that ultimately would result in the third-largest bankruptcy in U.S.
history.
Yet the man at PG&E's helm remains largely unknown to the millions of
Northern California ratepayers who write his company a check each month. And
that's just how Glynn prefers it.
His own public relations people say their boss does not like to be the
subject of "personality-oriented stories" and tends not to agree to
interviews for profiles.
In his meeting at The Chronicle, Glynn, 58, shed his suit jacket and spoke
confidently about his company's bankruptcy prospects and California's energy
problems.
But he declined further interviews, saying he would be too busy preparing for
today's shareholder meeting.
PG&E compensated by faxing over a one-page biography of Glynn that a company
spokesman said was the extent of what the chairman wants known about himself.
Among the tidbits:
-- Glynn is a native of Orange, N.J.
-- He worked for Long Island Lighting Co. before joining PG&E in 1984.
-- He was named president and chief operating officer of the utility in 1995
and president of the parent company in 1997. He became chairman of the board
in January 1998.
-- He sits on the board of governors of the San Francisco Symphony.
Glynn's own PR staffers profess ignorance when asked whether their leader has
a hobby, plays any musical instruments or even owns a pet.
"He likes to remain private," one official explained, in the next breath
requesting anonymity lest Glynn take umbrage with even that degree of
scrutiny of his personal life.
Other PG&E insiders described Glynn as a smart and savvy manager, a man who
prides himself on his quick mastery of complex issues. At the same time, they
said he easily loses patience with those who fail to do their own homework.
In business meetings, Glynn is said to have a laserlike focus on whatever
subject is at hand. An engineer by training, he approaches problems with a
tinkerer's mentality, seeking out ways a matter can be taken apart to find
its core components.
Glynn's detractors -- primarily consumer activists -- say that even if he is
not personally responsible for California's current energy difficulties, he
only has made things worse by so zealously seeking to safeguard PG&E's
interests.
"PG&E has not been a good corporate citizen," said Dan Jacobson, consumer
program director for the California Public Interest Research Group in
Sacramento. "It has put its own shareholders so far beyond anyone else that
the company is jeopardizing the entire state economy."
Others expressed astonishment that PG&E has gone bankrupt on Glynn's watch
and that, to date, he has weathered the storm virtually unscathed.
"Glynn is steering the ship and the ship's going down," said Medea Benjamin,
head of Global Exchange, a San Francisco grassroots organization. "It's
unbelievable how he's gotten away with running his company into the ground."
Glynn, needless to say, doesn't see things the same way.
In his meeting at The Chronicle, he said bankruptcy was the only option for
PG&E after a series of "negative decisions" made by state regulators and the
collapse of bailout talks with Gov. Gray Davis.
"By going to bankruptcy court, we decided we were moving to a venue where the
rules are better understood," he said.
It could take years for the court to work out a restructuring plan that will
placate PG&E's thousands of creditors and remedy the utility's financial
meltdown.
Glynn will attempt to explain in detail today why his decision to file for
Chapter 11 protection was a good one.
In light of his past pronouncements at PG&E's annual get-togethers, it
remains to be seen whether, this time, the company's shareholders will take
the boss at his word.
E-mail David Lazarus at dlazarus@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?C - 1

California electric rates jump to second highest in country
KAREN GAUDETTE, Associated Press Writer
Wednesday, May 16, 2001
,2001 Associated Press
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2001/05/16/state0
252EDT7185.DTL&type=news
(05-16) 06:29 PDT SAN FRANCISCO (AP) --
Beginning in June, residential customers of California's two largest
utilities will pay the second highest electric rates in the country to help
the state recoup roughly $6 billion it has spent buying power to keep the
lights on.
And members of the state Public Utilities Commission said after Tuesday's 3-2
decision, which forced commissioners to shout their votes over the din of
jeering protesters, that even more rate hikes could come by summer's end.
"When you look down the road we're going to have to go through this exercise
again sometime in the next three months," said PUC Commissioner Richard
Bilas, who argued the allocations were too hard on businesses and voted no.
"We have not solved the problem today."
Tuesday's vote allocates a 3 cent rate hike the PUC approved March 27, the
largest in California history. The hike raises residential rates to an
average of 15.6 cents per kilowatt -- just behind the nation's highest rate
of 16.4 in Hawaii.
The three cents, on top of a 1 cent rate increase from January made permanent
March 27, was spread over the 9 million customers of Pacific Gas and Electric
Co. and Southern California Edison Co. in dramatically different ways.
The PUC says residential customers who use the most electricity could face 71
to 80 percent increases, though at least half will see no rate hike at all;
rates for industrial customers could rise as high as 49 percent; agricultural
customer hikes as high as 15 to 20 percent; increases for commercial
ratepayers, such as banks, hospitals and restaurants, were not immediately
clear due to conflicting numbers.
The PUC crammed a year's worth of rate design into seven frenetic weeks in
its race to hikes rates just the right amount on each group of ratepayers to
simultaneously trigger vital conservation to help fend off summer blackouts
while not breaking anyone's bank.
That haste led to repeated delays on allocation proposals and a flurry of
contradictory numbers from the allocation architects -- PUC President Loretta
Lynch and PUC Energy Division Director Paul Clanon -- including three
separate sets Tuesday.
Lynch also postponed Monday's scheduled vote, saying she needed more time to
consider feedback from all ratepayers before she revised of her earlier
proposal.
The delay also followed pressure from fellow commissioners, an outcry from
business groups saying the rate hikes would doom California's economy and
criticisms from Gov. Gray Davis that her proposal placed too high a
percentage of hikes onto commercial ratepayers.
Mike Florio, senior attorney for The Utility Reform Network, said that extra
day resulted in a shift of at least $100 million in rate hikes from
businesses onto residential customers.
"They put too much of it on residential," Florio said, adding that the money
would have to come from ratepayers or else taken away from funding for state
programs such as transportation and education. "The state's going broke and
we've got to get the money from somewhere."
Jason Zeller, an analyst with the Office of Ratepayer Advocates, a consumer
arm of the PUC, also characterized the shift as placing more of the burden on
residential customers.
Spokesmen for both PG&E and Edison said it will take at least a day of number
crunching to know precisely how the rate hikes will affect the dozens of
different customer classes.
At least half of residential customers will not see their bills go up if they
don't increase their use, and others can evade the hikes by conserving more.
Low-income customers who sign up for the California Alternate Rates for
Electricity program are exempt, as well as many customers who need
electricity to run life-sustaining medical equipment.
Also, state law shields electricity use within 130 percent of a residential
customer's "baseline" amount from the rate hikes for all residential
ratepayers, regardless of how much they use in total.
Baseline is a percentage of the average amount of electricity used in an area
based on climate, geography and season. The most recent numbers released by
Clanon show an average 60 percent rate hike on all electricity use beyond 130
percent of baseline.
Non-residential customers, such as computer chip makers, grocery stores and
fruit growers, say it's unfair they must pay more for every kilowatt of
electricity.
"This is probably the worst economic calamity the state has ever seen," said
David Marshall, chief financial officer at Gregg Industries, a 400-person
iron foundry in El Monte. "It has got ramifications well beyond anything that
we can begin to understand."
Gregg already has switched its production cycle from during the day to a
night shift to save electricity, Marshall said, but he expects the rate hike
plan approved Tuesday to cost Gregg at least $1 million this year.
Pacific Gas and Electric Co. customers who consume the most will see their
rates jump from 14.3 cents per kilowatt hour to 25.8 cents per kilowatt hour,
which translates into an average increase of $85 per month for electricity
according to a PUC chart.
Residential power use is divided into five tiers, and electricity used within
PG&E's top tier will jump by 80 percent. About 9 percent of PG&E's households
fall in that top tier.
Those hikes for the top tier translate into an average increase of $85 --
from $232 to $317, or 37 percent -- on monthly bills for such customers.
For Edison's heaviest residential users, the rate hike in the top tier is 71
percent -- or an average increase from $194 to $265 on monthly bills. The
actual dollar increase is 37 percent.
The rate hikes will be retroactive to March 27, though those retroactive
charges will be spread over a 12-month period. They do not affect customers
of San Diego Gas and Electric Co. and Californians who buy electricity
directly from energy wholesalers, such as the California university system.
Tuesday's meeting was eerily quiet as observers strained to hear three
commissioners speak their pieces via speakerphone. Protesters at the meeting
wore tombstone-shaped placards that read "R.I.P. Affordable Energy," and
loudly told the two commissioners present, Jeff Brown and Carl Wood, they
should be ashamed of themselves.
Brown bellowed back at protesters: "We cannot walk away from it. We cannot
pretend that this is some sort of problem that we can walk away from."

Industry sees worse-than-expected summer power shortages
H. JOSEF HEBERT, Associated Press Writer
Wednesday, May 16, 2001
,2001 Associated Press
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2001/05/16/nation
al1008EDT0545.DTL&type=news
(05-16) 07:08 PDT WASHINGTON (AP) --
Power problems could spread into the Northeast this summer, electricity grids
in Texas and the Pacific Northwest are being watched closely, and California
could average 20 hours of blackouts a week, electricity industry experts say.
The gloomy forecast comes just as President Bush prepares this week to
release a sweeping energy policy that is expected to focus heavily on
long-term solutions and not this summer's power concerns or high gasoline
prices.
Under pressure from Democrats and many Republicans to offer voters a quick
fix, White House press secretary Ari Fleischer told reporters Wednesday, "The
president's proposal will help in the short term."
Fleischer, who previously had maintained that there are no short-term answers
to the nation's energy woes, said the promise of future supplies would drive
down prices among investors who speculate on short-term oil price trends.
Among the recommendations that will be made by the president's energy task
force is a call for more transmission lines and power plants to address
future electricity needs and changes in air pollution rules to improve the
production and distribution of gasoline, according to government sources.
But none of these proposals will help this summer, officials acknowledge.
The North American Electric Reliability Council, an industry-sponsored
watchdog organization, said in a report Tuesday that California's power
problems this summer are likely to be worse than even state officials have
predicted, with 260 hours of rolling blackouts -- an average of 20 hours a
week -- likely because of a power shortfall that could be as much as 5,000
megawatts during peak demand periods.
A megawatt is enough power to serve 1,000 homes.
While most of the country will have enough electricity, the council's report
also warned of potential problems in the Northeast, with possible power
disruptions if there is a persistent heat wave, and in the Pacific Northwest
as well as possibly in Texas. The New York City area could have blackouts if
there are transmission problems on lines into the region, the report said.
While Texas has plenty of electricity, it "should be closely watched" because
the state is shifting into a retail competitive market in June and
consolidating some grid management activities, David Cook, the reliability
council's general counsel, said.
"There is no magic bullet, no single thing to be done that will solve the
challenges we face" in trying to assure electricity reliability, Cook said in
testimony before the Senate Energy and Natural Resources Committee.
In the Pacific Northwest, there is expected to be enough power to meet summer
demand despite low hydroelectric generation as a result of a severe drought.
But, the report said, if the region's drought continues, there could be
rolling blackouts next winter.
In other developments Tuesday:
* The Energy Department said there were some signs that gasoline prices may
ease around Memorial Day as refiners have revved up production and
inventories were beginning to build.
But John Cook, director of the Energy Information Administration's petroleum
division, cautioned any refinery disruption or pipeline problem could cause
prices to soar again. "Today, little cushion exists," he said at a House
hearing.
* The Senate Finance Committee by an 18-2 vote rejected a proposal by Sen.
Jay Rockefeller, D-W.Va., for a windfall profits tax on energy company
earnings above a 20 percent rate of return. Critics said the proposal would
stifle energy investment.
* Vice President Dick Cheney, briefing GOP lawmakers privately, dismissed
concern about high oil company profits, declaring the oil business "is a
lousy cyclical business," according to several people present. Sen. Susan
Collins, R-Maine, reportedly told Cheney that Republicans were ignoring the
oil industry profit numbers "at our peril."
The White House, meanwhile, sought to garner political support for its energy
package and counter Democratic criticism that it focuses too heavily on
production and not enough on getting people to conserve energy.
After courting labor leaders earlier in the week, the White House briefed
executives representing renewable energy industries -- from solar and wind
power to producers of ethanol and organic waste energy plants -- on parts of
the energy package.
The executives were pleased with some proposals of tax breaks for renewables,
but, said Jaime Steve of the American Wind Energy Association, "other items
need to be included."
In Congress, Republicans promised to move swiftly on energy legislation once
the Bush proposals are announced. Democrats, however, announced their own
proposals in the House on Tuesday and promised a fight unless more emphasis
is put on energy conservation and protection of the environment.
"We can have adequate supplies of energy and save our environment at the same
time," said House Minority Leader Dick Gephardt, D-Mo., adding that "we don't
have to just drill our way out of this problem."
Republicans said they expect the president to propose conservation measures
as well as proposals to spur new energy development such as opening
additional public lands for oil and gas drilling and easing regulatory
barriers to building power plants, electric transmission lines, and promote
nuclear power.

Contra Costa acts on energy
Hiring freeze, lawsuits planned by supervisors
Jason B. Johnson, Chronicle Staff Writer
Wednesday, May 16, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/05/16/M
NW30608.DTL&type=news
Contra Costa County supervisors attacked the state's energy problem on two
fronts yesterday, voting to freeze hiring of new county employees and to
pursue joining state lawsuits against power generators and regulators.
The Board of Supervisors passed both measures by unanimous vote.
The county -- which expects to see a $2 million increase in energy costs next
year -- has about 8,000 employees. The freeze would leave about 1,000 open
jobs unfilled to save money to fund county programs and services next year.
"We have projected a budget shortfall next year," said County Administrator
John Sweeten. "Energy costs have been escalating."
The directive covers new hires, rehires, temporary appointments and increases
in hours. County departments must also plan their staffing coverage for
vacation, sick leave and other vacancies to avoid incurring overtime
obligations.
Sweeten said it is not clear exactly how much money the freeze will save the
county.
Members of the staff will also review how best the county could take part in
state lawsuits against five out of state power generators for price-gouging
and against federal regulators failing to do their job.
Supervisors John Gioia and Mark DeSaulnier, who introduced the measure, say
counties are losing out on millions in state funds spent each day to buy
power on the spot market.
The latest estimate is that the state is spending $70 million a day to buy
power.
"The state budget surplus is being used up to pay the out-of-state
generators," Gioia said. "The less money in the surplus, the less money for
local government. So local government does have an interest in state energy
policy."
A civil lawsuit by Lt. Gov. Cruz Bustamante against five out-of-state power
generators accuses them of conspiring to fix prices in California's energy
market.
The companies named are Dynegy Inc., Duke Energy, Mirant Inc., Reliant Energy
Inc. and Williams Energy Services.
A federal lawsuit by the California Legislature against the Federal Energy
Regulatory Commission accuses it of refusing to prevent price-gouging by
power generators.
It says the regulatory commission has abdicated its responsibility to assure
that power generators charge just and reasonable rates for electricity.
The suit attempts to require energy regulators to limit the prices charged by
generators, and it also calls for establishing a refund program to recover
what it says are excess profits that generators have already received because
of the commission's inaction.
In a report last December, the regulatory commission acknowledged that flaws
in the wholesale power market were allowing for unjust and unreasonable
prices. But commission members have resisted putting tight energy limits on
the market.
Gioia and DeSaulnier said they would like to see other counties throughout
the state join in the lawsuits.
"I think it's bringing more resources, and more political and moral
authority, to the issue," said DeSaulnier. "It behooves us to partner with
the state. A lot of for-profit corporations are benefiting from the suffering
of Contra Costans and Californians."
DeSaulnier said his office has had some preliminary contact with the office
of Senate President pro Tem John Burton, D-San Francisco, about joining in
the suits, but wants the county counsel to engage in more detailed
discussions on the issue.
"I'm very frustrated about our inability to have any kind of say in the
situation," DeSaulnier said.
e-mail Jason B. Johnson at jbjohnson@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?A - 22

Memo suggests Texas firm manipulated gas market
Bernadette Tansey, Chronicle Staff Writer
Wednesday, May 16, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/05/16/M
N5921.DTL&type=news
A memo closely guarded by a Texas energy firm suggests the company
manipulated California's natural gas market to drive up prices, a federal
administrative law judge said yesterday.
Curtis Wagner Jr., who is presiding over a federal investigation of
California's allegations against El Paso Corp., said statements in the Feb.
14,
2000, memo could be read to support accusations that the company improperly
restricted space on its Southern California pipeline to boost the price of
natural gas.
Wagner, chief administrative law judge for the Federal Energy Regulatory
Commission, made the comment in Washington, D.C., as he considered arguments
by the California Public Utilities Commission for public disclosure of the
memo.
The memo "certainly has statements in it that could lead one to believe there
was an abuse" of the gas market, Wagner said, according to the Associated
Press.
The chief lawyer for the PUC in the El Paso case, Harvey Morris, has urged
the federal commission to make public the full record in a series of
complaints he has filed since 1998 charging El Paso with managing pipeline
contracts to inflate energy costs in California.
The evidence, Morris has said, includes documents he describes as "smoking
guns."
The New York Times has reported that in the sealed memo, officials of an El
Paso marketing affiliate said it would gain "more control" of gas markets
under a contract it was seeking for space on El Paso's pipeline.
Bill Scherman, a lawyer for El Paso's marketing arm, said the memo Morris
wants released proves nothing about the company's handling of the pipeline
contract it signed several weeks later.
"(Morris) wants to try the case in the media," Scherman said.
As for Wagner's comments, Scherman said, "I'm not losing sleep over it."
Scherman said Wagner acknowledged shortly after he made the statement that he
had not yet read El Paso's briefs in the case.
Scherman said he urged Wagner to keep the memo sealed until El Paso puts its
case before the judge. That could happen as early as tomorrow. El Paso agreed
that the memo could be released when Wagner issues his recommendations to the
federal commission, which set a June 30 deadline.
California regulators, along with Pacific Gas and Electric Co. and Southern
California Edison, accuse El Paso affiliates of designing a strategy to boost
natural gas prices by restricting access to space on the company pipeline
into Southern California.
On March 1, 2000, El Paso Merchant Energy took over
1.2 billion cubic feet of space on the pipeline, which imports natural gas
from Texas and New Mexico. The pipeline supplies about half of California's
gas.
The state accuses El Paso Merchant Energy of withholding its unused share of
that capacity to reduce supplies and drive up prices. California's natural
gas costs have ranged from two to 10 times the rate in other states over the
past year.
Scherman said El Paso will present evidence that those price increases
resulted from soaring demand for natural gas starting in mid-2000, as gas-
fueled power plants geared up to replace the electricity that could not be
generated by hydroelectric plants.
He said the PUC's documents show the agency knew that dry weather and a
resulting low output by the hydro plants were pushing prices up.
E-mail Bernadette Tansey at btansey@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?A - 3

Bush follows stump script on energy
Policy announcement today was presaged in Michigan talk
Carolyn Lochhead, Chronicle Washington Bureau
Wednesday, May 16, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/05/16/M
N53504.DTL&type=news
Washington -- In a speech nearly seven months ago, George W. Bush revealed
the outline of the energy plan he will roll out tomorrow.
Bush has followed that script so closely since then that there can be few
surprises in his plan, which favors increased production of fossil fuels,
opposes wholesale electricity price caps and offers little short-term relief
from California's deepening energy crunch.
Despite the White House fanfare surrounding the proposal and the months of
closed-door meetings that went into its creation, Bush mapped out the plan
during an Oct. 13 campaign speech in Michigan.
The outline he presented back then meshes so closely with what is known of
the new plan that it begs the question: Why did the White House go to the
trouble of creating the task force that ultimately drafted it?
Bush "talked about ideas and principles and goals throughout the course of
the campaign," said White House spokesman Ken Lisaius. The task force, headed
by Vice President Dick Cheney, he said, "is taking the theme and the broad
picture of the directions we want to go into, and putting that into the
context of how do we do that."
In his October speech, delivered to autoworkers in Pontiac, Mich., Bush said,
"America runs on the oil and gas and coal we gain from the Earth, and from
water held behind our dams. No matter how advanced our economy might be, no
matter how sophisticated our equipment becomes -- for the foreseeable future,
we will still depend on fossil fuels."
To a remarkable degree, the speech foreshadowed nearly everything the
administration has been saying ever since about its forthcoming energy
policy. Even its political approach -- courting Michigan autoworkers --
dovetails with the new administration's courtship of unions this week to back
his energy plan.
Accompanying the speech was a detailed outline, still available on the
campaign Web site, of a "comprehensive national energy policy" with more than
20 initiatives to improve U.S. "energy independence."
It covers nearly every subject that has been mentioned by the White House
Energy Policy Task Force for the past four months. It specifically recommends
not only Bush's controversial proposal to drill in part of the Arctic
National Wildlife Refuge, but also, as Bush suggested Friday, to support new
hybrid- fuel automobiles. And it talks of encouraging more energy purchases
from Mexico and Canada, an idea Bush and Energy Secretary Spencer Abraham
have been promoting ever since.
Indeed, Bush's consistency -- which has repeatedly surprised Washington's
political establishment -- is nowhere more apparent than on energy policy.
That consistency has generated criticism, even from moderate Republicans,
that the new administration has turned a deaf ear to environmental concerns
and conservation, sending the White House scrambling to offset its anti-
environment image.
CALIFORNIA CRISIS
It has also opened the administration to charges that it is ignoring
California's worsening electricity crisis. The task force energy plan is
expected to focus, as Bush promised, on the long term and to contain little
that will directly address the state's blackouts.
Rep. Chris Cox, a Newport Beach Republican who with other California
Republicans was extensively briefed by Cheney on the new plan, said critics
who charge that the report is skewed too heavily toward increasing supply and
too little toward conservation will be surprised.
"I think I have as much access to it as the people who are saying those
things," Cox said, "and I can guarantee you they haven't read it."
Cox said Cheney "has emphasized that conservation and alternative fuels are
essential elements of our 20-year strategy" and that Bush is likely to call
for "a tripling of reliance on on alternative fuels. So I think both the
criticism and the response will be improved by actually reviewing the
administration plan when it's released, and everything else is just
anticipatory."
OPPOSITION TO PRICE CONTROLS
Cox also cited the administration's continuing, and apparently firm,
opposition to the price controls on wholesale electricity that California
Democrats, from Gov. Gray Davis on down, are asking for.
"On the conservation side, there is no better means of sending a strong
conservation signal than through the price mechanism," Cox said. "I think
that precisely because conservation must be an essential element of the
overall solution, price controls are viewed with great skepticism."
The administration said Saturday that the plan would contain tax credits for
"hybrid" automobiles that run on gasoline and electricity. Last October, Bush
told the autoworkers, "I am confident that you -- some of the best engineers
in the world -- can develop cars and trucks that will meet consumer demand
and keep our environment cleaner."
Bush energy plan President Bush's campaign promises on energy, outlined in a
major speech to autoworkers in Pontiac, Mich., on Oct. 13, dovetail with the
key proposals that the administration says will be in Bush's new energy plan,
which is due tomorrow:
-- Streamline regulations to encourage oil refineries to produce more
gasoline.
-- Spend $2 billion on "clean coal" technologies to encourage electric
utilities to use abundant supplies of coal -- an item already included in
Bush's budget;
-- "Establish clear rules" for nuclear power to encourage utilities to buy
nuclear plants.
-- Streamline regulations for approval of natural gas pipelines.
-- Support $1.4 billion in tax credits for electricity produced from
renewable and alternative fuels.
-- Open 8 percent of the Arctic National Wildlife Refuge to "environmentally
responsible exploration, which could replace the oil that the U.S. now
imports from Iraq."
-- Support new "cars and trucks that will meet consumer demand and keep our
environment cleaner." On Saturday, the administration announced that the
energy plan will propose an income-tax credit for the purchase of "hybrid"
cars that run on a combination of gasoline and electricity or fuel cells.
-- Work closely with Mexico and Canada to create a "North American Energy
Policy" to encourage cross-border sales of oil, gas and electricity. In
Quebec City last month, Bush announced that the United States, Canada and
Mexico had established a working group to accomplish this.
-- Examine opening federal lands to "environmentally responsible and
regulated exploration." The administration has surveyed natural gas and oil
potential on public land, including 58 million acres of Forest Service land
closed off under President Clinton's "roadless" designation. An inventory by
the Clinton administration found a mean estimate of more than 170 trillion
cubic feet of natural gas and 20 billion barrels of oil on lands containing
roadless areas.
-- Increase funding for federal weatherization programs, which help low-
income households increase the energy efficiency of their homes. Bush
included the item in his budget.
Source: Bush-Cheney 2000 campaign
Democrats' alternative House Democrats proposed their own energy plan
yesterday, calling for the government to lower electricity prices and
increase conservation. Highlights of the plan:
PRICES
-- Price caps on wholesale electricity prices.
-- Use of the Strategic Petroleum Reserve to stabilize market.
-- Call on OPEC to increase production.
PRODUCTION
-- Tax incentives for domestic crude oil production.
-- Tax credits to promote a new Trans-Alaskan natural gas pipeline.
-- Tax credits for the development and installation of wind, solar,
geothermal and other renewable energy sources.
CONSERVATION
-- A tax credit up to $4,000 for home improvements aimed at conservation and
for the purchase of vehicles using alternative fuel engines.
-- Additional funds for mass transit.
ASSISTANCE
-- More money for low income heating aid.
-- $200 million for Western schools hit by energy shortages.
Source: House Democratic caucus
E-mail Carolyn Lochhead at clochhead@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?A - 3

PUC tags consumers with huge rate boost
ELECTRICITY BILLS: Burden shifts from business to heavy residential users
David Lazarus, Chronicle Staff Writer
Wednesday, May 16, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/05/16/M
N236839.DTL&type=news

San Francisco -- The largest electricity rate increase in California history
was adopted yesterday by state regulators after a one-day delay in which the
burden on residential consumers was raised by more than $100 million.
The Public Utilities Commission split along party lines, the three Democratic
appointees backing the increase and the two Republicans voting against.
"We cannot put our heads in the sand," said Democratic commissioner Jeff
Brown amid jeers from protesters in the PUC's San Francisco meeting hall. "We
cannot pretend that this is a problem we can walk away from."
The PUC had been scheduled to vote on the increase Monday but postponed a
decision because of concerns that businesses would pay a disproportionately
large share of the nearly $6 billion to be raised from higher bills.
The revised measure adopted yesterday shifted about $106 million from
businesses and placed it squarely on the shoulders of residential consumers.
In the case of Pacific Gas and Electric Co., residential customers will see
electricity rates soar by almost 55 percent, to 22.1 cents per kilowatt hour
from 14.3 cents.
But electricity rates are different from bills. Because about half of all
residential ratepayers are exempt from higher charges, overall monthly bills
will increase by lower amounts.
Consumers who can stay within 130 percent of predetermined usage limits will
experience no increase at all.
Other residential customers, including most families and multiperson
households, will see their average monthly electricity bills rise by between
6 percent and 37 percent, depending on the amount of power used.
The effect of higher electricity rates is mitigated somewhat because other
charges on PG&E residential bills will not change.
"These are the largest rate increases that I know of," said Paul Clanon, head
of the PUC's energy division and chief architect of California's new rate
structure.
The higher rates will take effect as of customers' June 1 power bills but
will not be fully reflected in monthly charges until July 1.
Consumer advocates adopted a fatalistic attitude to the rate increase, which
regulators fast-tracked over recent weeks as state coffers have been rapidly
depleted from daily power purchases.
The state Department of Water Resources has spent more than $6 billion since
January buying electricity on behalf of California's cash-strapped utilities.
"The state is going broke," said Mike Florio, senior attorney for The Utility
Reform Network in San Francisco. "We have to get the money from somewhere.
Bankrupting the state is not an alternative."
However, he said, it would have been preferable for consumers if the PUC had
adopted an alternative rate structure that would have cost residential
customers about $400 million less.
That alternative was never given serious consideration by the commissioners,
who focused instead on a rival proposal submitted by PUC President Loretta
Lynch.
Although the commissioners were acting on a rate increase of historic
proportions, the meeting hall took on a surreal air yesterday because three
of the five members chose to be elsewhere for the occasion. They spoke and
voted via speakerphone.
Lynch, who was at the Millbrae City Hall, called the rate increase
"unfortunate" but said higher bills will address the state's financial
troubles and promote conservation.
She wrote in her proposal that "every consumer in California is justified in
feeling outrage at the rates we approve today and the bills they will have to
pay tomorrow."
But Republican Commissioner Richard Bilas, speaking from the Mendocino Art
Center, said the PUC was moving too quickly in enacting rate increases that
had not been fully analyzed.
Warning that the rate increase will lead to "a recessionary death spiral," he
said, "Many businesses will flee the state or shut down entirely."
Bilas' Republican colleague, Henry Duque, speaking from a Texas hotel, said
the rate plan was "incoherent" and "misguided" and will do nothing to promote
construction of much-needed new power plants.
PROTESTERS' TAUNTS
The only two commissioners present for yesterday's vote were Brown and his
Democratic colleague Carl Wood. They were forced to bear the brunt of taunts
from protesters in the audience.
One protester, Susan Rodriguez of Oakland, was escorted from the hall by
California Highway Patrol officers after loudly attempting to place Brown and
Wood under citizen's arrest.
"Do the right thing," other protesters shouted. But Brown countered that
"mature people must bite the bullet" and accept the necessity of higher
rates.
Industrial power users, including many Silicon Valley stalwarts, had lobbied
aggressively for lower rates, arguing that they were being asked to bear an
unfairly heavy burden from the proposed rate structure.
Under yesterday's revised measure, industrial electricity rates and average
monthly bills will increase by 49 percent, compared with more than 50 percent
under the original proposal.
'FIG LEAF'
The California Alliance for Energy and Economic Stability, a coalition of
some of the largest business groups in the state, said in a statement that
the final rate structure "is little more than a fig leaf for what remains a
terribly disproportionate rate increase allocation."
The alliance's members include the California Chamber of Commerce, the
California Business Round Table and the California Retailers Association.
Doug Heller, a spokesman for the Foundation for Taxpayer and Consumer Rights
in Santa Monica, said residential ratepayers and small businesses are being
hit hardest by the rate increases.
"The special interests that foisted deregulation upon us get off easy." he
said. "This unforgivable betrayal by the governor will not be forgotten."
Gov. Gray Davis had no immediate response yesterday to the PUC's action.
COMMERCIAL RATES
Electricity rates were increased 37 percent for PG&E's small commercial
customers, 41 percent for large commercial customers and just over 19 percent
for agricultural customers.
Southern California Edison residential customers saw their power rates jump
47 percent, to 22.4 cents per kilowatt hour from 15.2 cents. Average monthly
bills will rise by between 6 percent and 37 percent.
"We are now in a position to pay the electricity bills in California," the
PUC's Brown said. "But it will not be easy."

E-mail David Lazarus at dlazarus@sfchronicle.com.
Plan punishes heaviest users
Under the plan adopted by the PUC, the heaviest residential users would bear
the brunt of increases. Here is how residential PG&E bills would be affected
under the proposal:
Baseline      Monthly     Current        New          %
usage level    usage    monthly bill  monthly bill  change
Up to 130%     378 kWh     $36           $36          0%
130% to 200%   715 kWh     $76           $81          6%
200% to 300%  1,069 kWh   $122          $143         18%
Over 300%     1,429 kWh   $232          $317         37%
  Source: Public Utilities Commission
  Chronicle Graphic
CHART 2:
PUC INCREASE
   The PUC adopted across-the-board rate increases yesterday, which will lead
to higher bills. The increases for various customers (prices in cents per
kilowatt-hour):
   .
   -- Residential Users: (above 130% of baseline)
   Current Users    14.3 cents
   New Rates        22.1 cents
   Increase: 55%
   .
   -- Small Commercial
   Current Users    14.3 cents
   New Rates        22.1 cents
   Increase: 55%
   Source: PUC

,2001 San Francisco Chronicle ? Page?A - 1

Davis finds his ramrod for risky energy bill
Chronicle Sacramento Bureau
Wednesday, May 16, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/05/16/M
N226968.DTL&type=news
Gov. Gray Davis finally found a captain to steer his leaking ship -- the
complicated and politically risky plan to save Southern California Edison --
through uncharted legislative waters.
Until this week, nobody in the Legislature wanted to touch Davis' secretly
negotiated agreement with Edison, which needs lawmakers' approval. It's not
that nobody cared -- almost every player in the Capitol now has an idea on
how to infuse the utility with cash, bargain down anxious creditors and avoid
the drawn-out hassles of debtors court.
Democratic Sen. Richard Polanco of Los Angeles, who is termed out next year,
agreed this week to carry the governor's bill, which has met with almost no
support. At least three other major proposals are circulating in the Assembly
and Senate, along with a desire by some lawmakers to simply let Edison go
bankrupt like Pacific Gas & Electric.
"There is a great sense of urgency here," said Brian Bennett, a spokesman for
Edison, which supports the governor's original idea to buy the transmission
lines and infuse the company with cash. "We can't escape the fact that we can
be dragged into involuntary bankruptcy at any time."
The outcome could determine if the energy crisis ends in months or years. If
the Legislature and Davis can help bring financial stability to Edison, then
the price of energy will likely fall, easing financial pressure on PG&E and
its creditors. The bankruptcy judge in the PG&E case may also scrutinize the
Edison deal for clues.
"It's something that's not only important for keeping Edison out of
bankruptcy, but it's also an important framework and model for PG&E to get it
back on its feet," said Assemblyman Keith Richman, R-Northridge, who is
helping the GOP negotiate the Edison agreement.
Edison is constantly negotiating with its creditors over the huge debts it
owes to power generators that charged inflated prices last year. The state
finally took over the job of buying power in January, and has spent more than
$6 billion so far -- money it expects to get back from a bond sale financed
by ratepayers.
It seems clear Davis' draft agreement with Edison is doomed as written in the
Legislature. The governor's plan would require the state to sell more bonds
and give Edison $2.76 billion. In exchange, the state gets Edison's power
lines. The company would get a guaranteed profit of 11 percent for a decade
in order to pay off its debt, reportedly at $3.5 billion.
Most lawmakers hate the idea of purchasing the Edison power lines, in part
because then California would have to maintain and repair them. PG&E actually
has the biggest bottleneck in the power grid, so purchasing the Edison lines
would do nothing to solve that problem, Richman noted.
"The grid is an asset that essentially has no value to the people of
California or to the ratepayers," Richman said, "and does nothing to bring
more electrons to the state."
Other revisions are circulating:
-- Senate leader John Burton, D-San Francisco, and others don't like Davis'
plan to give out-of-state power generators full credit for all the money they
are owed by Edison. The generators, which face investigations for price
gouging, may be forced to reduce their bills by 30 percent if they want to
get paid.
-- A"Plan B" group formed by Assembly Speaker Bob Hertzberg, D-Sherman Oaks,
and which includes Assembly Republicans is looking at, among other things,
building more energy plants instead of purchasing the transmission lines.
They believe they could build enough plants to power between 2 million and 3
million homes, using money dedicated from Edison ratepayers.
-- A plan by Assembly members Joe Nation, D-San Rafael, and John Dutra, D-
Fremont, would simply give the state an option of buying the transmission
lines, for $1.2 billion instead of $2.76 billion. Edison's parent company
would be required to contribute $400 million to the utility.
The Nation-Dutra plan would dedicate a larger share of each bill to paying
off debt, allowing Edison to more quickly begin buying power. "We're trying
to find a way for the utilities to get credit worthy sooner rather than
later," Nation said. "That will allow the state to exit the power buying
business."
-- Some Republicans are pushing for businesses to be able to contract
directly for their power without going through the current state-run grid.
Businesses like the idea because they pay less for power, but Democrats say
it puts the burden on residents who don't have the clout to write their own
contracts.
Davis may be willing to consider this as part of a deal that would get the
Edison agreement through the Legislature. He and his staff have been
negotiating nonstop with lawmakers in an attempt to win any support.
Edison is keeping close tabs on the developments in the Capitol, meeting with
lawmakers to discuss the deal and the ramifications if it does not win
approval.
While the deal agreed to by the governor gives the Legislature until August
15 to approve the deal, Bennett said he hopes to have it completed long
before that.
E-mail the reporters at rsalladay@sfchronicle.com and
lgledhill@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?A - 3

Energy at a glance
Chuck Squatriglia, Chronicle Staff Writer
Wednesday, May 16, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/05/16/M
N226409.DTL&type=news
Energy-related developments yesterday:
RATE INCREASE APPROVED
Electricity rates for PG&E customers will jump almost 55 percent, from 14.3
cents per kilowatt hour to 22.1 cents, under a rate increase plan narrowly
approved by the Public Utilities Commission.
MOUNTING EVIDENCE OF PRICE MANIPULATION
A Federal Energy Regulatory Commission administrative law judge said an El
Paso Corp. memorandum suggests that the Houston company inflated the price of
natural gas.
The New York Times has reported that an El Paso affiliate said in the memo
that it would have "more control" of gas markets because of a deal it made
with El Paso for space on the pipeline.
COMPETING ENERGY PLANS IN WASHINGTON
Beating President Bush to the punch, congressional Democrats released an
energy plan featuring price limits, tax credits and no new oil drilling in
Alaska. Bush is expected to disclose his plan -- which will be heavy on
production incentives -- tomorrow.
DAVIS FINALLY FINDS SPONSOR FOR EDISON BAILOUT
State Sen. Richard Polanco, D-Los Angeles, agreed to introduce Gov. Gray
Davis' plan to bail out Southern California Edison. The plan, which faces an
uphill fight, requires selling more bonds and giving Edison $2.76 billion for
the company's power transmission lines.
STATE CREDIT RATING SLIDES
Moody's Investors Services downgraded the credit rating on California's
general obligation bonds from Aa3 to Aa2, citing the increasing drain the
energy crisis is placing on the state's finances.
EASING GAS PRICES EXPECTED
A Bush administration energy official told lawmakers that gasoline prices
will rise about a nickel a gallon during the next two weeks but begin falling
around Memorial Day.
,2001 San Francisco Chronicle ? Page?A - 12

PUC tags consumers with huge rate boost
NEWS ANALYSIS
Politicians see no need to promote urge to conserve
Marc Sandalow, Washington Bureau Chief
Wednesday, May 16, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/05/16/M
N106676.DTL&type=news
Washington -- As the White House and Democrats battle over rolling blackouts,
high gas prices and insufficient supplies, there is one area on which they
agree: America need not give up its energy-rich lifestyle.
In stark contrast to the late 1970s, when President Jimmy Carter urged
Americans to curb their consumption, energy plans being released by both
parties this week offer hardly the faintest hint of sacrifice.
The problem is well known: The price of gasoline and electricity has climbed
sharply as demand has risen in a nation that already consumes a quarter of
the world's energy. Reliance on foreign energy is greater than it was before
the oil embargoes nearly three decades ago.
President Bush sees salvation in more supplies. Democrats see an answer in
capping the profits of energy conglomerates. Neither is asking Americans to
get out of their SUVs, log off their computers or make more than the most
superficial lifestyle changes.
"That's a big no," White House press secretary Ari Fleisher said last week
when asked whether Americans need to curb their voracious appetites for
energy to overcome the current crisis.
"The president believes that it's an American way of life, and that it should
be the goal of policy makers to protect the American way of life. The
American way of life is a blessed one. And we have a bounty of resources in
this country."
Even when Bush addressed conservation -- under pressure from California
Republicans who feared a backlash -- he called for modest steps from
California's federal workers that are only half as ambitious as those being
asked of state employees.
The administration's refusal to embrace conservation may stem from Bush's
belief in America's boundless limits. It could be his grounding in the oil
business, where more energy consumption is good business. Or it could be a
political calculation that Americans will more easily tolerate a rough summer
in California and $3-a-gallon gasoline in the Midwest than a sober lecture on
limits.
Strategists figure that in the first year of his term, Bush can weather
criticism from motorists who are paying high gas prices, environmentalists
who worry about spoiling the wilderness and Californians who believe the new
supplies will come too late to ease their crunch.
But the minute he starts talking about calling off summer vacations, braving
the heat without air conditioners or buying gas on alternate days, he's in
deep political trouble.
"It's not what people want to hear," said Bruce Schulman, a professor of
history and American studies at Boston University and the author of a book
entitled, "The Seventies: The Great Shift in American Culture, Politics, and
Society."
"One of the big political lessons they learned from Carter is that any talk
of a need for limits . . . is political suicide," Schulman said.
This helps to explain why the White House's 100-page energy report, set for
release tomorrow, is expected to emphasize finding new supplies over
curtailing current use.
"Conservation may be a sign of personal virtue," Vice President Dick Cheney
said two weeks ago, "but it is not a sufficient basis for a sound,
comprehensive energy policy."
Democrats support conservation so long as tax dollars are spent to take the
sting out of it.
Their energy proposal calls for billions of dollars in tax credits to allow
families and business to take steps to "maximize energy efficiency and
conservation without having to make large and painful lifestyle changes."
"We have a society, like it or not, where gas and electricity is like air or
water," said House Democratic Leader Richard Gephardt of Missouri.
Not that Gephardt believes that is a bad thing.
"We think there are effective, intelligent ways to work through these
problems so that we don't suffer in terms of price, we don't suffer in terms
of supply, and we don't suffer in terms of the environment," Gephardt told
California reporters yesterday.
"People want plentiful energy at a low cost, and they want to save the
environment," Gephardt said. "I don't think the Bush plan will accomplish
that.
I think our plan will."
Democrats well remember Carter donning a cardigan sweater and urging
Americans to curb their appetites, declaring that: "our great nation has its
recognized limits."
Carter was the party's last one-term president.
"The Democratic party and its leadership is dominated by elitists who believe
that the rest of us should carpool, while they drive their Chevy suburbans to
the lake house for the weekend," said GOP consultant Ed Gillespie,
outlining precisely the line of attack that Democrats want to avoid. "They
blame us for our use of SUVs, having our air conditioners set too low and
eating microwave popcorn."
E-mail Marc Sandalow at msandalow@sfchronicle.com
,2001 San Francisco Chronicle ? Page?A - 1

SAN JOSE
County conserving its air conditioning

Wednesday, May 16, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/05/16/M
N184284.DTL&type=news
Santa Clara County employees will be feeling the heat this summer as they do
their part to help conserve energy.
County supervisors hoping to slash energy use by 20 percent said yesterday
that air conditioning in county offices will not kick on this summer until
the thermostat hits 78 degrees -- six degrees higher than the previous
threshold.
"And this winter the heat will not kick on until the thermostat drops to 68
degrees," said Tony Winnicker, chief of staff for Supervisor Liz Kniss.
The heating changes were part of a package of energy conservation measures
approved unanimously yesterday by the Board of Supervisors.
Other measures include the installation of motion detectors to turn lights
off, replacement of large appliances with energy efficient models, and a ban
on personal fans, heaters, coffee makers and decorative lighting.
,2001 San Francisco Chronicle ? Page?A - 16

California rate hike hits homes, businesses
Posted at 10:50 p.m. PDT Tuesday, May 15, 2001
MICHAEL
Millions of Californians opening their electric bills next month will see the
biggest increase ever in residential electric rates as regulators try to
shore up the state's failing energy system.
After several delays this month, a divided California Public Utilities
Commission voted 3-2 to raise rates across the board, saying it was necessary
to keep the lights on in California. The increase follows a 10 percent hike
approved in January.
Residential customers will see their bills rise an average of 7 percent to 37
percent, depending upon their usage, while small commercial users will see
their bills climb an average of about 37 percent.
The new rate plan, which goes into effect June 1, was the result of
last-minute jockeying by commissioners and staffers in Gov. Gray Davis'
office to try to bring down rates for industrial and agricultural users.
In the end, no one came away happy. The commission lowered agricultural rates
before the vote, but farmers will still pay rates that are 15 to 20 percent
higher. Industrial and large commercial users got almost no last-minute
reprieve and will see bills spike an average of about 49 percent.
Residential users saw their rates jump at the last minute. They are now
divided into two camps: those who can keep usage at or near baseline levels
and those who cannot. Energy misers and small households will get no
increase. But homes where usage soars past the baseline could see their bills
climb by 37 percent.
``This is a sad day for 34 million Californians and the California economy,''
said Carl Guardino of the Silicon Valley Manufacturing Group. ``The PUC has
basically strangled the goose that laid the golden egg.''
Some residential customers are worried.
Fremont resident Michael McCrary said the new rate structure penalizes large
families and spares apartment dwellers and small households. The father of
five said he expects his electric bill to jump at least 20 percent next month
when the increase shows up in bills.
``I don't think that's fair,'' said McCrary. ``Between this and the natural
gas increases, I'm looking at a PG&E bill that is double overall, which is 50
percent of my mortgage. That's not equitable.''
9 million customers
The plan affects about 9?million customers of the state's two largest
utilities, Pacific Gas & Electric and Southern California Edison.
The rate increase will generate more than $5 billion for the utilities.
Regulators will decide in the coming weeks whether all of that money should
go to the state -- which has been buying power for the financially troubled
utilities -- or whether some should go to the utilities to help pay bills.
The commission vote fell along party lines, with Democrats Loretta Lynch,
Jeff Brown and Carl Wood voting for the new rate structure, and Republicans
Henry Duque and Richard Bilas voting against it.
Wood said he regretted having to raise rates at all. But the increased cost
of wholesale electricity left the commission with no alternative, he said.
``There is no justice in any decision we can come up with because the
underpinnings -- the paying of these wholesale prices -- are unjust,'' Wood
said.
The vote came amid jeers from protesters, who wore black to mourn the death
of the California economy.
As Wood did, Brown blamed the higher prices on energy wholesalers, who he
said are gouging Californians.
``I hear you when you say there will be pain and suffering,'' Brown said.
``But unfortunately, the wholesale prices have put us in an untenable
situation. We cannot put our head in the sand.''
Duque and Bilas were harshly critical of the rate plan, saying it placed too
big a burden on businesses. Bilas said the residential increases were not big
enough and would do little to help the commission achieve its stated goal of
encouraging conservation. At the same time, he argued, the higher rates would
send the state's economy into a ``recessionary death spiral.''
``We risk plunging the state back into the same recessionary conditions with
high commercial rates that set the stage for electric restructuring in the
first place,'' Bilas said. ``History will repeat itself. Businesses will flee
the state or shut down entirely. This means jobs and taxes are lost.''
Duque said he was troubled by the ``moral'' implications of the new rate
structure and the way that it penalizes heavy energy users.
``In my view, the new rate design assumes that the consumption of energy is a
moral decision between good and bad,'' Duque said. ``The decision has a clear
morality. All businesses and residential customers who consume more
electricity are bad.''
Last-minute lobbying by business interests appeared to have little effect.
Davis, who had been lobbied heavily by business groups, called upon Brown to
try to bring down rates for industrial users.
But Brown said he could not find a way to do that without penalizing other
users.
Davis disappointed
Davis, who presented his own plan to the commission, offered a tempered
response. But he indicated that he was disappointed with the commission's
vote.
``While the PUC's revised rate increase made some modest improvements, my
plan represented a more balanced approach,'' Davis said in a statement.
Tensions surrounding the rate hike had been building up to Tuesday's vote.
After the vote, emotions spilled over into the plaza outside the commission's
meeting room in San Francisco.
There, Brown confronted Michael Florio, an attorney with The Utility Reform
Network, to deny that he'd been influenced by big business. Florio had been
telling reporters that the commission had sold out to big business at the
expense of residential users.
``There's plenty of outrage to go around,'' said Florio. ``The commission
bent over backward to give a break to the people who pushed for
deregulation.''
But Brown, his face inches from Florio's nose, said he was never lobbied by
any business representatives. ``I made my own decision based on what I
thought was good or bad economics,'' said Brown, thrusting his finger toward
Florio's chest.
``I guess he's feeling a little touchy after today,' Florio said.

Contact Michael Bazeley at mbazeley@sjmercury.com or (415) 434-1018.

Electricity users struggle to meet savings target
Posted at 10:45 p.m. PDT Tuesday, May 15, 2001
BY JOHN WOOLFOLK

Mercury News

Mindful of California's energy crisis, Heather LaBonte has turned off
everything she can. Her San Jose home is now dim and stuffy, laundry and
dishes pile up, and she wheezes from allergies without her air filters.
But even all those sacrifices won't spare the 27-year-old receptionist from a
higher electric bill.
Like many utility customers, LaBonte is frustrated that no matter what she
unplugs, she can't get her power use below 130 percent of the baseline level,
the limit state officials set for avoiding a massive rate increase.
``I can't figure out how to cut down any more,'' said LaBonte, whose most
recent bill of $107 would go up about $6.50 under the rate plan approved
Tuesday. ``This is all very frustrating.''
Tracey Salbacka of Seaside shares her pain.
``We practically live in the dark,'' said Salbacka, 39, who used 165 percent
of her baseline despite cutting back so much that even Wulfgar, her family's
pet hermit crab, is without his heat lamp. ``It is difficult to imagine how
we will get through the energy crisis.''
State officials approved California's biggest rate increase to cover soaring
wholesale power prices that have drained the state's budget surplus and
bankrupted its largest utility.
The new rate system charges customers progressively higher prices as their
power use increases, a stick aimed at spurring conservation. The state also
dangled a carrot, sparing customers from higher rates if they don't exceed
their baseline, or average minimum, by more than 30 percent.
But it's unclear how many customers will meet that target. State officials
expect it will be more than half, while utilities say it could be as few as a
third. But many families large and small can't figure out how it's possible.
LaBonte lives in a three-bedroom home with her boyfriend, James, her dogs
Molly and Austin, and a few cats. She's cut laundry and dishwashing in half,
to about a load of wash every other day and eight loads of dishes a month.
Like many in Silicon Valley, she'd normally spend a couple of hours a night
on her computer. She's now down to three hours a week.
LaBonte put her bedroom air conditioner in storage. She's using ceiling and
window fans instead, set on low.
The 19 light bulbs in LaBonte's home, all 40 to 60 watts, are seldom on any
more, just a couple at a time at night so she can read and move around.
The biggest sacrifice was cutting back on the three air filters LaBonte uses
to combat allergies. She used to run them around the clock, but now they're
only on half the day, allowing her allergies to get so bad that she had to
see a doctor.
``I don't know how long I can keep that up,'' said LaBonte, whose latest bill
showed she was still nearly 40 percent over her baseline. ``I can't cut
anymore unless I sit in total darkness and do nothing, which, by the way, is
insane!
``We hardly ever cook, even in the microwave, so we can't cut down in that
area. I barely use my stereo anymore. We sit in the dark a lot. The 60-watt
bulbs I do have are for reading, and I can't read with less without hurting
my eyes. I hate having to do last-minute laundry because everything has piled
up.''
Confusing matters for consumers, the conservation tips they're hearing most
-- turning off lights and air conditioners -- produce vastly different
results. A room air conditioner uses 10 times more power than a single,
100-watt bulb.
At LaBonte's home, cutting back on laundry saved about 15 kilowatt-hours,
dishes saved about nine kilowatt-hours, lighting saved about 10
kilowatt-hours, and computing saved about five kilowatt-hours. But the
biggest gain was the most painful -- cutting back on the three air cleaners,
which together use about a kilowatt each hour, saved about 380
kilowatt-hours.
Seaside resident Salbacka is equally frustrated and says the baseline system
unfairly punishes renters and large families.
She, her husband, Walter, and their four children, ages 4 through 15, have
cut back television to two hours a day and computer time to an hour a day.
They've stopped blow-drying their hair, and they dry their clothes on a line
instead of in the electric dryer. They unplugged the extra freezer in the
garage.
The Salbackas have turned off just about every light in their three-bedroom
house. Their children's lights are on timers, just to make sure they don't
leave them on. Wulfgar, the pet hermit crab, has gone solar -- he's now by
the window.
Those and other steps have cut her daily power usage from 20 to 15
kilowatt-hours, Salbacka said. But it's not enough. The Salbackas were still
65 percent over their baseline on their last bill, which would go up about $6
to nearly $100 under the new rate plan.
``We're trying to cut down,'' Salbacka said. ``It's not like we live
frivolously. I don't know what else they think we can do.''
Like many renters, Salbacka said she's been stuck with the old and
inefficient appliances that came with her home. The refrigerator is at least
a decade old; it wasn't even new when they moved in 10 years ago. Salbacka
would like to replace the electric dryer with a gas model. But the landlord,
despite raising the rent, won't put in the gas hookups.
``Landlords don't care,'' Salbacka said. ``They don't pay the energy bill.''

Contact John Woolfolk at jwoolfolk@sjmercury.com or (408) 278-3410

What is the baseline on electricity bills, and why has it become so
important?
Posted at 11:12 p.m. PDT Tuesday, May 15, 2001
BY DANA HULL

Mercury News

The electrical rate hike plan approved Tuesday by the PUC is designed to
reward conservation and punish heavy users. The new rate plan, which goes
into effect June 1, creates five levels, or tiers, of billing. Households
that stay within 130 percent of their ``baseline'' level of use will face no
increase at all.
What is the baseline?
The baseline is considered a minimum level of use based on regional and
seasonal averages. It was set up to make sure that residential consumers were
provided the minimum amount of electricity necessary at the lowest possible
price. Customers are charged one price for baseline use and a higher price
for electricity that is over the baseline amount.
Is the baseline the same for everyone?
No. PG&E's residential customers are assigned different baselines because the
climate and elevation of Northern California vary so widely. The Bay Area is
roughly divided into three climatic territories: the coastal areas including
San Francisco and the Peninsula; the East Bay and the South Bay; and the
Santa Cruz Mountains. You can best determine your baseline by checking your
bill, but this is an estimate for those areas:
?Coastal areas: 234 kwh per month (30 days). 130 percent: 304.2
?Parts of East and South Bay: 324 kwh per month. 130 percent: 421.2
?Santa Cruz Mountains: 234 kwh per month. 130 percent: 304.2
Climate zones often cut through counties: In Santa Clara County, the
mountainous area that fronts Skyline Boulevard, Summit Road and Loma Prieta
Road has a lower baseline than the rest of the county. The coast and Santa
Cruz Mountains have the same baseline in the summer and different baselines
in the winter.
In Alameda County, the Central Valley portion east of the Altamont Pass has a
higher baseline.
So do people who live in hot places like Fresno or Bakersfield get a higher
baseline than someone who lives in San Jose?
Yes. San Jose's electricity baseline is 324 kilowatt-hours per 30 days in the
summer. In the foothills of the Sierra Nevada, where it is much cooler, the
summer baseline is 192. The warmer Merced and Fresno area is 468, while
Bakersfield has the highest baseline at 498.
Is the baseline the same all year?
No. There is a winter baseline and a summer baseline. The summer baseline
went into effect May?1, and the winter baseline goes into effect Nov.?1. .
How can I find my baseline on my bill?
The electric portion of your bill shows the baseline amount in kilowatt-hours
and the rate you are billed for that amount.
It also shows how much power you used over the baseline and the rate you were
billed for it.
I try to conserve, but I'm always over my baseline. Are the baselines set low
on purpose? Does anybody stay below their baseline?
PG&E estimates that about 35 percent of their customers will not have to pay
higher rates because they always stay within 130 percent of their baseline.
I am in poor health and need to use a lot of electricity for my medical
device. Is there any kind of medical exemption?
Yes. PG&E says that 48,000 customers are on Medical Baseline Service. These
customers receive an extra amount of electricity in addition to their
baseline each month, but pay for it at baseline rates. Customers with greater
needs can negotiate for extra electricity with the utility. Call PG&E at
(800)-743-5000 and ask for a Medical Baseline application.
I work at home. Can I call PG&E and ask for a bigger baseline?
No. Though many consumers who have home offices find it hard to stay within
their baseline, the law does not currently allow home offices to be exempt.

Contact Dana Hull at (510) 790-7311 or at dhull@sjmercury.com

California PUC approves power rate hike plan
Posted at 8:48 p.m. PDT Tuesday, May 15, 2001
BY KAREN GAUDETTE

Associated Press

SAN FRANCISCO -- State power regulators finally decided Tuesday how to spread
the pain of the biggest electric rate hikes in California history, boosting
rates by as much as 80 percent for residential customers who use the most
power.
More than half of the residential ratepayers served by the state's two
largest utilities will see no increase at all in their rates if they don't
increase their use.
But Pacific Gas and Electric Co. customers who consume the most will see
their rates jump from 14.3 cents per kilowatt hour to 25.8 cents per kilowatt
hour, which translates into an average increase of $85 per month for
electricity.
The plan, approved 3-2 by the state Public Utilities Commission, affects
about 9 million customers of PG&E and Southern California Edison Co.
Even after the vote, there was confusion within the PUC over the new rates.
The commission released three sets of figures throughout the day, each with
dramatically different rate hikes. Spokesmen for both PG&E and Edison said it
will take at least a day of number crunching to know precisely how the rate
hikes will affect the dozens of different customer classes.
The new rates, which will appear on June bills, were approved nearly seven
weeks after the PUC mandated a $5 billion rate hike. The split vote came
after a week of intense lobbying by industrial, commercial, agricultural and
residential groups -- all hoping to shift more of the increases onto each
other.
``This is probably the worst economic calamity the state has ever seen,''
said David Marshall, chief financial officer at Gregg Industries, a
400-person iron foundry in El Monte. ``It has got ramifications well beyond
anything that we can begin to understand.''
Gregg already has switched its production cycle from during the day to a
night shift to save electricity, Marshall said, but he expects the rate hike
plan approved Tuesday to cost Gregg at least $1 million this year.
Paul Clanon, director of the PUC's energy division, said rate hikes on
industrial customers would be capped at 49 percent. Rate hikes for
agricultural customers are capped at 25 to 30 percent. Rate hikes for
commercial ratepayers, such as banks, hospitals and restaurants, were not
immediately clear due to conflicting numbers.
Commissioner Richard Bilas said too high a percent of the hikes had been
shifted onto commercial ratepayers.
``While something has been done to tone down the impact on industrial
customers, it appears to have been done at the expense of small and medium
businesses, which make up the majority of businesses in this state,'' Bilas
said as he urged his fellow commissioners to vote against the proposal.
The 80 percent figure for the biggest electricity users came from a chart
released by Clanon after the vote.
Under state law, a portion of every residential customer's electric use --
called baseline, a percentage of the average amount of electricity use in an
area based on climate, geography and season -- is shielded from rate hikes.
The PUC could only raise rates on power use beyond 130 percent of baseline.
Clanon's chart shows an average 60 percent rate hike on all electricity use
that exceeds 130 percent of baseline.
The biggest losers are the biggest users.
Residential power use is divided into five tiers, and electricity used within
PG&E's top tier will jump by 80 percent. About 9 percent of PG&E's households
fall in that top tier.
Those hikes for the top tier translate into an average increase of $85 --
from $232 to $317 -- on monthly bills for such customers.
For Edison's heaviest residential users, the rate hike in the top tier is 71
percent -- or an average increase from $194 to $265 on monthly bills.
Even top-tier customers will not pay more for electricity use that falls
within that first 130 percent of baseline.
However, commercial, industrial and agricultural customers will have to pay
their rate hikes on every kilowatt.
Steve Strong, a plum and nectarine grower in Visalia, was optimistic the rate
hikes won't bruise his business. But with unstable weather, fluctuating costs
and now the potential for blackouts that could hit refrigerated packing
houses and shut down water pumps, agriculture is becoming an even riskier
business.
``I don't have to go to Vegas or Tahoe, I've got enough gambling going on
here,'' he said.
The rate hikes, which will begin appearing on June bills, will be retroactive
to March 27 -- the day the record rate hikes were approved -- though those
retroactive charges will be spread over a 12-month period.
Commissioners were forced to shout their votes over the din of jeering
protesters, who wore tombstone-shaped placards that read: ``R.I.P. Affordable
Energy.''
PUC Commissioner Jeff Brown bellowed back at protesters: ``We cannot walk
away from it. We cannot pretend that this is some sort of problem that we can
walk away from.''
The final rates were a revised version of a proposal released by PUC
President Loretta Lynch last week. Lynch postponed a scheduled Monday vote to
rework her plan after a massive outcry from businesses proclaiming the
proposed rate hikes would doom California's economy, a critical statement
from Gov. Gray Davis and pressure from fellow commissioners to lessen the
impact on businesses.
Since it unanimously approved the rate hikes in March, the PUC has crammed a
year's worth of work into six weeks, struggling to fashion rates that
simultaneously recoup the $5.2 billion the state has spent buying power for
the customers of the state's two largest utilities and trigger enough
conservation to help fend off some of this summer's expected rolling
blackouts.
Customers of San Diego Gas and Electric Co. and those who buy electricity
directly from energy wholesalers, such as the California university system,
are shielded from rate hikes.

Energy report may lead to new battle on drilling along California's coast
Posted at 10:17 p.m. PDT Tuesday, May 15, 2001
BY PAUL ROGERS AND JIM PUZZANGHERA

Mercury News

WASHINGTON -- California battles over offshore oil drilling that raged
through the 1980s may be heating up again.
Environmental groups and members of Congress from coastal areas scrambled
Tuesday amid two key events:
?The Bush administration's scheduled release Thursday of a new national
energy policy. Bush is expected to call for new drilling in the Arctic
National Wildlife Refuge and along Montana's Rocky Mountain Front, but it is
unclear whether he will support new ocean drilling.
?A report from a Department of Interior advisory group recommending that five
ocean areas currently off limits to all drilling be opened up for natural-gas
production.
Presidential protection
The five areas were not spelled out in the report. But it noted that
California, Oregon and Washington, along with the entire Atlantic seaboard,
have large reserves of offshore natural gas that cannot be drilled because of
bans put in place by former President George Bush in 1990, and then extended
to 2012 by former President Clinton. Those bans, however, are executive
orders and could be overturned by President Bush.
``Our concern is to get out in front of this right off the bat,'' said Rep.
Lois Capps, D-Santa Barbara. ``We don't want any more oil and gas drilling
off California's coastline.''
Capps said she and roughly a dozen other members of Congress would introduce
a resolution Wednesday calling for the national moratorium to remain in place
until 2012.
Bush promised during the campaign to honor the existing moratorium.
``If he sticks with it, I'll be the first to salute,'' said Rep. Anna Eshoo,
D-Palo Alto. ``But if he goes back on it he's got a battle royal on his
hands.''
Most U.S. offshore oil drilling is in the Gulf of Mexico.
In California, there are 27 offshore oil platforms, mainly off Long Beach and
Santa Barbara. Most produce oil and natural gas.
The draft report, written last month by the Department of Interior's
Subcommittee on Natural Gas on the U.S. Outer Continental Shelf, notes that
California, Oregon and Washington have roughly 19 trillion cubic feet of
natural gas offshore -- a year's U.S. supply.
It recommends the Bush administration come up with a list of ``five top
geologic plays'' nationwide for a pilot drilling project. The committee's
final recommendations are due May 23.
``This is an advisory committee looking at options. Nothing has been
decided,'' said Dian Lawhon, a representative of the Department of the
Interior's Minerals Management Service, which manages offshore oil and gas
drilling.
But critics sounded alarms.
New drilling feared
``They are trying to get a foot in the door,'' said Warner Chabot, Pacific
director of the Center for Marine Conservation, an environmental group in San
Francisco. ``It is laying the groundwork for new offshore drilling.''
Rep. Sam Farr, D-Salinas, said the administration should be focusing on
inland gas and oil production, energy efficiency and renewable fuels.
``The ghost of James Watt seems to be lurking in the halls of power again,''
said Farr. ``That scares people.''
The oil industry, however, said more oil and gas is needed to meet growing
demand.
``We are currently in an electricity crisis,'' said Jeff Wilson, a
representative of the Western States Petroleum Association. ``When is `not in
my back yard' no longer an acceptable answer?''

Contact Paul Rogers at progers@sjmercury.com or (408) 920-5045.

Energy plan gives GOP the jitters
Published Wednesday, May 16, 2001, in the San Jose Mercury News
BY DAVID S. BRODER
PRESIDENT Bush may not be a scholar, but he is an avid student of politics.
For understandable reasons, he has given especially close scrutiny to the
lessons of his father's presidency -- and what went wrong to deny him a
second term in 1992.
The results can be seen in the current chief executive's adamant support of
the large tax cut on which he campaigned; he knows that his dad's retreat
from his ``no new taxes'' pledge cost him vital conservative support. The
younger Bush is also the opposite of the elder in emphasizing education. Bush
I did little or nothing to change the schools; Bush II put them at the top of
his agenda, just as the voters persistently do.
But the most costly error -- in political terms -- that Bush I made was
refusing to consider any short-term fixes for the economic slump that began
in the third year of his presidency. When the jobless rate began to edge up,
Treasury Secretary Nicholas Brady counseled Bush against any stimulus
measures, saying that market forces would be enough by themselves to keep the
recession short.
Brady's advice brought no comfort to the Republican politicians on Capitol
Hill, who were picking up bad vibes from their constituents. Vice President
Dan Quayle, who was on the GOP fund-raising circuit in 1991, expressed his
frustration that Brady was blocking even modest short-term measures. History
has recorded that Brady was right. The recession was short and recovery -- as
measured by the statisticians -- actually began before the 1992 election. But
that did not spare the incumbent president from charges of indifference to
persisting unemployment, and Bill Clinton was elected on a promise to pep up
the economy.
The current Bush has accepted congressional changes in his tax plan that will
apply short-term stimulus to a sluggish economy. But on the energy problems
that began on the West Coast and have swept across the country, Bush II is as
scornful of short-term fixes as his father was a decade ago.
This week the administration is releasing its energy plan -- crafted by a
task force under Vice President Dick Cheney -- in an atmosphere of growing
crisis. Even before summer has arrived, California is experiencing rolling
blackouts. Oregon and Washington have sacrificed the salmon runs to save
river water for hydroelectric power. Midwest gasoline prices have surged past
$2 a gallon. And natural gas prices are sky-high everywhere.
When I spent a weekend at Rocky Mountain College in Montana earlier this
month, I was astonished to learn that even in that energy-exporting state,
the first phase of deregulation has sent prices soaring and made energy the
hottest issue.
In the face of all this, Cheney and Bush have refused to consider temporary
price caps on electric power or any other short-term ``fix'' that violates
free-market principles. The complex of production incentives and conservation
measures that make up the energy strategy are designed to bring supply and
demand into balance over the next several years, not to provide immediate
relief.
That may be sound economics, but it leaves congressional Republicans as
nervous as their counterparts were 10 years ago. Rep. Tom Davis, the able
Virginian who heads the National Republican Congressional Committee, told me
last week that he is hearing more worries from his colleagues about energy
prices than about the overall economy.
``We can stand one bad summer,'' Davis said, ``but if we're facing the same
thing next summer, we've got problems.''
DAVIS said he had communicated his party's concerns to the White House. ``Do
they get the message?'' I asked.
``No,'' he said. ``They think in four-year terms; we think in two.''
That comment reflects a reality that few politicians are as candid as Davis
in acknowledging. Much as the members of one party's congressional wing may
hope for a president of their own party, who will sign the bills they pass
and help them raise money for their own campaigns, owning the White House
creates dilemmas.
The basic political strategy is always set by the president's men, and
naturally enough, they think about creating favorable conditions for the year
in which he will run for re-election. They can be more patient, and more
oblivious to short-term problems, than those who are focused on the battle
for the House and Senate.
Republicans like Tom Davis remember that eight years ago, when the Democrats
controlled both the White House and Congress, it was Clinton's policy
decisions on taxes, trade, guns and health care which left his party so
vulnerable that Democrats lost both the House and Senate in 1994. That's the
risk Republicans are facing now. And that's why they're nervous.

David S. Broder is a columnist for the Washington Post.

Biggest rate hike in state history
Regulators OK increases of as much as 47 percent for some residential users
as the state tries to cope with energy demand.
May 16, 2001
By KATE BERRY
The Orange County Register

Juan Infante, an employee at Prehistoric Pets in Fountain Valley, changes a
heat lamp in the cage of a green iguana. Higher electricity rates, as
approved Tuesday by the state Public Utilities Commission, may put the heat
on many businesses.
Photo: Chas Metivier / The Register
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State regulators adopted the largest electricity rate hike in California's
history Tuesday, with Southern California Edison's residential customers
facing increases of as much as 47 percent in their monthly bills.
The California Public Utilities Commission actually cleared the way for the
increases in March. But it took six weeks for the commission to decide how to
divvy up the hikes among users. The increases are retroactive to March 27 and
will appear on electricity bills in June.
Though half of all residential customers will pay no increase at all, Edison
customers who use more than 130 percent of their "baseline" allocation face
rate hikes of 6 percent to 47 percent. The percentage increases get even
higher for energy guzzlers. The baseline allocation is a subsistence level of
electricity use that varies around the state, depending on region and
climate.
The rate increases became a foregone conclusion after the state began
spending as much as $100 million a day buying power for customers Edison and
Pacific Gas & Electric. But the rate increase was not without its dissenters.
"What we have here is an economic recipe for disaster," said Commissioner
Richard Bilas, one of two PUC commissioners who voted against the rate plan.
Customers of San Diego Gas & Electric and Anaheim Public Utilities aren't
included in the rate increases.

Democrats want energy price limits
Lawmakers counter Bush plans with monetary incentives and conservation.
May 16, 2001
By DAVID ESPO
The Associated Press
WASHINGTON - Eager to draw a contrast with President George W. Bush, House
Democrats are unveiling an energy blueprint that calls for the government to
hold down price increases for electric power while sparing environmentally
sensitive areas from oil and gas exploration.
The plan also includes proposed tax credits of up to $4,000 for the purchase
of energy-efficient homes and cars and additional tax incentives for
businesses to invest in energy-efficient technologies or vehicles.
"Democrats believe in a balanced national energy policy that helps consumers
by both increasing energy production and reducing energy demand," they said
in an energy blueprint drafted for unveiling by House Minority Leader Dick
Gephardt, D-Mo., and other lawmakers.
"The Bush administration is merely following the same tired old Republican
playbook: cast blame, insist on extreme anti-environmental proposals, and
provide American families with no real help now or very little in the
future."
The White House embraced portions of the Democratic plan, singling out
provisions that would encourage residential weatherproofing, conservation and
renewable fuels.
"The energy plan offered by the Democrats on the Hill has some areas of
overlapping commonality with the plan that the president is about to propose
and the president looks forward to working with Congress on those areas,"
spokesman Ari Fleischer said.
But he cited other provisions that "do not go in the right direction,"
including the electricity price caps and Democrats' call that Bush show
willingness to tap the nation's Strategic Petroleum Reserve.
Gephardt, Rep. Martin Frost of Texas, Rep. Bob Filner of San Diego and others
arranged to release the proposal at a service station a few blocks from the
Capitol where gas lines formed during the energy crisis of the late 1970s.
Democratic sources, who spoke on condition of anonymity, described the plan
in advance.
The Democrats drew up their proposal as a contrast to the policy that the
president is expected to release Thursday.
Political leaders in both parties say rising energy costs are becoming a more
significant concern of average Americans, in part because of higher fuel
prices and in part because of the potential for a return to rolling blackouts
in California.
Democrats intend to propose a blend of government intervention, tax breaks
and additional federal funding to hold down prices and encourage energy
efficiency in the short-term, and to increase domestic supplies in the
future.
House Democrats offer their own energy proposals
House Democrats unveiled their own energy plan Tuesday in advance of
Thursday's release of the Bush administration's strategy to combat high
electricity and gasoline prices:
Highlights include:
Support for California Democratic Sen. Dianne Feinstein's bill to allow
cost-based price controls in Western states.
Call on OPEC and other oil producers, including Mexico, to increase
production.
President George W. Bush should be willing to release crude oil from the
Strategic Petroleum Reserve.
Congress should hold hearings on the energy industry's pricing practices to
see if price gouging has occurred.
Tax credits for energy efficiency, including up to $4,000 toward the purchase
of energy-efficient homes, retrofitting existing homes for energy efficiency,
and the purchase of vehicles with new fuel-saving technology.
Up to a 30 percent investment tax credit for business investment in renewable
energy generation.
Add money to LIHEAP, the program to assist the low income with high energy
costs.
Federal government facilities should match California's 20 percent
conservation goal during serious power alerts.
$200 million to help federal facilities and public schools make their
buildings more energy-efficient.
Increase funding for research and development of alternative fuels and other
technologies that would reduce U.S. reliance on imported fossil fuels.

Energy notebook
Electricity-bond delay lowers state credit standing.
May 16, 2001
NEW YORK - California's credit ratings were lowered one notch by Moody's
Investors Service after the state said that a $13.4 billion bond sale needed
to cover the cost of buying electricity would be delayed until August.
Moody's lowered its rating on $19.8 billion of California general-obligation
bonds to "Aa3" from "Aa2."
Moody's also lowered its rating from "Aa3" to "A1" on $5.7 billion of lease
bonds backed by the state's general fund.
In other news:
California may see blackouts this summer almost five times more often than
the state's power officials had estimated, according to a national group that
monitors and coordinates U.S. power supplies.
The state will be 4,500 to 5,500 megawatts short of power during peak summer
demand times, resulting in about 15 hours of blackouts a week, the North
American Electric Reliability Council said.
The California Independent System Operator, which runs the power grid, had
expected a shortfall of 2,000 to 4,000 megawatts.
Southern California Gas Co., the nation's largest gas utility, announced
plans Tuesday for a $40 million expansion to keep pace with the state's
growing demand for electricity.
SoCal Gas, a unit of San Diego-based Sempra Energy, will add capacity for
enough gas to power three 500-megawatt power plants that could provide enough
electricity for 1.5 million homes.

Burden falls on residents
Heeding business arguments, the PUC approves electricity-rate increases that
will make those who use more pay more.
May 16, 2001
By KATE BERRY
The Orange County Register
The state's Public Utilities Commission made last-minute changes to an
electricity rate increase Tuesday that shift some of the higher burden to
residential customers while giving businesses that operate during peak hours
a break.
The commission came under intense pressure from business groups, who said it
was unfair to exempt nearly half of the 9 million customers of Southern
California Edison and Pacific Gas & Electric from the tiered rate hikes.
Customers with low incomes, those on medical assistance and those who use a
relatively small amount of power are exempt by law from higher rates.
"We believe the rate increases should be distributed in equal percentages
across all customers," said Lisa Briggs, a spokeswoman for Conexant System
Inc., a Newport Beach maker of telecommunications chips.
Jack Stewart, president of the California Manufacturers and Technology
Association, said residents should bear the brunt of the rate increases.
"It costs less to deliver power to a large user than a residential user," he
said.
Under the plan adopted Tuesday, residential consumers who use the most
electricity will see their bills rise an average of 37 percent, compared with
the average of 34 percent that was proposed a week ago. Those residential
customers covered by the increases will pay average rates of 22.4 cents a
kilowatt-hour, up from 15.2 cents.
The PUC cut the increase in rates for large business customers during peak
summer hours from what was proposed earlier. And it expanded the increase for
nonpeak usage.
"Every consumer in California is justified in feeling outrage at the rates we
approve today and the bills they will have to pay tomorrow," said Loretta
Lynch, the president of the PUC. "These choices please no one, least of all
ourselves."
The $5 billion raised by the rate increases will be used to repay the state
for power purchases.
THE MORE YOU USE, THE MORE YOU PAY
Under the tiered rate structure for residential customers, the increases are
larger for heavy power users. Edison's residential customers who use the most
power will pay 71 percent more for the last kilowatt-hours they use each
month, or a maximum rate of 25.94 cents a kilowatt-hour for usage above 300
percent of their "baseline" allocation. The baseline allocation is a
subsistence level of energy use that varies around the state depending on
climate and region.
David LaPlante, manager at Prehistoric Pets, an exotic pet shop in Fountain
Valley, said small businesses will be hit hard by the rate increases.
At his 10,000-square-foot retail store, a 15-foot python lounged under
fluorescent lights while small reptiles lazed under heating lamps.
"I think it's a joke - they want to keep big companies like Edison from
failing, but they don't think about the little companies like ours," LaPlante
said.
His shop houses 2,000 lizards, turtles, snakes and other reptiles, and
doesn't have many options when it comes to conserving energy.
"In this type of business we have huge overhead with animals to feed and take
care of," he said. "This is not like a diamond ring you put in the cupboard."
'We have a ton of Laundry'
Cathy Ciuffetelli, an Irvine mother of three, could see her monthly
electricity bill jump to more than $110, from $80.67 last month. She said the
rate increase will hit families extremely hard.
"It's kind of scary," she said. "During the summer months, we're home all
day, so I have to use air conditioning.
"I work from home, so I'm on the computer all day long, and we have a ton of
laundry," she added. Electric utility rates are extraordinarily complex, with
14 different customer classes depending on the level of energy use.
Farmers face average rate increases of 18 percent, down from an earlier
proposed jump of 23 percent.
The plan, proposed by Lynch, caps rates for Edison's industrial customers at
12.9 cents a kilowatt-hour, a 50 percent increase. It also requires federal
buildings to become part of a pilot program in which they would pay market
pricesfor wholesale electricity.
Several commissioners, including two who voted for the rate plan, voiced
strong reservations.
All of the commissioners conceded that the rate increases could have a
crippling effect on the California economy. But the two commissioners
appointed by former Gov. Pete Wilson, who spearheaded the state's adoption of
electricity deregulation in 1996, attacked what they saw as a politically
driven assault on businesses and big residential users.
"This is political and social policy, masquerading as economics," said
Commissioner Richard Bilas, who dissented with Commissioner Henry L. Duque on
the rate plan, which passed by a 3-2 vote. "We risk plunging the state back
into the same recessionary conditions that set the stage for electricity
restructuring in the first place," Bilas said.
BITING THE BULLET ON HIGHER BILLS
Business executives expressed concern that the rate hikes came at an
inopportune time as the economy slows.
"We're anticipating a 42 percent to 46 percent increase," or an extra
$300,000 a year, said George Harwood, vice president of Printronix Inc., an
industrial-printer maker in Irvine. The company plans to install a
1,500-kilowatt generator this summer and is waiting for the PUC to approve a
program that would allow businesses to resell excess generation back to the
state's utilities.
High-tech companies weren't looking forward to the rate hike, but saw few
alternatives Tuesday.
"We can't not pay the bill," said Linda St. Clair, facilities manager at
FileNet, a software developer with seven office buildings in Costa Mesa.
Gary Parkinson, the owner of the Summit House restaurant in Fullerton and the
president of the California Restaurant Association's Orange County chapter,
said he has raised menu prices twice this year and will have to find other
ways to absorb the new electricity expenses.
"We're just going to have to reduce costs and be frugal," Parkinson said.
"Why would anyone look to California to build new restaurants?"
Register staff writers Elizabeth Aguilera, Andrew Bluth, Chris Farnsworth and
Tamara Chuang contributed to this report.

Anaheim Mills runs out of gas
Energy  The fabric-dyeing business shuts down after its monthly natural-gas
bills rise five-fold in the past year.
May 16, 2001
By DANIELLE HERUBIN
The Orange County Register
Anaheim - Anaheim Mills Corp., a fabric dyer, has closed its doors, saying it
can no longer afford to pay rising natural-gas prices.
The closure, completed Friday, puts about 120 workers out of work.
"Our (gas) bills used to average $30,000 to $40,000 a month, now $150,000 to
$200,000 a month has been the average," said Steven Lieberman, vice president
of Anaheim Mills.
Lieberman said the company, which has annual revenue of more than $6 million,
is trying to find an alternative source of natural gas. If it can't find an
alternative, Anaheim Mills will declare bankruptcy, he said. Most of Anaheim
Mills' customers have moved their business to East Coast companies.
Like other dyeing companies in Southern California, Anaheim Mills had been
buying natural gas on the spot market and having it piped directly from a
Texas supplier.
Southern California Gas, the company's old supplier, discourages larger users
such as Anaheim Mills from buying directly from them, Lieberman said.
For more than a year, the price of natural gas supplied to Southern
California users has been climbing.
Lieberman said the company was able to absorb the early cost, even finishing
2000 in the black. But the company has been losing money steadily each month
this year as the gas needed to run fabric dryers and ovens skyrocketed.
Anaheim Mills isn't alone.
U.S. Dyeing and Finishing in Garden Grove closed its Vernon fabric-dyeing
facility recently, laying off about 80 people. The Garden Grove plant also
laid off about 50 workers.
And Pico Rivera-based L.A. Dye & Print Works Inc. is also closing its doors,
laying off about 1,500 people.
Scott Edwards, president of the Association of Textile Dyers Printers and
Finishers of Southern California, said gas prices for textile companies have
gone up eight-fold in the past year. He said although prices have risen
elsewhere in the nation, California is the worst.
"What has been hurting us is the unprecedented rise in transporting gas to
the California border," Edwards said.
The textile industry, which includes dyeing, printing, cutting and sewing,
was once nearly nonexistent in Southern California. The entire textile
industry has grown to about 115,000 people.
There were about 15,000 textile dyers and printers employed in the area at
the beginning of the year. The sector serves Southern California's burgeoning
fashion-design industry.

Judge: Memo hints at gas market abuse
FERC official comments on El Paso Corp.'s actions that affected California
prices.
May 16, 2001
By SUZANNE GAMBOA
The Associated Press
WASHINGTON - A federal regulatory judge said Tuesday that a memo in a natural
gas supply case implies the market was abused to drive up California energy
costs last year.
The memo "certainly has statements in it that could lead one to believe there
was an abuse" of the gas market, Curtis Wagner, the Federal Energy Regulatory
Commission's chief administrative law judge, said in a hearing.
California regulators have pointed to the memo to accuse Houston-based El
Paso Corp. of using its market power to inflate the price of natural gas sold
in California last year by as much as $3.7 billion.
El Paso Corp. owns a gas marketing company, El Paso Merchant, and one of the
largest pipelines connecting Southwest gas fields to California. The company
has denied the allegations.
Wagner wouldn't release the memo, dated Feb. 14, 2000, and attorneys wouldn't
discuss the contents.
The New York Times has reported that El Paso Merchant said in a Feb. 14,
2000, memo that it would have "more control" of gas markets because of a deal
it made with El Paso Natural Gas that gave it the right to ship 1.2 billion
cubic feet of gas a day on El Paso's pipeline.
The deal accounted for about 30 percent of the pipeline's capacity and about
one-sixth of California's daily demand.
El Paso Merchant attorney Bill Scherman dismissed the significance of the
memo during a hearing break.
"When those documents are revealed, we believe it will show those documents
are consistent with the position we've taken in this case, that we did not
exercise market power," Scherman said.
The regulators have alleged that the El Paso Corp. subsidiary kept other
natural gas suppliers from using its pipeline by offering use of unused
pipeline capacity at unreasonable prices and terms.
Natural gas prices have soared in the California market and remain
substantially higher than prices in other parts of the country. While
wholesale gas has been selling in the range of $5 per thousand cubic feet at
most trading points, it has been as much as $14 at the California border.
Wagner's ruling is expected in June. The full Federal Energy Regulatory
Commission can accept or reject his ruling.
The hearing began Monday and should continue through next week.

By David Wagman
dwagman@ftenergy.com
This is the first in a three-part series examining the Northeast's debate
over three key issues: generation, transmission and environment. How the
region deals with these issues could become a model for the rest of the
country.

All politics are local. That's what the late Speaker of the U.S. House of
Representatives Thomas P. "Tip" O'Neill liked to say. Given recent energy
industry events in his native Northeast, O'Neill would probably see little
reason to say otherwise.

So when the Bush administration's national energy policy is released, it will
face its first trial in the court of local opinion. Recent debate in the
Northeast on three key issues of local and national importance*generation,
transmission and the environment*may suggest how the wider discussion may
unfold across the U.S.

On these three issues local politics in the Northeast are driving decisions
having broad regional implications. Local politics also are evident as
nascent wholesale power markets challenge the way states deal with common
issues.

Political strains may soon show through if power shortages hit parts of the
Northeast this summer. A relatively benign summer power outlook issued
earlier this month by the Northeast Power Coordinating Council (NPCC) may
mask larger issues. In its assessment, NPCC said the region*which stretches
from New York City through Boston and into northern Canada*should have
surplus capacity during the peak week for demand, expected around July 15.
EXPECTED LOAD AND CAPACITY FORECASTS
SPREADSHEEThttp://public.resdata.com/ei_departments/lead/load_forecast.xls
However, the details show a less certain picture. NPCC forecasts 4,900 MW of
excess capacity, but says 4,000 MW of that is locked up in Quebec and the
Canadian Maritime provinces where transmission bottlenecks will block most of
that extra power from reaching U.S. markets. The U.S. portion of NPCC could
end up with no more than 1,000 MW of reserve capacity at a time when peak
demand is expected to reach 54,000 MW.

Existing transmission lines across parts of New York state are all but maxed
out and can't be relied on to deliver much additional power to New York City.
Transmission constraints mean that some 80% of New York City's power needs
(and 98% of Long Island's) must be met through local generation. In testimony
before a legislative panel in March, New York Public Utility Commission Chair
Maureen O. Helmer said that if summer temperatures reach levels hit in July
1999, demand in New York City alone could top 11,000 MW and outstrip
available supplies by more than 850 MW.

Unlike California, where little generating capacity was added during the
1990s, new power plants are being built in the Northeast. But new plants are
only part of the equation. Transmission line owners say they lack financial
incentives to upgrade connections to help ensure that newly built, low-cost
plants are dispatched. Transmission congestion in New England has risen
sharply since 1999 and is expected to double in and around Boston by 2005.
"If there's a bottleneck, then the cheapest power plant may not be
dispatched," said Ian Davis, vice president of transmission for National Grid
USA, which controls roughly 30% of New England's transmission network.

These issues and others will resonate across the U.S. and Canada as
politicians, utility executives, special interest groups and consumers look
for a balance among rising electric demand, environmental and lifestyle
protection and the need to make a buck.

Binary world
Here's the irony: In its simplest form, today's digital economy relies on
binary computer code to either turn a system "on" or "off." As demand for
power grows, the options for electric power appear increasingly binary, too.

"You can build a transmission line and a power plant, or sweat in the dark,"
said Doug Logan, principal with RDI Consulting. "Take your pick."

Energy's current calculus values local opinion greatly when it comes to power
plant and transmission line siting, and on issues related to the environment.
That makes it tough for regional and national points of view to be heard.
This, in turn, affects efforts to set up regional energy markets and
reinforce the grid, among other things.

Local groups vowing "not in my back yard" have scuttled power plant and
transmission line plans, including Cisco Systems' successful effort to block
a power plant proposed for its Silicon Valley corporate park. On the
environmental front, states appear willing to adopt strict measures, even if
they risk part of their generating capacity. Recent rules in Massachusetts
targeted six in-state power plants, whose output accounts for fully 40% of
the state's electric generation.

"Siting always comes down to very local issues," said National Grid's Davis.
"These projects move from bad news to worse news to slightly better news."

In late March, the Connecticut Siting Board voted 7-1 to reject TransEnergie
U.S. Ltd.'s proposal to build a $125 million, 330-MW transmission cable
beneath the waters of Long Island Sound to Long Island, N.Y. Though the Long
Island Power Authority had identified the project as critical to improving
its access to off-island power supplies, the Connecticut Board said the line
would have little, if any, direct benefit to Connecticut and rejected it.

"It's hard to imagine a decision more parochial," said Ashley Brown,
executive director of the Harvard Electricity Policy Group. The siting board
"didn't look at the benefits to New York or the region."

In April, Massachusetts Gov. Jane Swift announced new power plant emission
rules to curb nitrogen oxide, sulfur dioxide, mercury and*for the first time
at the state level*carbon dioxide. One source said the rules move away from a
decade of work on regional air quality solutions and toward more local
assertiveness. "It's incongruous," the source said. "As we're getting larger
competitive markets, we see legislatures becoming more specific" in writing
emission control rules.

Also in April, a report by New York State Electric & Gas Corp. (NYSEG)
criticized a statewide assessment by the New York Independent System Operator
(ISO) on issues including power plant siting. The plant permitting process
has not worked, NYSEG said. "Delayed in-service dates for new generation are
the rule for power plants in New York," the report said. NYSEG cited flaws
including lengthy project reviews and local lawsuits designed to block
projects.

No doubt, introducing competition, establishing new political orders and
restructuring markets are proving to be tough. And the process still has a
long way to go.

Frontier politics
But if power politics in the Northeast appears confused and unsettled,
consider that the region's history of cooperation on energy issues is unique
in the U.S., a legacy of its tight power pool structure. On this score the
region may stand a better chance than elsewhere of working out compromises.
In Mississippi and Wisconsin, one source said, transmission lines march to
the state line and stop, their step across the frontier blocked by political
decisions on the other side.

One sticking point in the Northeast, and elsewhere, has been the slow pace at
which competitive markets appear to be evolving, particularly in terms of
adopting new approaches to help markets operate smoothly.

For example, transmission systems were designed to move power from one
utility's power plants to its load center, a straightforward and largely
local function. The rise of wholesale power markets strains this model by
adding expectations that the lines will also carry power from independent
power producers to more distant load centers.

This new use taxes existing lines and complicates the issue of who gets
transmission access when. It also raises local bugaboos over sacrificing
Farmer Jones' cornfield for a new transmission line, which may have little if
any tangible local benefit. Just this sort of local environmental issue sank
TransEnergie's Long Island Sound proposal in March when environmentalists
pointed to potential risks to local shellfish beds.

"A significant need exists to reinforce the grid to keep up with wholesale
sales as well as local load growth," said Joseph S. Graves, a member of
Washington, D.C.-based PA Consulting's management group. In a paper published
earlier this year, the company concluded transmission is the industry's
weakest link, having changed the least relative to the rest of the industry.
The report also called for a series of investment incentives to encourage
more investment in transmission infrastructure.

"Until the health of the transmission sector is improved, the entire electric
power industry will underperform," the report said.

Underperformance could extend to generating assets, which should have ranked
among the Northeast's shining accomplishments. After all, the region is one
of the few places building toward a capacity surplus, and surplus is viewed
by many as the key to achieving workable wholesale power markets.

Incremental change
But transmission constraints and a lack of incentives to expand the grid may
hurt power plant developers' efforts to provide new, low-cost,
environmentally friendly capacity.

"Our strategy is to find financial incentives to deliver additional value to
customers and our shareholders," said National Grid's Davis. "Competitive
markets mean greater uncertainty. The incentives encourage us to look for
incremental changes that deliver value quickly, rather than build grand
schemes that rely on paybacks over 40 years."

Since wholesale markets opened in 1999, Davis has seen high levels of
transmission congestion in New England, which he says deter efforts to get
the most economical power to customers. Congestion affects Boston and
northeastern Massachusetts in particular. There, incumbent power generators
have a competitive advantage as a result, and perhaps an unwillingness to see
competitors enter the constrained market, Davis said. Even so, getting new
capacity sited can be a problem, whether in Massachusetts or elsewhere.

Choke point
In its report last month complaining about local permitting regulations based
on a recent market assessment by the New York ISO, NYSEG said the ISO
"unrealistically" assumed 8,600 MW of new generation could be built in the
state by 2005. "Actual experience has shown it can take this long to work
through the ineffective and inefficient licensing process."

The siting problem may not be entirely local. A power developer active in the
region said federal agencies present more of a choke point. In proposing the
now hotly contested 1,080-MW Athens generating station near the Hudson River
in New York state, PG&E National Energy Group needed approval from the
state's siting board, as well as from the Federal Energy Regulatory
Commission, the U.S. Environmental Protection Agency, the Army Corps of
Engineers, the Federal Aviation Administration, the U.S. Fish & Wildlife
Service and the Coast Guard.

"There's no one-stop shopping" and time limitations do not exist at the
federal level, said Dan Whyte, director of permitting for the Bethesda,
Md.-based developer. The developer applied for a permit from the Corps of
Engineers in February 1999 and, as of early May, was still waiting. "That
could not happen at the state level" where permits were issued a year ago,
Whyte said.

Indeed, New York state's system gives its siting board 12 months to reach a
yea or nay decision; 18 months if circumstances warrant more deliberation.
Plus, the New York system has strict rules of evidence and tight requirements
to determine who can intervene, standards that don't exist at the federal
level.

"We have 31 plants in 19 states and each of those states has a defined
process for power plant siting," Whyte said. The federal government "does not
have a coordinated process."

That may change under the Bush administration's proposed energy policy. Part
of the proposed policy may include legislation extending federal eminent
domain powers to transmission lines as well as natural gas pipelines. Whether
a coordinated approach results from the administration's energy policy
remains to be seen. What is clear, however, is that state governments and
local ad hoc groups feel little need to wait before acting.

All politics are local, Tip O'Neill used to say. Energy only proves his
point.

PG&E, State Regulators Spar in Court

By MICHAEL LIEDTKE
AP Business Writer

SAN FRANCISCO (AP) _ Contending California regulators are
illegally seeking billions of dollars that should be paid to its
creditors, Pacific Gas and Electric Co. urged a federal bankruptcy
judge to dismantle the accounting framework insulating the
utility's customers from additional electricity price increases.

Looking to guard its turf, the California Public Utilities
Commission portrayed its actions as legal maneuvers protected from
federal government interference under the U.S. Constitution.

The 2{-hour bout of arguments Monday before U.S. Bankruptcy
Judge Dennis Montali represented the first major legal showdown in
PG&E's bankruptcy case _ the largest ever filed by a utility.

After peppering attorneys from both sides with tough questions,
Montali took the matter under submission without providing a
timetable for issuing a decision.

The complex issue centers on arcane sections of the U.S.
bankruptcy code that could sway the balance of power in PG&E's case
and determine whether the utility's 4.6 million customers _ or more
than 150,000 creditors _ absorb the costs underlying an estimated
$13 billion in wholesale electricity purchases made from June 2000
through March 2002.

As part of the 1998 deregulation of California's electricity
market, PG&E's retail rates were to remain frozen through March
2002 or whenever the utility pooled enough money from above-market
rates and asset sales to pay for unprofitable investments made
during its long history as a regulated utility.

PG&E says it cleared the hurdle for lifting the rate freeze
sometime between May 2000 and August 2000 _ around the same time
the utility's costs for wholesale electricity began to soar far
above the frozen rate charged to its customers. Between January
1998 and May 2000, PG&E accumulated a $2.75 billion operating
profit from a favorable gap between its wholesale costs and retail
rates for electricity.

The utility said it could have proved its case for lifting the
rate freeze and passing on its electricity costs if the PUC hadn't
adopted new accounting guidelines March 27 _ 10 days before PG&E
filed for bankruptcy. Besides changing the accounting rules
governing the rate freeze, the PUC's March 27 order also authorized
average price increases of up to 40 percent for households and up
to 52 percent for businesses.

PG&E says those increases _ expected to begin showing up in June
electricity bills _ still aren't enough to recoup its costs.

National Desk; Section A
Bush Task Force on Energy Worked in Mysterious Ways
By KATHARINE Q. SEELYE
?
05/16/2001
The New York Times
Page 1, Column 4
c. 2001 New York Times Company
WASHINGTON, May 15 -- The tiny staff of the Bush administration's Energy
Development Task Force is led by two former aides to Senator Frank H.
Murkowski, the Alaska Republican who is the chairman of the Senate Energy
Committee. The aides jokingly call themselves the Alaska jihad.
But Mr. Murkowksi, when asked recently about the role his former aides,
Andrew Lundquist and Karen Knutson, have played in the task force's
much-anticipated report, which will be released on Thursday, replied, ''They
don't tell me anything.''
On the eve of the release of the 170-page report, the broad outlines are
fairly well known. The plan encourages the production of oil, gas, coal and
nuclear power and calls for some tax credits for renewable energy resources
and a push for conservation. But since the task force's work began in
February, most of Washington has remained in the dark about how it operated,
which arguments it embraced and how it reached decisions on some of the
nation's thorniest energy issues.
Individuals from the task force have met with more than 400 people from more
than 150 groups over the last three months. Mr. Lundquist said today that he
could not provide a list of all the groups he had spoken with. ''I can't
really tell you who, because there are hundreds I've met with,'' he said.
Administration officials also said that they wanted to keep private the list
of those they met with to encourage the free flow of ideas. Still, they said
that they had talked with a broad range of interested parties.
In a recent interview, Vice President Dick Cheney said: ''The staff of our
energy task force has spent time with folks from various pieces, parts, of
the industry. We've also spent time with the environmentalists. I spent a lot
of time with members of Congress, listening to them, both parties, on energy.
So the idea that somehow only the energy industry has access just simply
isn't true.''
But last month, two Democrats on Capitol Hill challenged the secrecy of the
process surrounding the task force, which has met eight times in the last 90
days. David S. Addington, counsel to the vice president, responded that it
did not have to provide information about the process because all of the
staff members are federal employees. In addition, environmental groups have
requested documentation about task force meetings under the Freedom of
Information Act, but so far those have been denied.
Democrats and environmentalists say the process was tilted heavily toward the
coal, gas and oil industries and point out that the energy industry is one of
the biggest contributors to political campaigns, giving $64 million last
year, three-fourths of it to Republicans.
Among those who said they felt shut out was the Consumer Federation of
America, the nation's largest consumer-advocacy group. Howard Metzenbaum, a
Democrat and former senator from Ohio who is now chairman of the group, said,
''The energy crisis is first and foremost a price crisis affecting consumers.
''It's an incredible insult to the consumers of this country that, to the
best of my knowledge, none of the consumer organizations were invited to the
meetings or otherwise participated,'' he said.
Juleanna Glover Weiss, Mr. Cheney's spokeswoman, said no invitations were
issued and groups had to request meetings. ''We didn't invite anybody to meet
with us,'' she said.
The leaders of about two dozen environmental groups had asked to see Mr.
Cheney, whose office turned down their requests. Instead, midlevel staff
members from the groups met with Mr. Lundquist and Ms. Knutson.
Alys Campaigne, legislative director of the National Resources Defense
Council, said that that meeting lasted about 40 minutes but that the size of
the group inhibited substantive policy discussion.
''We asked who the deputies were on different issues so we could have more
in-depth conversations, and they wouldn't tell us,'' she said. ''They said,
'Just send us paper, we'll take a look at it.' The meeting felt like window
dressing for us, but they got to check off the box that they consulted with
stake-holders.''
Mr. Lundquist said he viewed his meeting with the environmental groups as ''a
good conversation.''
Some of the industry representatives who did get audiences with the vice
president said the task force's deliberations seemed a mystery to them, too.
John Grasser, a spokesman for the National Mining Association, said: ''We've
probably had as much input as anybody else in town.'' But, he added, ''All we
know is what we read in the paper. This is a tight-lipped process. I have to
take my hats off to them -- they've been able to keep a lid on it.''
Richard S. Shapiro, senior vice president of the Enron Corporation, a major
Republican contributor and the nation's largest trader of wholesale
electricity and natural gas, said top executives from his firm spent half an
hour with Mr. Cheney, but he could not tell how much this may have influenced
the final report.
''Energy issues are a very high priority, and we've had the opportunity to
provide some input into the process,'' Mr. Shapiro said. ''But it's been
difficult to get input in the task force. Other consumer groups have been
weighing in with perspectives. It's not an open-hearing setting.''
Tom Kuhn, head of the Edison Electric Institute, the utility lobbying group,
and a friend of the president's since they were classmates at Yale, saw the
process as relatively open.
''The task force put out the word they were open to input,'' he said in an
interview. He said that his group sent them reports and that some executives
met briefly with Mr. Cheney.
Given all of their interaction with so many groups, Mr. Lundquist denied that
the process had been secretive. ''I don't think that's fair,'' he said.
''There's been no attempt to make it a secret process. All it's been is an
effort to work on and put out good policy.''

California Could Face Cash Crunch Soon --- Spending on Power Worries
Treasurer, and Moody's Cuts State Bond Ratings
By Rebecca Smith
Staff Reporter of The Wall Street Journal

05/16/2001
The Wall Street Journal
A2
(Copyright (c) 2001, Dow Jones & Company, Inc.)

California's mounting electricity expenditures are putting the state on a
slippery slope that could lead to a cash crunch later this year.
And even if the nation's most economically important state is able to arrest
the slide by raising billions of dollars in bonds as it currently
anticipates, residents will still face spiraling electricity rates and a
mountain of state debt that will affect them for years to come.
That is the grim assessment of credit analysts and even the state treasurer,
who is attempting to assess the long-term costs of a three-year-old
experiment in electricity deregulation that has gone badly awry. Sums up Rich
Raphael, a credit analyst at Fitch: "The situation is serious, and the state
is taking on more and more risk."
Yesterday, Moody's Investors Service Inc. lowered its ratings on $25.5
billion of state of California bonds, citing "substantial revenue
deterioration" caused by the state's slowing economy and "financial risks"
posed by state electricity woes. Last month, Standard & Poor's Ratings Group
took a similar step, shortly after the state's biggest investor-owned
utility, Pacific Gas & Electric Co. sought bankruptcy-court protection.
Moody's action lowered the rating on $19.8 billion worth of general
obligation bonds to Aa3 from Aa2 and $5.7 billion in lease revenue bonds to
A1 from Aa3.
Moody's says it believes that by August the state treasury will have spent
$10 billion for power, but it conceded that a blackout on pricing information
imposed by state officials means estimates are partly guesswork. Raymond
Murphy, an analyst in Moody's public-finance group, said "not very much"
information has been given to his unit detailing state expenditures for
electricity. This is unusual, both because the state is a public entity and
because credit-rating agencies usually are given full access to internal data
by clients.
The state has been the largest buyer of electricity in the nation since
January, when runaway wholesale power costs outstripped the purchasing
ability of the state's biggest investor-owned utilities, Edison
International's Southern California Edison unit and PG&E Corp.'s Pacific Gas
& Electric unit. To date, the state has allocated $6.8 billion for
electricity purchases.
How much the state is paying daily for electricity isn't clear. Since April,
the state Department of Water Resources, which is purchasing power on behalf
of the utilities, has enforced a ban on the public release of cost
information.
It pressured the California Independent System Operator to suspend posting of
that information on the ISO's Web site. In a letter sent to the ISO, Water
Resources Deputy Director Ray Hart said "premature disclosure" of price data
"disadvantages" the state in its quest to buy electricity at the lowest cost.
At the time, out-of-state generators were being paid an average of $520 per
megawatt hour for power supplied to the state grid operator.
In a Sunday television interview, Mr. Davis said the state last week paid as
much as $1,900 per megawatt hour for power.
If California is paying that kind of price very often, it spells big trouble
for the state's ability to replenish its coffers. Last week, the state
Legislature approved a plan to issue a record $13.4 billion in revenue bonds,
but they can't be issued before mid-August. If there is further delay, says
State Treasurer Philip Angelides, the state will have "significantly
depleted" the funds it can tap internally.
Indeed, Mr. Angelides says the state will have enough internal resources to
meet its power-purchase obligations through the fall only if average spot
prices are no higher than $195 per megawatt hour during the critical
July-through-September time period. If daily prices are substantially higher
than that, "they will bust the plan," he says. The result, credit analysts
fear, would be a liquidity crisis. The state would have essentially run out
of money before receiving bond proceeds needed to repay the general fund.
Complicating matters is an expected sharp drop in tax receipts. The state
said it expects annual revenue to decline by $3.2 billion for fiscal 2002,
the first drop since 1992.
Some people disagree that the state is substantially at risk. S. David
Freeman, an energy adviser to Mr. Davis, says the state is following a
"sensible plan" to stretch out power costs into future years, when they are
expected to drop substantially. Mr. Freeman argues that higher rates will
prompt greater conservation, reducing the amount of money the state has to
spend. "All this stuff about the economy going under is a bunch of hogwash,"
Mr. Freeman says.

Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.