Please see the following articles:

Sac Bee, Tues, 5/15:  "Budget plan shrinks: Davis responds to an
uncertain economy but preserves a boost in education funding"

Sac Bee, Tues, 5/15:  "PG&E goes to court for rate relief"

Sac Bee, Tues, 5/15:  "Energy Digest: PUC delays vote on rate proposals"

Sac Bee, Tues, 5/15:  "Dan Walters: Davis wants to preserve rosy budget,
let red ink rain on Legislature"

Sac Bee, Tues, 5/15:  "Daniel Weintraub: Consumer rep envisions ultimate
confrontation"

SD Union, Mon, 5/14:  "How will state's leaders get out of the business of
power-buying?"

SD Union (AP), Tues, 5/15:  "PUC delays decision on electricity rate hikes;
SDG&E isn't affected"

SD Union (Reuters), Tues, 5/15:  "Edison, SoCal Edison extend credit
facilities"

SD Union (AP), Tues, 5/15:  "PG&E, state regulators spar in bankruptcy court"

SD Union (AP), Tues, 5/15:  "California power regulators delay decision on
rate hikes"

SD Union (Reuters), Tues, 5/15:  "California faces 260 hours of blackouts,
says industry"

SD Union (Reuters), Mon, 5/14:  "AES to restart 2 retired South California
power plants"

LA Times, Tues, 5/15:  "PUC Delays Decision on Power Rate Hike"

LA Times, Tues, 5/15:  "El Paso Gas Supplier Denies Monopoly"

LA Times, Tues, 5/15:  "Labor Courted on Bush Reform Plan"

LA Times, Tues, 5/15:  "Judge Asked to Block Freeze on Power Rate"

LA Times, Tues, 5/15:  "Edison Deal Sets High Legislative Hurdle for Davis"

SF Chron, Tues, 5/15:  "PUC stalls decision on rate boost
ANGER: Consumer group says big business to benefit"

SF Chron, Tues, 5/15:  "NATURAL GAS: Experts says market probably fixed "

SF Chron (AP), Tues, 5/15:  "Developments in California's energy crisis"

SF Chron (AP), Tues, 5/15:  "PG&E, state regulators spar in bankruptcy court
"

SF Chron, Tues, 5/15:  "NATURAL GAS: Experts says market probably fixed "

SF Chron, Tues, 5/15:  "Davis forced to trim budget
Minor cuts, unspent funds used to cover $3.5 billion deficit "

Mercury News, Tues, 5/15:  "PUC puts off vote on rates"

Mercury News, Tues, 5/15:  "Cheney urges patience over energy costs"

Mercury News, Tues, 5/15:  "Finding: gas-price inflation possible"

OC Register, Tues, 5/15:  "Edison has loss of $617 million"

OC Register, Tues, 5/15:  "Edison shareholders feeling the heat as values
plunge"

OC Register, Tues, 5/15:  "Energy notebook:
PUC postpones decision on power rate hikes to today"

OC Register, Tues, 5/15:  "Gas supplier faces charges of price fixing"

Individual.com (Bridgenews), Tues, 5/15:  "[B] POWER UPDATE/ Calif. PUC
delays final rate hike vote to Tues"

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Budget plan shrinks: Davis responds to an uncertain economy but preserves a
boost in education funding.
By John Hill
Bee Capitol Bureau
(Published May 15, 2001)
Gov. Gray Davis laid out his plan for coping with diminished revenues and
growing fiscal uncertainty Monday, slashing the state budget he proposed in
January while preserving much of the spending for education and public
safety.
"Every proposal I made was warranted, needed and, in some cases, long
overdue," Davis said. "But a budget by definition is the act of making
choices."
Davis' new proposal launches what is likely to be an intense month-and-a-half
struggle over the $103 billion budget for the fiscal year that begins July 1.
State revenue, which over the years has grown far more sensitive to economic
cycles, plunged with the stock market, leaving a $4.2 billion hole in the
January budget proposal.
For the first time in years, the governor and the Legislature must deal with
shrinking expectations, and it's happening during a period of intense
partisan bickering over the state energy crisis.
The revised budget proposal counts on the sale of bonds in August to repay
the state treasury for electricity purchases, which now total more than $7
billion. Davis admitted in announcing his new plan that the assumption is
risky and once again criticized Republicans for holding up a bill that would
have allowed an earlier bond sale.
"If anything else goes wrong, like a natural disaster or some precipitous
drop in the economy, then we could be in real trouble," he said.
Davis' plan depends on delaying for two years a commitment to shift sales tax
on gasoline from the state's general fund to a special fund dedicated to
transportation projects. The move, which would save $1.1 billion, is likely
to be opposed by Republicans, who fought for the shift.
Davis said his proposal would not delay transportation projects in the
pipeline because more money is available than is needed right now, but might
affect those that haven't been approved.
The revised budget proposal makes numerous cuts, with some one-time
expenditures eliminated altogether.
A $250 million payment to local governments to use as they see fit is gone.
So, too, is $200 million that would have rewarded cities and counties that
increased the number of housing permits they issued.
A $40 million pilot project for touch-screen voting got the ax, as did a
three-day "holiday" from sales taxes this summer, designed to give parents a
break in paying for school supplies.
A program to clean up California's beaches was slashed from $100 million to
$10 million. Another that would encourage the development of parkways along
rivers was cut in half, from $70 million to $35 million.
"Generally, if it was a new program that was not law the year before, it got
pared back significantly and sometimes entirely," Davis said.
The revised proposal also calls for a 2.5 percent across-the-board cut for
state departments, except for those involved in public safety or making money
for the state. That move is expected to save $50 million.
The governor said his revised budget preserves much of the school spending he
proposed in January.
"Notwithstanding the reduction in revenues, I'm not about to let our
commitment to education backslide," he said.
Still, Davis made some adjustments to his education plan. In January, he
proposed expanding the middle school year from 180 days to 210 days. That
proposal has been pared back to 200 days.
Davis also had hoped to increase rewards to schools that do well from $63 per
student to $150, but that increase has been jettisoned.
On the plus side, the new proposal adds $220 million to help schools
performing poorly on standardized testing, and $541 million to help offset
school districts' increased spending on energy and to promote conservation.
School districts taking part in that program must commit to cutting their
energy use 10 percent.
Overall, the amount spent on each student would drop $6 from the $7,174
proposed in January.
Davis, however, touted a 43 percent increase in education spending since he
became governor. He invited several education leaders to the news conference
announcing the revised budget, and his office released a collection of quotes
from the educators praising him for maintaining school funding.
Even Republicans found something to like in the Democratic governor's
education proposals.
"Certainly, if he kept education whole, we agree with that," said Assemblyman
Dave Cox, R-Sacramento, the Assembly minority leader.
But that was about the extent of bipartisan harmony.
"We simply don't think the governor is moving in a prudent direction," Cox
said.
He blasted the proposed budget for reducing the reserve from $1.9 billion to
$1 billion. Republicans have advocated maintaining the reserve and adding a
special energy reserve to avoid the need for borrowing or raising electricity
rates again next year.
Davis said the $1 billion is enough. "Reserves are for rainy days," he said.
"It's starting to rain."
Republicans oppose Davis' plan to allow a quarter-cent sales tax increase
that was eliminated this year to go into effect again next January.
Cox said Republicans also would oppose the delay in shifting gasoline sales
tax to a special fund to relieve traffic congestion. He said Republicans
fought for the change, believing that a gasoline tax should be dedicated to
transportation projects.
Republican opposition to that provision, key to Davis' plan to balance the
budget, could spell trouble for the budget bill. The bill requires a
two-thirds vote and must garner the support of at least a handful of
Republicans.
Senate President Pro Tem John Burton, D-San Francisco, said the delay in
shifting gasoline sales tax money means that "program cuts don't go as deep
as they might have."
The revised budget preserves spending for home health care workers and
part-time community college workers, Burton said.
"But we're going to have to find more money for child care," he said.
In addition, Burton said, he hoped that the Legislature could find a way to
give raises to state workers.
He said that barring an economic rebound, next year's budget will be far
tougher because the state will no longer enjoy a big cushion.

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

PG&E goes to court for rate relief
By Claire Cooper
Bee Legal Affairs Writer
(Published May 15, 2001)
SAN FRANCISCO -- Pacific Gas and Electric Co. warned in bankruptcy court
Monday that it could be forced out of business by a March regulatory ruling
that prolonged a freeze on retail electricity rates.
But U.S. Bankruptcy Court Judge Dennis Montali said PG&E might still be in
financial trouble, even without the accounting change by the state Public
Utilities Commission in March. Montali expressed reservations about the
utility's request for an injunction to block the change.
The accounting question -- and the timing of the expiration of the rate
freeze -- centers on whether PG&E has made up its transition costs in moving
from a regulated to an unregulated market.
Montali said he'll rule as soon as possible, given the importance and
complexity of the issue.
PG&E projects a loss of $12.9 billion by next March because of an imbalance
between low retail electricity rates and high wholesale rates since June.
Without relief, said PG&E lawyer Jerome Falk, the utility could be forced to
liquidate.
In April, the utility filed for reorganization under Chapter 11 of the
Bankruptcy Code, which requires judicial authorization for most actions that
reduce the value of the debtor's assets. PG&E contends the PUC violated that
requirement by forcing it to operate under the rate freeze.
But the PUC contends that PG&E's real motive is to free itself from state
regulatory control.
"We're talking about disabling the commission" by ending its authority over
rates, PUC lawyer Walter Rieman told Montali.
The commission didn't need court authorization because its action --
technically just an accounting change -- preceded PG&E's bankruptcy filing,
Rieman argued.
Rieman said such a regulatory action needs no authorization and that the 11th
Amendment -- the sovereign immunity clause of the U.S. Constitution -- bars
PG&E from hauling the PUC into court.

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

Energy Digest: PUC delays vote on rate proposals

(Published May 15, 2001)
People who run shops and farms, refineries and concrete plants have to wait
another day to learn how big a share they'll pay of an already approved
electricity rate hike.
The state Public Utilities Commission delayed until today its vote on at
least two proposals for new rate structures, and a third proposal could
emerge.
PUC President Loretta Lynch said the commission needed more time to work on
last-minute revisions, triggered by input during last week's public hearings.
The delay came after protesters urged the commission Monday to reject any
rate increases, and instead seize power plants from new owners who have
raised wholesale prices under deregulation. Several called for boycotting the
higher electric bills.
The new rates will apply to customers of Pacific Gas and Electric Co. and
Southern California Edison. They will vary widely by customer, but proposals
before the commission call for average residential PG&E rate increases of 15
percent to 17 percent, and industrial increases of about 50 percent.
The rate increases, which will be applied toward paying off enormous
wholesale power bills, will raise about an extra $4.8 billion annually for
the two utilities.
--Carrie Peyton

Edison parent has loss
Its losses still piling up from soaring wholesale power costs, the parent
company of Southern California Edison reported a $617.3 million loss and
scrapped its shareholder dividend payment again Monday.
Edison International said the loss, for the three months that ended March 31,
amounted to $1.89 a share.
The Rosemead-based utility said it was canceling its common stockholder
dividend for the third straight quarter. It also is continuing to defer
payments on preferred shares.
--Dale Kasler

Dan Walters: Davis wants to preserve rosy budget, let red ink rain on
Legislature

(Published May 15, 2001)
Once upon a time, the grammatically incorrect "May revise" was a low-level
exercise in fine-tuning income and outgo numbers prior to passage of a state
budget.
Beginning in the late 1990s, however, the spring ritual became elevated in
importance because an exploding economy was generating billions of
unanticipated tax dollars, thus allowing the governor and legislators to
create lavish new spending programs.
A year ago, Gov. Gray Davis and the state legislators were looking at a $14
billion budget surplus, fueling another round of tax cuts and spending. But
the high-technology balloon has burst, the tech-oriented Nasdaq market has
tanked and Monday's budget revision, released by the Davis administration,
anticipates about a $4.2 billion reduction in revenues from what was
originally projected in January.
If it's a cold dose of reality on the revenue side of the ledger, however,
the expenditure column of the revised budget is swathed in politically
contrived fantasy -- and represents the beginning of a high-stakes chess game
pitting Davis against a Legislature dominated by fellow Democrats.
While the revised Davis budget for fiscal 2001-02 reduces overall general
fund spending from the January version -- with reductions principally in
transportation, housing and proposed tax cuts -- it boosts spending on K-12
schools and community colleges to nearly $5 billion over the minimum
guarantees of the California Constitution.
Davis said his goal was to "curb government spending but ... protect my two
highest priorities: public education and law enforcement." And to reinforce
that stance, the governor's office packed the budget news conference with
representatives of public schools, ranging from the superintendent of the Los
Angeles Unified School District to teachers union lobbyists. They played
their designated role in the mini-drama by publicly lauding the governor's
school money, even if privately many acknowledged that the additional school
financing is far from certain.
The real story of this year's May budget revision is that Davis is trying to
force the Legislature into making the spending cuts that economic reality --
and the state energy crisis -- will probably require so that he can maintain
his image as the champion of education going into his re-election campaign.
The new Davis budget is plainly unworkable. By maintaining education spending
and cutting reserves to the bone, the spending plan makes no allowance for
further drops in revenues, even though harsh experience is that in an
economic slump, income tends to fall much further and faster than Department
of Finance bean-counters project.
Furthermore, the budget assumes that the $7 billion -- and still rising -- in
general fund expenditures for electric power will be completely reimbursed
from a $13.4 billion state bond issue and that no additional money will be
needed during the high energy consumption summer months. But that, too, flies
in the face of reasonable expectations. The governor's energy purchase plans
are based on very optimistic conservation numbers and, most ominously, on a
declining price of electricity while the futures market indicates that prices
may, in fact, jump by 50 percent over the next few months.
It's entirely possible that the entire bond issue will have been consumed by
the time the bonds are sold in August and that the state will still be laying
out billions of dollars each month for juice. State legislative leaders, even
the most liberal ones, want to create a multibillion-dollar budget reserve
for those huge uncertainties, but with Davis taking his damn-the-torpedoes
approach, they would be the ones to cut spending, including for the schools,
to build up reserves. Or they could approve the Davis budget more or less as
proposed and let him take the heat if, and when, the uncertainties become a
multibillion-dollar red ink shower.
While politicians scramble to claim credit when times are good, they scheme
to shift the blame when times turn sour, and Davis' budget is the opening
move of that finger-pointing game.

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

Daniel Weintraub: Consumer rep envisions ultimate confrontation

(Published May 15, 2001)

Now that Gov. Gray Davis has rallied his fellow Democrats, run over the
Republican opposition in the Legislature and set the state on a course to
borrow $13 billion to pay for a few months of electricity purchases, there's
probably only one person who can stop him: Harvey Rosenfield.
Rosenfield is the Santa Monica-based consumer advocate who tried to halt
California's experiment in electricity deregulation before it got started.
His 1998 ballot measure failed, and that campaign is blamed in some circles
for delaying construction of new power plants just long enough to cause the
electricity shortage that's helped send prices heavenward.
But if Rosenfield's last ballot initiative got the state's energy
establishment in a snit, the one he's contemplating now would positively push
them over the edge. He is seriously considering launching a signature drive
to force a referendum on the legislation Davis just signed to authorize his
$13 billion energy bond measure.
That bond, to be repaid by ratepayers, is supposed to reimburse the state's
general fund for the cost of electricity the state has been buying for
consumers since January, when Pacific Gas & Electric and Southern California
Edison ran out of money. The bond measure also will be used to delay the pain
of the extremely high prices expected this summer. Without it, consumers
would immediately face another staggering rate increase, probably well into
triple digits.
The alternative would be a state budget in shambles. All the tax money Davis
has spent on electricity this year already was earmarked for traditional
services such as education, roads and health care. A referendum that killed
the bond measure would leave a gaping hole in the budget that could only be
filled by a huge tax increase or unprecedented spending cuts.
Rosenfield is something of a publicity hound, and his talk of a referendum
may be just that. Collecting 750,000 signatures in less than 90 days, which
is what's required to qualify the referendum, would be a massive undertaking.
Even Rosenfield concedes that the chances are no better than 50-50 that he
will proceed. But this is a man who has qualified two measures for the ballot
already, including one in 1988 that brought on regulation of the California
insurance industry. You have to take him seriously.
The question is why he would even consider it. Why would a man who fancies
himself a friend of the ratepayer ponder a move that would force consumers to
swallow a massive rate hike, or else bankrupt the state? Because Rosenfield's
goal is to see the destruction of the entire private power system that's now
serving California -- and raking in enormous profits for its owners.
And if it were up to him, he'd be willing to risk economic catastrophe to
make it happen. His theory is that the power generators will simply keep
raising their prices as long as the governor keeps putting more money on the
table. It is, he says, like giving crack to an addict. Take that money away,
and the generators will kick the habit, fast.
"If bleeding dry the general fund is foreclosed, and politically or as a
matter of economics you can't raise rates that high in the state, the only
thing the governor can do is turn to the generators and say, 'I'm taking your
plants.' At which point they will say, 'OK, all right, we're lowering our
prices,' or some face-saving thing will happen. The ultimate showdown between
naked capitalism and populist outrage occurs." And he's convinced that
capitalism will blink.
"If the lights go off in California, and the economy goes down the tubes,
then 20 years of Republican ideology, of less government, free markets,
competition -- all of that goes down the tubes.
"All you have to do is look at history to see that when there have been
economic cataclysms that have decimated the economy, people want action and
they'll do anything, whether its seizing private property, or whatever. There
will be a revolution, and I don't think the political institutions in this
country are prepared to push things to that point."
The Legislature already has set a Nov. 15 deadline after which the state
budget is supposed to be off-limits to Davis' power-buying ways. But that's
not good enough for Rosenfield. By then, he thinks, Davis will have burned
through the entire proceeds of the first bond measure and the total tab will
be approaching $20 billion. Rates will have to rise again to pay that bill.
Rosenfield is prescribing an economic amputation -- without anesthesia -- to
stop a painful and dangerous infection. But he is not the only one thinking
about the doomsday scenario.
The power generators themselves have lately been lining up to try to cut
deals with the state. They have offered to take caps on their profits,
forgive some of the debt that's owed them, anything to keep the system
running without further provoking the public's ire. They know that
Rosenfield's kind of anger can be contagious. They want to contain it before
it spreads.

The Bee's Daniel Weintraub can be reached at (916) 321-1914 or at
dweintraub@sacbee.com.

How will state's leaders get out of the business of power-buying?

Inside Politics / ED MENDEL
May 14, 2001
SACRAMENTO -- The California electricity crisis began the big meltdown in
January when the state made the now-questionable decision to begin buying
power for utility customers.
The alternative, which seemed unthinkable to Gov. Gray Davis and most
legislators at the time, was to allow Pacific Gas and Electric and Southern
California Edison to be taken into bankruptcy.
A grim Davis said on the evening of Jan. 17 that he and legislative leaders
had just held a long telephone conversation with the chief executive officers
of four big generators: Duke, Southern (now Mirant), Reliant and Dynegy.
"Those generators were prepared to pull down the utilities into bankruptcy
tomorrow at 12:01 p.m.," Davis told reporters. "They have agreed, if
legislation passes tomorrow, they will not do that. They will provide us the
power necessary to keep the lights on."
Legislation authorizing the state to begin buying power for utility customers
was passed, and the lights stayed on. But the crisis has clearly gotten
worse, not better, since January.
PG&E took itself into bankruptcy early last month. Rolling blackouts, which
have hit many parts of the state, now are a day-to-day possibility.
And today, the state Public Utilities Commission is expected to decide who
will be hit hardest by a record rate increase, while the governor proposes a
revised state budget with a gaping hole.
The state general fund that is paying for power, more than $6 billion so far,
may not be repaid until late August, when a $13.4?billion bond that
ratepayers will pay off over 15 years is issued -- well after the new fiscal
year begins on July 1.
One of the main problems facing the governor and the Legislature now is
simply this: Having gotten themselves into the power-buying business, how do
they get out?
The governor's plan to get the utilities back on their financial feet and
able to buy power by the end of next year must overcome obstacles, which seem
bigger with each passing week.
A key part of the plan, the state purchase of the Edison transmission system,
is basically a transaction intended to make state aid for the utility look
less like a bailout. The state would get something in return.
But Democratic legislators, who urged Davis to make the purchase, do not like
the agreement that the governor negotiated with Edison. Democrats in both
houses are talking about alternatives that would be less favorable to Edison.
If Davis is somehow able to work out a compromise acceptable to both
Democratic legislators and Edison, another obstacle remains: Persuading PG&E
creditors that they would be better off under an Edison-like deal than in
bankruptcy court.
As the state faces soaring power costs this summer, and solving complex
problems in the political arena looks increasingly futile, some argue that
the chance to let the utilities go bankrupt in January was a missed
opportunity.
"The credit of the utilities could have been restored by reorganizing under
the bankruptcy laws, the lights would have stayed on, and ratepayers would
actually have ended up paying less than they're going to end up paying with
all the interest-heavy borrowing you're doing now," Sen. Tom McClintock,
R-Northridge, said during a debate on the ratepayer bond last week.
But the fateful decision in January changed everything. If Edison joins PG&E
in bankruptcy now, the state may have to continue buying power for years as a
way is worked out to pay off the utility debt.
Ed Mendel is Sacramento bureau chief for the Union-Tribune.

PUC delays decision on electricity rate hikes; SDG&E isn't affected

By Karen Gaudette
ASSOCIATED PRESS
May 15, 2001
SAN FRANCISCO -- California ratepayers from Orange County to the Oregon
border will have to wait at least one more day to find out how deep they'll
be expected to dig into their pockets to pay electric bills.
Businesses are hoping that state power regulators use that time to revise
proposed new rates they contend are too hard on commercial customers.
Stung by an outcry from every type of energy consumer in California in the
last few days, the state's top energy regulator said yesterday she needs more
time to consider feedback from residents and businesses -- each demanding
that the largest rate hikes in state history take a bigger bite from the
other's account.

In her initial proposal, Loretta Lynch, president of the Public Utilities
Commission, would have spared many residential users from the highest bills
and placed more of the burden on businesses and farms.
That feedback also includes Gov. Gray Davis' statement Sunday that he prefers
his own plan, which would distribute rate hikes more evenly among residential
and business customers.
Consumer activists worry that the PUC's one-day delay could mean bigger rate
hikes for residential customers. The PUC is scheduled to vote this afternoon.
San Diego Gas and Electric Co. customers would not be affected.
SDG&E has requested a rate hike, but the PUC has not considered it yet.
"Much as we hope the commission heard what the public had to say last week,
we know the voices of business and industrial customers are very, very loud,"
said Mindy Spatt, a spokeswoman for The Utility Reform Network.
Business groups hope the hunch is right.
"We can only hope that this extra time means that they're carefully
evaluating a plan that will perhaps be more balanced and more proportional
than what they've put forward so far," said Michelle Montague-Bruno,
spokeswoman for the Silicon Valley Manufacturing Group that represents 190
businesses.
PUC Commissioner Jeff Brown said after yesterday's meeting that he and other
commissioners are trying to lower proposed industrial rates, but said that's
tricky business.
Commissioner Carl Wood said that today is the latest date the PUC can make
its decision and still give Pacific Gas and Electric Co. and Southern
California Edison Co., the state's two largest utilities, enough time to add
the new rates to electric bills by June 1.
Energy experts fear that's already too late for the price shock to spur vital
conservation this summer and help stave off more rolling blackouts.
Lynch's initial proposal would raise rates anywhere from 7 percent to 61
percent.
Since it unanimously approved an increase March 27, the commission has
struggled to fashion specific rate hikes that will simultaneously recoup the
billions the state has spent buying power, return the state's largest
utilities to solvency and trigger conservation.
The allocation the PUC approves will be retroactive to March 27. Charges for
interim power use will be spread over the next 12 months, Lynch has said.
Lynch and PUC Administrative Law Judge Christine Walwyn introduced proposals
last week that business interests said would unfairly make them pay too much
of the overall rate hike -- as much as 50 percent more than they pay now
depending what time of day they use the electricity.
State law shields average residential customers from severe rate hikes on
much of their power use.

Edison, SoCal Edison extend credit facilities

REUTERS
May 15, 2001
NEW YORK, ) Edison International said Tuesday that it and its troubled
Southern California Edison utility unit extended two 364-day bank credit
facilities that were scheduled to mature Monday.
Rosemead, Calif.-based Edison said it extended a $618 million facility, which
it had fully drawn down, until June 30, while SoCal Edison extended a $200
million facility until Sept. 15.
Edison said it and SoCal Edison also agreed with their banks, which are led
by J.P. Morgan Chase & Co., to extend "forbearance agreements," under which
the banks agree not to act upon defaults, to June 30 for Edison and to Sept.
15 for its utility unit.
Edison made the disclosures Tuesday in a quarterly filing with the Securities
and Exchange Commission. On Monday it reported a first-quarter loss of $617
million, or $1.89 per share, including a $661 million charge for power costs.
SoCal Edison, California's second-largest utility, and Pacific Gas & Electric
Co., the largest, have struggled because a rate freeze blocked them from
passing on their massive wholesale power costs to consumers. Pacific G&E, a
unit of San Francisco-based PG&E Corp., sought bankruptcy protection last
month.

PG&E, state regulators spar in bankruptcy court

By Michael Liedtke
ASSOCIATED PRESS
May 15, 2001
SAN FRANCISCO ) Contending California regulators illegally seek 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.
The accounting rules imposed by the PUC will make it virtually impossible for
PG&E to lift the rate freeze before the end of March 2002, PG&E attorney
Jerome B. Falk Jr. told Montali on Monday.
The rate freeze dumped the utility into an $8.9 billion hole between June
2000 and February of this year and could siphon another $4 billion from PG&E
by the end of March 2002, Falk said. PG&E contends federal law prevents third
parties from taking money from companies protected under bankruptcy.
If Montali kills the new accounting rules, Falk said, "it would be our
expectation that (the PUC) would do the right thing under California law" and
allow the utility to raise its rates even more.
The PUC contends Montali is prevented from ruling on the matter under an 11th
Amendment guarantee of "sovereign immunity" to state government agencies as
long as they are obeying the law.
"It's not an appropriate matter to litigate here," PUC attorney Walter Rieman
told Montali. "Regulation is shielded (under the Constitution), whether it's
smart or not smart."

California power regulators delay decision on rate hikes

By Karen Gaudette
ASSOCIATED PRESS
May 15, 2001
SAN FRANCISCO ) California ratepayers still don't know how much more they'll
owe on next month's electric bills, and consumer activists fear the delay
could mean even higher rates for residential customers.
Loretta Lynch, President of the Public Utilities Commission, postponed a vote
on proposed new rates until Tuesday afternoon, saying she needed more time to
review feedback from every type of energy consumer in California.
"What we're doing is fine-tuning and tweaking the proposal," Lynch said after
Monday's meeting. "Everybody in California is going to pay more."
In her initial proposal, Lynch would have spared many residential users from
the highest bills and placed more of the burden on businesses and farms.
But an outcry from businesses proclaiming that the rate hikes will doom
California's economy ) followed by a Sunday statement from Gov. Gray Davis
chiding the PUC for not allocating rates evenly over all ratepayers ) has
consumer groups wondering if Davis has urged the PUC to shifting more of the
rate hikes onto residential customers.
"The big industrial customers have been on a lobbying rampage the past
several days trying to get more of the increase placed on residential
customers," said Mike Florio, senior attorney with The Utility Reform
Network.
Steve Maviglio, a Davis spokesman, maintained that the PUC is an independent
body. Three of the five commissioners, however, are Davis appointees.
Commissioner Jeff Brown said Monday he was looking into lessening the impact
on businesses.
Business groups definitely hope the extra day translates into a lighter
touch.
"We can only hope that this extra time means that they're carefully
evaluating a plan that will perhaps be more balanced and more proportional
than what they've put forward so far," said Michelle Montague-Bruno,
spokeswoman for the Silicon Valley Manufacturing Group that represents 190
busineses.
Commissioner Carl Wood said Tuesday is the latest date the PUC can make its
decision and still give Pacific Gas and Electric Co. and Southern California
Edison Co., the state's two largest utilities, enough time to add the new
rates to electric bills by June 1.
Energy experts fear that's already too late for the price shock to spur vital
conservation this summer and help stave off some of the 30 days of rolling
blackouts predicted by managers of the state power grid.
Lynch's initial proposal raises rates anywhere from 7 percent to 61 percent )
depending on everything from whether the customer manufactures sweatshirts,
heats a swimming pool or processes tomatoes. Nearly everyone would feel some
pain.
Since it unanimously approved rate hikes March 27, the commission has
struggled to fashion rates that will simultaneously recoup the $5.2 billion
the state has spent buying power, return the state's largest utilities to
solvency and trigger enough conservation to help fend off some of this
summer's rolling blackouts.
The allocation the PUC approves will be retroactive to March 27. Charges for
interim power use will be spread over the next 12 months, Lynch has said.
Lynch and PUC Administrative Law Judge Christine Walwyn introduced proposals
last week that business interests said would unfairly make them pay too much
of the overall rate hike ) as much as 50 percent more than they pay now
depending what time of day they use the electricity.
Under Lynch's plan, as many as half of PG&E and SoCal Edison's 9 million
customers would not see their bills rise at all. She would bill residential
customers at several different levels based on how much power they use.
San Diego Gas and Electric Co. customers would not be affected. Neither would
ratepayers who buy their electricity directly from energy wholesalers rather
than through utilities, such as the state's public university systems.
While state law shields average residential customers from severe rate hikes
on much of their power use, businesses would have to pay more for every
kilowatt so the state can raise around $5 billion.
That worries small businesses like Spretto, an Oakland restaurant that no
longer serves lunch and laid off five workers because of its growing electric
bill.
"It's horrendous," said Pamela Drake, a spokeswoman with the Oakland Alliance
for Community Energy. "Small businesses operate within a smaller margin, even
successful ones, and can't afford to pay anymore."
Consumer activists sporting white jumpsuits emblazoned with the word
"Ratebusters" and other members of the public told the PUC to stop taking
public comment if it didn't plan to listen and protect residents from rate
hikes.
"I was raised to pay my bills and be responsible," said April Lankford of San
Francisco. "But I have a right to my own health and safety. That's about hot
water. That's about turning on the heat when it gets cold. I am not going to
not pay my health insurance just to afford electricity."

California faces 260 hours of blackouts, says industry

REUTERS
May 15, 2001
WASHINGTON ) California will have an estimated 260 hours of rotating
electricity blackouts this summer, more than the state or regional
authorities have predicted, the North American Electric Reliability Council
(NERC) said on Tuesday.
Texas, New England, and New York City also face the threat of summer power
outages, NERC officials said at a news conference to unveil their summer
outlook. The Pacific Northwest, which produces huge amounts of hydropower,
can meet its own demand this summer but will have no extra power to sell to
California because of drought conditions, NERC said.
"The assessment concludes that California will experience difficulties
meeting its projected electricity demand this summer and California
electricity users will experience rotating blackouts, much more so than last
summer or this winter," said Michehl Gent, president of NERC.
California's "deficiencies will be more severe" than estimates by the
California Independent System Operator, NERC officials said. NERC said
curtailments of power in the state could total as much as 260 hours over the
course of the summer, with an average curtailment of about 2,150 megawatts.
Previous estimates from the state and region estimated about 200 hours of
rotating blackouts this summer.
NERC is a non-profit entity formed after the 1965 blackouts in the
northeastern United States and promotes reliability of the nation's bulk
electricity systems.

AES to restart 2 retired South California power plants

REUTERS
May 14, 2001
ARLINGTON, VA ) United States power giant AES Corp. Monday said it will
refurbish two retired gas-fired power plants in Southern California,
generating an additional 450 megawatts of power for electricity-strapped
state.
Arlington, Virginia-based AES said the California Energy Commission certified
the company's refurbishing of units 3 and 4 at its Huntington Beach,
California facility about 30 miles(48 km) south of Los Angeles. Both units
were retired in 1995 before AES bought them.
The company said the project will bring the two power plants up-to-date,
replacing old boilers and installing state-of-the-art emissions controls.
"Not only will these units be on line in time to address California's urgent
need for electricity this summer, but the modifications will make this plant
one of the cleanest gas-fired plants in California," said Ed Blackford,
President of AES Huntington Beach.

PUC Delays Decision on Power Rate Hike
Energy: Panel will discuss a new plan today that would shift more of the
burden to residences from business.

By TIM REITERMAN and MARLA DICKERSON, Times Staff Writers

?????SAN FRANCISCO--The state's utility regulators delayed a decision Monday
on how to structure a $5-billion electricity rate increase until today, when
they will take up a revised plan that is expected to shift a larger share
onto residential customers.
?????Assailed by power users and pressured by the governor, the California
Public Utilities Commission said more time was needed to assess the impact on
competing interest groups.
?????"The problem here is making sure we are allocating [the increase]
equitably," PUC President Loretta Lynch said after the meeting. That, she
said, is "tricky."
?????About half the residential customers of the state's two largest
utilities would see increases under Lynch's plan proposed last week. Bills
for Southern California Edison customers who use moderate to heavy amounts of
power would rise about 9% to 60%. Similar customers of Pacific Gas & Electric
Co. would experience increases of about 7% to 40%.
?????To encourage conservation, Lynch said, she favors moving more of the
overall burden of the increases to residential customers who are moderate
users of electricity. Other commissioners say they believe that such a shift
is necessary to protect the state's business climate.
?????Consumer advocates voiced concern that the PUC may be yielding to
pressure from industry groups that enjoy relatively low rates but say they
are being hit unfairly with much larger percentage increases than residential
customers.
?????"The fear is the commission is caving in and taking [the increase] off
big [business] customers and putting it on residential users above 130% of
baseline," said Mike Florio, senior attorney for the Utility Reform Network.
?????The baseline amount on a bill is the minimum of electricity deemed
necessary for a customer and varies by region. Under state legislation, there
is no rate increase for consumption up to 130% of baseline. Also exempted are
low-income customers who already receive discounted electricity rates.
?????The commission passed an increase of 3 cents a kilowatt hour March 27.
In recent weeks, the panel has been conducting hearings on how to divvy up
the increase among 9 million customers of Edison and PG&E. Monday's meeting
was supposed to climax that process, paving the way for utilities to start
billing customers June 1.
?????Dozens of speakers addressed the commission, and boisterous protesters
in white coveralls repeatedly criticized the rate increase, chanting: "I
ain't payin' no hike, while they're getting rich from our power rates! Who
you gonna call? Rate Busters!" One had to be dragged away from the microphone.
?????To stunned surprise, Lynch later announced that the commission would not
vote on her rate design proposed last week or a similar one proposed by a PUC
administrative law judge.
?????Lynch revised the plan over the weekend and some commissioners said they
had not yet seen the changes.
?????The delay means two commissioners will be out of town when the
five-member panel designs the state's largest rate increase ever.
Commissioner Richard Bilas is undergoing a medical procedure in Mendocino
County. Commissioner Henry Duque is traveling to Texas as a director of the
National Assn. of Utilities Commissioners. They said the law permits them to
vote by phone as long as they do it from a publicly accessible place.
?????Lynch's proposal called for average rate increases of about 20% to 50%
for various classes of customers. But officials said the proposal was being
reviewed after testimony late last week and mounting concerns among some
commissioners that it would hit industry and big commercial customers too
hard, potentially hurting the state's economy.
?????After his financial advisors reviewed the PUC's proposals, Gov. Gray
Davis put out a statement over the weekend saying his own proposal, including
a slightly smaller rate hike, was better.
?????"My plan raises sufficient revenues to deal with the problem without
putting an undue burden on California consumers and businesses that might
hurt our economy," he said.
?????The governor's office last week asked the PUC to "come around," said
press secretary Steve Maviglio. "There are gaps between his proposal and the
PUC's."
?????Carl Wood, one of three Davis appointees on the commission, said that he
was generally comfortable with the Lynch proposal but that "this is a big
decision, and it is not ready" for a vote.
?????Jeff Brown, another Davis appointee, said he spoke to the governor's
office recently and learned that Davis had two primary concerns about the
proposal: "No. 1 that there be sufficient price signals within the
residential class [to make people conserve], and that the industrials not be
walloped and have some mitigation of the rate increase."
?????Brown said he would like to see industrial users paying less than the
50% hike in Lynch's proposal. He said that would mean residents who consume
300% of their baseline amount would have their rates rise 28% instead of
about 15%.
?????"I want [the proposed amount for industrial customers] to go down
somewhat but can't put all the burden on residentials," he said. "There are
no good answers."
?????Duque and Bilas, appointees of former Republican Gov. Pete Wilson,
expressed concerns that the rate proposal would further damage the economy.
?????"Industry is not getting a fair shake," Bilas said. "If you want to
achieve maximum conservation, you put [the increase] where demand is most
elastic. It should be placed on you and me."
?????Duque said: "I think [industrial users] are getting an undue amount."
?????Business groups have argued strongly that consumers must endure their
fair share of the pain in order to encourage conservation.
?????Carl Guardino, president and chief executive of the Silicon Valley
Manufacturing Group, said his group phoned Davis' staff to voice their
opposition to the proposed rate structure.
?????"We found a receptive audience," he said. "They saw that this [proposed
rate structure] will deeply hinder our economy."
---
?????Reiterman reported from San Francisco, Dickerson from Los Angeles.

Copyright 2001 Los Angeles Times

El Paso Gas Supplier Denies Monopoly
Energy: In trial-like hearing, federal panel is told company had control over
Southern California market.

By RICARDO ALONSO-ZALDIVAR, Times Staff Writer

?????WASHINGTON--A Texas energy conglomerate accused of driving up natural
gas prices in California might have amassed monopolistic power at times last
year, according to opening testimony Monday before the Federal Energy
Regulatory Commission.
?????FERC economist Jonathan Ogur said that under certain conditions during
the past year, a subsidiary of El Paso Corp. of Houston might have controlled
as much as 45% of the pipeline capacity for shipping gas to Southern
California. That share exceeds a commonly used threshold of 35%, raising
concern with regulators.
?????"We obviously disagree with that," said Bill Sherman, lead lawyer for El
Paso Merchant Energy, which markets natural gas. Merchant is accused by the
California Public Utilities Commission and Southern California Edison of
withholding supply in a bid to raise prices. It had contracted with its
pipeline affiliate--El Paso Natural Gas Co.--for rights to ship 1.2 billion
cubic feet of natural gas a day to California.
?????The El Paso firms say the allegations are based on a misrepresentation
of how their relationship worked. They argue that natural gas prices in
California have spiked much higher than elsewhere in the country because of
insatiable demand from power plants, a lack of pipeline capacity within the
state, and shortages brought on by unusual weather. High prices for natural
gas are a key component of California's soaring energy bills.
?????"We did nothing wrong," said Norma Dunn, a vice president with El Paso
Corp. "We need to look at this in context. All shippers were trying to move
as much gas as they could into the state. The problem is you can't get all
that much gas into the state."
?????The issue of market share appeared to loom large in the administrative
hearing, which has become the closest thing to a trial arising from
California's energy crisis. A company that controls a large portion of any
market enhances its ability to dictate prices and other conditions.
?????El Paso Merchant has argued that its market share should be computed as
a proportion of the statewide natural gas market, in which case it would fall
below 20% and would not raise anti-competitive concerns.
?????But the PUC counters that, because of difficulties in shipping gas from
north to south within the state, El Paso's true market is limited to Southern
California.
?????"The question of the geographic market makes a tremendous difference in
how El Paso Merchant's market share will be measured and the results,"
acknowledged Judge Curtis L. Wagner Jr. in an opening statement. "If the
market is Southern California and not the entire state, the figures tend to
demonstrate a rather high level of concentration in El Paso Merchant."
?????Ogur said in prepared testimony filed last week that it is "likely" that
El Paso exercised market power in Southern California.
?????Wagner will hear the evidence and present a decision to the FERC board,
which has the authority to order El Paso to surrender any ill-gotten profits.
?????During cross-examination Monday, Sherman sought to discredit the
testimony of Sandra Rovetti, a technical analyst with the PUC. Rovetti had
submitted testimony in which she said she studied the market in a "controlled
experiment" and concluded that El Paso Merchant had wielded monopolistic
power to drive up prices.
?????But Sherman won an admission from Rovetti that she had not considered
the price impact of such factors as unusual weather and power plant outages.
?????The hearing is expected to last all week and a decision from Wagner is
due before June 30.

Copyright 2001 Los Angeles Times

Labor Courted on Bush Reform Plan
Politics: The meeting with union leaders prefaces today's counterproposal by
Democrats.

By RICHARD SIMON and EDWIN CHEN, Times Staff Writers

?????WASHINGTON--The Bush administration aimed its energy policy campaign at
an unusual constituency Monday, telling union leaders that building more
power plants and increasing oil and gas drilling will mean more jobs for
their members.
?????Vice President Dick Cheney and Labor Secretary Elaine Chao courted
leaders of about a dozen unions during a private White House session that
appeared designed to drive a wedge into the labor-environmental coalition
that has blocked previous pro-business initiatives.
?????"I don't think we're being used," Teamsters President James P. Hoffa
told reporters after the meeting. "Don't forget. American workers will be
solving this problem. They will be building the resources to refine and
generate new energy."
?????It was the latest round in an escalating public relations battle over
the comprehensive national energy policy drafted by a task force headed by
Cheney. The plan will be unveiled Thursday by President Bush.
?????Today, House Democrats plan to gather at a Washington gas station to
announce their own formula for reducing the nation's energy problems. It will
call for immediate steps to address high energy prices and supply shortages,
such as asking federal regulators to investigate allegations of price gouging.
?????A group of 67 Democratic lawmakers sent Bush a letter Monday urging him
to pressure the Organization of Petroleum Exporting Countries to increase
world crude oil production.
?????"Notwithstanding our confidence in your Cabinet's extensive knowledge of
and experience with the petroleum industry, we remain concerned that your
administration has done little at this late date to address the coming crisis
in gasoline prices," the letter says.
?????Cheney reiterated his belief that there are no short-term fixes for the
combination of factors contributing to higher gasoline prices nationwide and
continuing shortages of electricity in California.
?????The vice president criticized Gov. Gray Davis for suggesting that the
administration's opposition to electricity price controls is tied to its
political support from Texas-based energy producers who are profiting off
California's troubles.
?????In the Associated Press interview, Cheney characterized appeals for
price controls and a federal investigation of gasoline prices as "exactly the
kind of misguided--I'm trying to think how to state this
gracefully--politically motivated policies we've had in the past."
?????Cheney said Bush might back a reduction of the 18.4-cent-per-gallon
federal gasoline tax, AP reported. Opponents say such a move could threaten
highway projects funded by the tax.
?????The administration's comprehensive energy plan is expected to call for
opening more federal land to oil and gas exploration, promoting increased use
of nuclear power and streamlining the approval process for power plants, gas
pipelines and oil refineries.
?????In addition, the plan is expected to propose a massive upgrade of the
nation's electricity transmission system, including granting federal
authorities eminent domain authority to acquire private property for power
transmission lines.
?????Environmentalists and their Democratic allies contend the plan leans too
far toward the supply side. But the administration has said it will include
proposals to promote conservation, energy efficiency and use of renewable
energy sources.
?????White House officials disputed the notion that the meeting with union
leaders was designed to divide the labor-environmental coalition.
?????Cheney was scheduled to meet today with advocates of renewable energy
sources, such as wind and solar power.
?????Hoffa said his group was not provided with enough details of the
administration's energy plan to offer an immediate endorsement.
?????Mike Mathis, government affairs director of the Teamsters, said, "We're
going to be supportive of a program that creates jobs."

Copyright 2001 Los Angeles Times

Judge Asked to Block Freeze on Power Rate

By MAURA DOLAN, Times Legal Affairs Writer

?????SAN FRANCISCO--Lawyers for Pacific Gas & Electric clashed with attorneys
for the state in federal bankruptcy court here Monday over whether the court
should block a state regulatory order that prolongs an electricity rate
freeze.
?????After three hours of arguments, U.S. Bankruptcy Judge Dennis Montali
said he will prepare a written decision. "It will be issued when I am ready
to issue it," Montali told a packed courtroom.
?????The legal battle represents PG&E's first attempt to use its bankruptcy
petition to protect itself from state regulators--the California Public
Utilities Commission.
?????PG&E has asked Montali to block a key accounting order the commissioners
approved March 27, several days before the Northern California utility filed
for Chapter 11 bankruptcy protection.
?????The utility contends that the order illegally extended a freeze on
electricity rates. Lawyers for the state counter that the PUC has sovereign
immunity under the 11th Amendment, and the judge has no power to intrude on
its regulatory decision making.
?????Montali asked a PG&E lawyer how he could get around the protection
argument.
?????"Because we have commissioners who are shielded by sovereign immunity,
don't I have to find a potential ongoing violation of federal law [to
intervene]?" the judge asked.
?????Jerome Falk, the lawyer for PG&E, said the regulatory commission was
breaking federal law by blocking the utility's ability to use the Bankruptcy
Act's protections to reorganize.
?????Under PG&E's calculation, the rate freeze imposed by deregulation should
have ended in mid-2000. The utility stands to lose $4 billion because of the
continuation of the freeze, Falk told Montali.
?????"Don't let it get $4 billion worse," he pleaded.
?????Walter Rieman, representing the state, countered that the commissioners
were acting in their regulatory capacity when they approved the accounting
change.
?????"Here we have rate-making and regulation in its classic and purest
form," Rieman told the judge.
?????Because of the rate freeze, the utility must buy power at a cost higher
than the rates it charges, Falk said.
?????"Money is going out. . .," Falk said. "Assets of the estate are
threatened with diminution, major diminution, as a result of this order."
?????Montali asked him what would happen if he blocked the regulatory order.
Would the rate freeze immediately end?
?????Falk replied that PG&E would return to the PUC and make its case for an
end to the freeze. "I am not asking you to set rates."
?????Lawyers for the state pointed out that PG&E happily accepted the rate
freeze when it allowed the utility to sell power at higher than market rates.
In their view, PG&E wants a ruling against the rate order to give the utility
more leverage against the state in the future.
?????Montali questioned Rieman about what authority, if any, the Bankruptcy
Court has over the utilities commission.
?????"You want me to say that everything the commission has done or will do
is insulated," Montali said. "I don't know how I can do that, and maybe I
can't."
?????The judge asked Rieman whether the PUC could eventually approve
retroactive rate increases. Rieman said it was "possible" but he was not sure
retroactive hikes would be "appropriate."
?????PG&E filed for bankruptcy protection after accumulating more than $9
billion in debts since state-ordered deregulation in 1996. The case is the
third largest bankruptcy in U.S. history.

Copyright 2001 Los Angeles Times

Edison Deal Sets High Legislative Hurdle for Davis
Capitol: Rescue bill faces opposition from lawmakers and competition from
plans that include buying utility.

By DAN MORAIN and NANCY VOGEL, Times Staff Writers

?????SACRAMENTO--Gov. Gray Davis faces the toughest legislative challenge of
his tenure as he tries to win votes for a deal he says is needed to keep
Southern California Edison out of bankruptcy--even as lawmakers work on
alternative plans.
?????Davis has tapped Sen. Richard Polanco to carry the bill, and the Los
Angeles Democrat is expected to introduce legislation implementing key parts
of the Edison deal this week. But even before hearings begin, key lawmakers
say the Davis plan has little chance of success, at least not in its current
form.
?????Some Democrats in the Assembly are considering the possibility that the
effort to rescue Edison could falter, that the company could end up in
bankruptcy, and that the state might buy the utility, according to a summary
of various plans prepared by Assembly Democrats.
?????The document, prepared for Assembly leaders, shows that at least some
members of the lower house are thinking about making a run at buying Edison's
Northern California counterpart, Pacific Gas & Electric, which filed for
bankruptcy last month.
?????"The state would assume existing secured debt . . . and would pay the
unsecured debt using a combination of the cash that has been hoarded by the
utility . . . and new cash from revenue bonds issued by the California Power
Authority," the document obtained by The Times says.
?????With Edison's stock price depressed, the cost to the state would be
perhaps $1 billion to $2 billion. PG&E's cost might be less, the document
suggests. The state would have to spend additional sums to pay off the
utilities' creditors.
?????"I don't know if we have even contemplated that thought," Davis
spokesman Steve Maviglio said of a potential bankruptcy. "We're still
optimistic that the Legislature will agree to the [deal] or a framework that
encompasses most of it."
?????Lawmakers, meanwhile, shut down their special session on energy Monday,
a necessary step so the state could sell as much as $13.4 billion in bonds by
August to pay for power purchases. Davis quickly reconvened a second special
session to deal with many other energy bills.

?????Measure Would Use Part of Utility Bills
?????"This is not going to be solved by the state buying the utilities," said
Bob Foster, the Edison executive who oversees lobbying operation. "It is time
to get real here. The state has a crisis on its hands. It needs to start
digging out."
?????The 98-page bill would authorize the state to pay $2.76 billion to buy
Edison's high voltage transmission lines, and permit the state to sell bonds
to finance the purchase. Edison would use the money to restructure and pay
down its debt, pegged at $3.5 billion.
?????Additionally, the bill would earmark part of ratepayers' monthly utility
bills to be used by Edison to pay off debt it incurred in 2000 and early this
year as state regulators barred the company from charging consumers for the
full cost of record wholesale electricity prices.
?????"The state of California needs to get out of the business of buying
electricity," Polanco said, adding that the measure assumes Edison would take
over the chore of buying power at the end of 2002 once it gains financial
stability. "My reasons for stepping up to the plate is to deal with it and
get it behind us."
?????Passage of the bill requires simple majorities in the 40-seat Senate and
80-seat Assembly. But Davis is having a hard time persuading fellow Democrats
to embrace the proposal, and Republicans shudder at the prospect of the state
getting more deeply involved in the power business by taking over Edison's
transmission system. Some think Edison should follow PG&E into Bankruptcy
Court.

?????Some Officials Prefer Bankruptcy Option
?????"Why should we spend $3.5 billion for something the Bankruptcy Court
does for free?" Sen. Tom McClintock (R-Thousand Oaks) asked. "I don't hear
anybody voicing support for the bailout."
?????Added Sen. Martha Escutia (D-Whittier): "I haven't been given any
argument why bankruptcy is bad."
?????Escutia said one of Davis' top aides jokingly threatened to lock Escutia
in a padded room until she voted for the bill. "I told her the governor would
have to put me in a straitjacket, and I still wouldn't vote for it."
?????Senate President Pro Tem John Burton, the Legislature's most influential
Democrat, said he would prefer that Edison not file for bankruptcy, but that
the bankruptcy of Edison's Northern California counterpart, PG&E, has had
little day-to-day impact.
?????"Bankruptcy is not something I'm afraid of," Burton said.
?????Burton's biggest criticism of the Davis-Edison accord is that it would
allow independent power sellers, most of which are out-of-state firms, to
recoup all money owed them by Edison.
?????Burton said no deal will win passage unless the independent generators,
who have reaped significant profits selling wholesale electricity to the
utilities, agree to take a discount on the money they are owed. He called on
them to accept a 30% discount, an amount that Davis embraced last week after
meeting with Burton and other legislators.
?????Burton's idea is one of at least four alternatives to the Davis-Edison
deal now in the works at the Capitol.
?????In the lower house, the plan with the most support is being pushed by
Assemblymen John Dutra (D-Fremont) and Joe Nation (D-San Rafael). It would
require that generators and other creditors take 25% less than they are owed,
pushing Edison debt to $2.65 billion, from the current $3.5 billion.
?????"I have every confidence that generators and marketers will be willing
to bargain," Nation said. His plan also would require an audit by the
California Public Utilities Commission to determine Edison's actual debt,
something not required by Davis' plan. Additionally, the state would have an
option to buy Edison's transmission system, rather than a commitment to
buying it, with the price to be reviewed by the PUC if the transaction is
completed.
?????Davis has met privately with legislators to ask for support. Davis even
called on executives of independent power companies to lobby lawmakers,
telling them that approval of the measure is the quickest way to ensure that
they will be paid the more than $1 billion that Edison owes them.

Copyright 2001 Los Angeles Times

PUC stalls decision on rate boost
ANGER: Consumer group says big business to benefit
David Lazarus, Chronicle Staff Writer
Tuesday, May 15, 2001
,2001 San Francisco Chronicle
URL: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2001/05/15/MN104029.DTL

State regulators yesterday delayed until this afternoon a vote on the most
sweeping electricity rate increase in California history so they could reduce
the effect on heavyweight corporate customers.
That means residential users could end up paying an even greater share of the
$5 billion to be raised by higher power prices.
Consumer activists were outraged. "It would be a travesty if the Public
Utilities Commission caved in to pressure from big business," said Mike
Florio,
senior attorney for The Utility Reform Network in San Francisco.
Under a new electricity rate formula announced last week by PUC President
Loretta Lynch, residential power customers would pay as much as 40 percent
more while industrial customers would face increases of more than 50 percent
--
in some cases, as much as 75 percent during periods of peak demand.
The PUC needs to adopt the new rate formula before Thursday if, as intended,
Pacific Gas and Electric Co. and Southern California Edison are to impose the
higher rates in time for customers' June bills.
State officials said representatives of industrial power users lobbied
aggressively over the weekend to convince Gov. Gray Davis that they would
bear a disproportionately large burden from the proposed rate increases.
The governor's office in turn spoke with Davis' most recent appointee to the
PUC, Jeff Brown, who told The Chronicle yesterday that he could not support
Lynch's rate increase unless the effect on corporate customers is lessened.
"The question is whether these rates will have a deleterious effect on
business in California," he said. "I think they will."
Lynch scrambled last night to revise her proposal in a way that would regain
Brown's support. The third Democratic appointee on the five-member
commission, Carl Wood, said he would support Lynch's current rate-increase
plan.
Although PUC members have been struggling for days to comprehend the highly
complex changes envisioned by Lynch's proposal for tiered rates among
residential and industrial power users, they gave no indication before
yesterday's meeting that a vote on the matter could be postponed.
The PUC's San Francisco meeting hall was packed for yesterday's scheduled
vote, and members of the public spent nearly two hours telling the
commissioners in no uncertain terms how they felt about rate increases.
"You are calling on consumers to bail out greedy, mismanaged companies," said
Medea Benjamin, head of Global Exchange, a San Francisco consumer group.
'RATEBUSTERS' SING OUT
She and more than a dozen other activists were dressed in white coveralls
identifying them as "Ratebusters," and they repeatedly interrupted the
meeting to sing to the tune of the "Ghostbusters" theme song.
"While the PUC gives our money away, who you gonna call?" they sang.
Benjamin was escorted from the hall by a California Highway Patrol officer
after going well past her allotted three minutes of public-comment time.
"Shame on you," protesters shouted at the commissioners.
Other speakers asked the commissioners how they could purport to represent
the public interest while at the same time raising electricity rates for the
second time since January.
"You've been appointed to represent the public," said Juliette Beck of San
Francisco. "If you disregard the public's will, this is a total sham."
PUC members have held several public hearings on the rate increase in recent
days. Dozens of consumers rose at each occasion to criticize higher rates and
call for public ownership of generating facilities in the state.
'PROCEDURAL ISSUES' DELAY
Lynch waited until all comments had been made yesterday before announcing
that a vote would be postponed until today. She blamed the delay on
"procedural issues" and said extra time was needed "so the commissioners can
fully evaluate revisions."
Outside the meeting hall, consumer activists derided the PUC for what they
said was an attempt to take up the question of rate increases behind closed
doors.
"They don't have the nerve to say all this in front of a room full of
people," said TURN's Florio.
But business leaders were hopeful that the delayed vote means their pleas for
rate relief were heard by California officials.
Opposition to the rate plan has been voiced by nearly a dozen business
groups, including the Small Business Association and the Agricultural Energy
Consumers Association.
Carl Guardino, president of the Silicon Valley Manufacturing Group, said in
an interview that commercial and industrial power users believe they were
being asked to shoulder about 80 percent of the rate increase, although they
account for 65 percent of statewide power usage.
'FAIR AND PROPORTIONAL
"We need a rate increase," he said. "We are willing to pay our share. But
let's make it an increase that's fair and proportional to use."
Harvey Rosenfield, head of the Foundation for Taxpayer and Consumer Rights in
Santa Monica, scoffed at this reasoning.
"It was the large industrial users who demanded deregulation in the first
place," he said. "They should be forced to bear the burden of it, not
innocent ratepayers."
In any case, if the PUC bows to pressure for lower industrial rate increases,
it will be residential customers who will make up the difference.
Steve Maviglio, a spokesman for the governor, said Davis is "adamantly
opposed" to expanding the number of residential customers who would be
exposed to higher rates.
Under the current plan, residential customers who can stay within 130 percent
of predetermined limits -- about half of all consumers -- would be exempt
from rate increases.
Maviglio said the governor instead would favor raising even higher the
increases for residential customers if business users succeed in avoiding
large-scale rate increases.
This means the average residential power bill could rise by more than 20
percent today -- on top of an average 10 percent increase adopted in January.
Because of scheduling conflicts, three of the five PUC members will be forced
to vote today by telephone. Only Brown and Wood are expected to be in the
meeting hall.
Rate hike holdup
-- Delay: Industrial power users successfully argued that a state plan to
increase electricity rates would place too large a burden on them.
-- Rationale: "The question is whether these rates will have a deleterious
effect on business in California," said PUC commissioner Jeff Brown.
-- Deadline: The PUC needs to adopt the new rate formula before Thursday if
increases are to appear on June bills.
E-mail David Lazarus at dlazarus@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?A - 1

NATURAL GAS: Experts says market probably fixed
Bernadette Tansey, Chronicle Staff Writer
Tuesday, May 15, 2001
,2001 San Francisco Chronicle
URL: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2001/05/15/MN220514.DTL
California's argument that a Texas energy company drove natural gas prices in
the state sky high by improperly manipulating the market won support
yesterday from federal regulators' main witness in an investigative hearing.
Evidence strongly indicates that El Paso Corp. inflated natural gas prices
through its dominance of the company's pipeline into Southern California, a
staff economist for the Federal Energy Regulatory Commission concluded in
written comments filed in the case.
The report by Jonathan Ogur, a Cornell-trained expert in market competition,
marks a departure from past findings of the federal commission that cleared
El Paso of wrongdoing.
"It is likely that El Paso Corp. had and exercised market power during the
contract term," Ogur said in the report. "Market power is the ability of a
seller profitably to maintain the price of a good or service above the
competitive level for a significant period of time."
EL PASO DENIES CHARGES
El Paso vigorously denies that it manipulated the gas market. It says gas
prices in the state have varied from two to 10 times more than elsewhere
because demand in California is high and existing pipelines and storage
basins are inadequate to meet it.
The federal commission in March rejected complaints by the California Public
Utilities Commission that El Paso rigged the bid for a huge block of space on
its pipeline early last year so that its own gas marketing affiliate could
take it over.
But the federal commission ordered further hearings before an administrative
law judge to determine whether El Paso then elbowed out other gas traders
that might have used the pipeline to ship cheaper gas into the state.
That's the accusation leveled at El Paso by the state and California's two
major utilities, Pacific Gas and Electric Co. and Southern California Edison.
They say the company's conduct jacked up prices for natural gas and had a
ripple effect on the electricity market, because 60 percent of power plants
in California run on gas.
Those higher prices have contributed significantly to the state's energy
problems. Natural gas prices for consumers rose sharply last winter, and
among PG&E's billions of dollars of debt is at least $150 million it owes to
El Paso for gas and electricity purchases.
PIPELINE ACCESS CONTROLLED
PG&E once controlled the space on the El Paso pipeline, but dropped it in
1997 because it didn't need it at the time. Gas prices from the pipeline
started climbing in 2000, when El Paso controlled the space and, critics say,
limited access to it by potential competitors.
A report commissioned by Edison estimated that California paid an extra $3. 8
billion for natural gas alone between March 1, 2000, and this past March 31
because of El Paso's domination of the pipeline space.
$864 MILLION PAID TO EL PASO
Some $864 million of that went to El Paso, said the Brattle Group, a
consulting firm. The company also reaped an extra $85 million from the power
plants it owns, Brattle said.
El Paso spokeswoman Norma Dunn said yesterday that the company welcomed the
expanded inquiry before the administrative law judge.
"We are pleased that we will finally have the opportunity to present the
facts about our participation in California's natural gas markets," Dunn
said. "We are confident that once the facts are presented, El Paso will be
vindicated."
Representatives for Edison, PG&E and the state Public Utilities Commission
were unavailable for comment.
Ogur's conclusions are based on a complex mathematical evaluation of El
Paso's potential to dictate natural gas prices through its share of
interstate pipeline capacity into Southern California from the Southwest.
Ogur is scheduled to testify during the final session of the hearings this
week at the Federal Energy Regulatory Commission's headquarters in
Washington, D.C.
The commission's chief administrative law judge, Curtis Wagner Jr., will
issue an initial decision by June 30. The commission can then accept, reject
or modify his recommendations.
The commission gave Wagner broad discretion to suggest a remedy if he finds
that El Paso unfairly profited by limiting competition in California,
spokeswoman Tamara Young-Allen said. But she could not say whether Wagner is
authorized to recommend the return of any illicit profits.
The contract for the 1.2 billion cubic feet of pipeline space controlled by
El Paso's marketing affiliate, El Paso Merchant Energy, expires May 31, when
the block will be shared by 30 energy companies.
Ogur said it is unlikely that the 30 firms will try to limit competition by
controlling access to the pipeline.
Energy at a glance Energy-related developments yesterday:
-- RATE INCREASE VOTE DELAYED
The California Public Utilities Commission postponed until today a decision
on how to divvy up the biggest electricity rate increase in state history.
The delay came at the urging of Gov. Gray Davis, amid lobbying by industrial
customers concerned that they will bear a disproportionate share of the
increase.
Two increase proposals are being debated; each would stick business and
agriculture with the brunt of the rate increases while going lighter on
residential users.
RULING DELAYED IN PG&E BANKRUPTCY
Bankruptcy Judge Dennis Montali deferred ruling on a PG&E bid challenging the
PUC's authority to limit electricity rates.
COMPANY ACCUSED OF MANIPULATING GAS PRICES
A Federal Energy Regulatory Commission analyst said evidence supports
California's argument that El Paso Corp. helped drive up natural gas prices
by limiting the supply flowing through its Southern California pipeline.
HELP FOR SCHOOLS
Gov. Gray Davis set aside $541 million in the state budget to help public
schools pay soaring electricity bills. The one-time spending increase will
benefit schools that agree to cut power use by 10 percent.
CHENEY TALKS TOUGH
Vice President Dick Cheney dismissed as "misguided" and "politically
motivated" Democratic calls for energy price limits and augmenting fuel
supplies by dipping into the Strategic Petroleum Reserve.
Cheney also rebuffed Democratic calls for a federal investigation into
allegations of price gouging by oil and gasoline companies. He did, however,
leave open the possibility that President Bush would back a reduction of the
federal gasoline tax.
E-mail Bernadette Tansey at btansey@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?A - 1

Developments in California's energy crisis
The Associated Press
Tuesday, May 15, 2001
,2001 Associated Press
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2001/05/15/state1
045EDT0137.DTL&type=news
(05-15) 07:45 PDT (AP) --
Developments in California's energy crisis:
TUESDAY:
* No power alerts Tuesday as electricity reserves stay above 7 percent.
* The Public Utilities Commission could vote on how it will allocate the
largest rate hikes in California history. Consumer activists fear PUC
President Loretta Lynch will retool her rate proposal to foist more of the
burden onto residential customers. Businesses and Gov. Gray Davis had said
both Lynch's proposal and another from a PUC law judge targeted businesses
with too much of the increase.
MONDAY:
* Davis releases his revised budget, reflecting the sagging economy and the
hit the state's treasury has taken from power buys.
* Legislators unanimously send Davis a bill giving air quality districts
discretion to allow industries that participate in the state's interruptible
program to run backup generators during blackouts to prevent damage to
equipment or products, even if that violates air quality standards.
* Legislators end their first special session on the state's energy crisis,
and Davis immediately proclaims a second special session that will take up
where the first one left off. The procedural moves triggers a 90-day clock
until the state can issue $13.4 billion in long-term bonds to repay the
treasury for money the state has spent to buy electricity for three
cash-strapped utilities.
* Assemblymen John Dutra, D-Fremont, and Joe Nation, D-San Rafael, offer an
alternative to Davis' proposal to purchase Southern California Edison's
transmission lines for $2.76 billion to help the company pay its massive
debt. They propose that Edison give the state a five-year option to buy the
utility's transmission lines for $1.2 billion.
* A $1 loaf of bread would cost $12 and a $2 half-gallon of milk $24 if their
prices had increased at the pace of electricity over the last year, consumer
groups say. They and Assembly Speaker Robert Hertzberg, D-Van Nuys, blame the
Federal Energy Regulatory Commission for not reining in soaring energy
prices. The Assembly Energy Oversight Subcommittee releases a report
criticizing FERC for approving contracts it says led to exorbitant natural
gas prices. FERC holds a Washington, D.C., hearing on the natural gas market.
* A lawsuit by Democratic legislative leaders asking a federal judge to order
FERC to trim energy prices has been delayed until next week. Hertzberg and
Senate President Pro Tem John Burton, D-San Francisco, had hoped to file
their suit early this week.
* Edison International, the parent of cash-strapped utility Southern
California Edison, reports a $617 million first-quarter loss, or $1.89 per
share, reflecting Southern California Edison's unreimbursed $617 million cost
of buying power on the wholesale market and not being able to pass those
costs along to customers.
* U.S. Bankruptcy Judge Dennis Montali hears arguments from lawyers for both
Pacific Gas and Electric and the state Public Utilities Commission, but has
yet to rule whether the PUC was within its rights to force PG&E to make an
accounting change that prevents the utility from recouping its $13 billion
debt from its customers.
* Edison International stock closes at $11.15, up $0.94. PG&E Corp. gained
$1.22 to close at $11.80.
WHAT'S NEXT:
* The PUC is scheduled to vote on a final electricity rate plan Tuesday. Two
proposals are on the table. Each would make businesses and farms pay the
most, while shielding most residential customers.
* Davis' representatives continue negotiating with Sempra, the parent company
of San Diego Gas and Electric Co., to buy the utility's transmission lines.
THE PROBLEM:
High demand, high wholesale energy costs, transmission glitches and a tight
supply worsened by scarce hydroelectric power in the Northwest and
maintenance at aging California power plants are all factors in California's
electricity crisis.
Edison and PG&E say they've lost nearly $14 billion since June to high
wholesale prices the state's electricity deregulation law bars them from
passing on to consumers. PG&E, saying it hasn't received the help it needs
from regulators or state lawmakers, filed for federal bankruptcy protection
April 6.
Electricity and natural gas suppliers, scared off by the two companies' poor
credit ratings, are refusing to sell to them, leading the state in January to
start buying power for the utilities' nearly 9 million residential and
business customers. The state is also buying power for a third investor-owned
utility, San Diego Gas & Electric, which is in better financial shape than
much larger Edison and PG&E but also struggling with high wholesale power
costs.
The Public Utilities Commission has approved rate increases of as much as 46
percent to help finance the state's multibillion-dollar power buys. The PUC
plans to soon determine how those increases will be spread among utility
customers.
,2001 Associated Press ?

PG&E, state regulators spar in bankruptcy court
MICHAEL LIEDTKE, AP Business Writer
Tuesday, May 15, 2001
,2001 Associated Press
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2001/05/15/state0
445EDT0110.DTL&type=news
(05-15) 01:45 PDT SAN FRANCISCO (AP) --
Contending California regulators illegally seek 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 21/2-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.
The accounting rules imposed by the PUC will make it virtually impossible for
PG&E to lift the rate freeze before the end of March 2002, PG&E attorney
Jerome B. Falk Jr. told Montali on Monday.
The rate freeze dumped the utility into an $8.9 billion hole between June
2000 and February of this year and could siphon another $4 billion from PG&E
by the end of March 2002, Falk said. PG&E contends federal law prevents third
parties from taking money from companies protected under bankruptcy.
If Montali kills the new accounting rules, Falk said, "it would be our
expectation that (the PUC) would do the right thing under California law" and
allow the utility to raise its rates even more.
The PUC contends Montali is prevented from ruling on the matter under an 11th
Amendment guarantee of "sovereign immunity" to state government agencies as
long as they are obeying the law.
"It's not an appropriate matter to litigate here," PUC attorney Walter Rieman
told Montali. "Regulation is shielded (under the Constitution), whether it's
smart or not smart."

NATURAL GAS: Experts says market probably fixed
Bernadette Tansey, Chronicle Staff Writer
Tuesday, May 15, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/05/15/M
N220514.DTL&type=news
California's argument that a Texas energy company drove natural gas prices in
the state sky high by improperly manipulating the market won support
yesterday from federal regulators' main witness in an investigative hearing.
Evidence strongly indicates that El Paso Corp. inflated natural gas prices
through its dominance of the company's pipeline into Southern California, a
staff economist for the Federal Energy Regulatory Commission concluded in
written comments filed in the case.
The report by Jonathan Ogur, a Cornell-trained expert in market competition,
marks a departure from past findings of the federal commission that cleared
El Paso of wrongdoing.
"It is likely that El Paso Corp. had and exercised market power during the
contract term," Ogur said in the report. "Market power is the ability of a
seller profitably to maintain the price of a good or service above the
competitive level for a significant period of time."
EL PASO DENIES CHARGES
El Paso vigorously denies that it manipulated the gas market. It says gas
prices in the state have varied from two to 10 times more than elsewhere
because demand in California is high and existing pipelines and storage
basins are inadequate to meet it.
The federal commission in March rejected complaints by the California Public
Utilities Commission that El Paso rigged the bid for a huge block of space on
its pipeline early last year so that its own gas marketing affiliate could
take it over.
But the federal commission ordered further hearings before an administrative
law judge to determine whether El Paso then elbowed out other gas traders
that might have used the pipeline to ship cheaper gas into the state.
That's the accusation leveled at El Paso by the state and California's two
major utilities, Pacific Gas and Electric Co. and Southern California Edison.
They say the company's conduct jacked up prices for natural gas and had a
ripple effect on the electricity market, because 60 percent of power plants
in California run on gas.
Those higher prices have contributed significantly to the state's energy
problems. Natural gas prices for consumers rose sharply last winter, and
among PG&E's billions of dollars of debt is at least $150 million it owes to
El Paso for gas and electricity purchases.
PIPELINE ACCESS CONTROLLED
PG&E once controlled the space on the El Paso pipeline, but dropped it in
1997 because it didn't need it at the time. Gas prices from the pipeline
started climbing in 2000, when El Paso controlled the space and, critics say,
limited access to it by potential competitors.
A report commissioned by Edison estimated that California paid an extra $3. 8
billion for natural gas alone between March 1, 2000, and this past March 31
because of El Paso's domination of the pipeline space.
$864 MILLION PAID TO EL PASO
Some $864 million of that went to El Paso, said the Brattle Group, a
consulting firm. The company also reaped an extra $85 million from the power
plants it owns, Brattle said.
El Paso spokeswoman Norma Dunn said yesterday that the company welcomed the
expanded inquiry before the administrative law judge.
"We are pleased that we will finally have the opportunity to present the
facts about our participation in California's natural gas markets," Dunn
said. "We are confident that once the facts are presented, El Paso will be
vindicated."
Representatives for Edison, PG&E and the state Public Utilities Commission
were unavailable for comment.
Ogur's conclusions are based on a complex mathematical evaluation of El
Paso's potential to dictate natural gas prices through its share of
interstate pipeline capacity into Southern California from the Southwest.
Ogur is scheduled to testify during the final session of the hearings this
week at the Federal Energy Regulatory Commission's headquarters in
Washington, D.C.
The commission's chief administrative law judge, Curtis Wagner Jr., will
issue an initial decision by June 30. The commission can then accept, reject
or modify his recommendations.
The commission gave Wagner broad discretion to suggest a remedy if he finds
that El Paso unfairly profited by limiting competition in California,
spokeswoman Tamara Young-Allen said. But she could not say whether Wagner is
authorized to recommend the return of any illicit profits.
The contract for the 1.2 billion cubic feet of pipeline space controlled by
El Paso's marketing affiliate, El Paso Merchant Energy, expires May 31, when
the block will be shared by 30 energy companies.
Ogur said it is unlikely that the 30 firms will try to limit competition by
controlling access to the pipeline.
Energy at a glance Energy-related developments yesterday:
-- RATE INCREASE VOTE DELAYED
The California Public Utilities Commission postponed until today a decision
on how to divvy up the biggest electricity rate increase in state history.
The delay came at the urging of Gov. Gray Davis, amid lobbying by industrial
customers concerned that they will bear a disproportionate share of the
increase.
Two increase proposals are being debated; each would stick business and
agriculture with the brunt of the rate increases while going lighter on
residential users.
RULING DELAYED IN PG&E BANKRUPTCY
Bankruptcy Judge Dennis Montali deferred ruling on a PG&E bid challenging the
PUC's authority to limit electricity rates.
COMPANY ACCUSED OF MANIPULATING GAS PRICES
A Federal Energy Regulatory Commission analyst said evidence supports
California's argument that El Paso Corp. helped drive up natural gas prices
by limiting the supply flowing through its Southern California pipeline.
HELP FOR SCHOOLS
Gov. Gray Davis set aside $541 million in the state budget to help public
schools pay soaring electricity bills. The one-time spending increase will
benefit schools that agree to cut power use by 10 percent.
CHENEY TALKS TOUGH
Vice President Dick Cheney dismissed as "misguided" and "politically
motivated" Democratic calls for energy price limits and augmenting fuel
supplies by dipping into the Strategic Petroleum Reserve.
Cheney also rebuffed Democratic calls for a federal investigation into
allegations of price gouging by oil and gasoline companies. He did, however,
leave open the possibility that President Bush would back a reduction of the
federal gasoline tax.
E-mail Bernadette Tansey at btansey@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?A - 1

Davis forced to trim budget
Minor cuts, unspent funds used to cover $3.5 billion deficit
Greg Lucas and Robert Salladay, Chronicle Sacramento Bureau
Tuesday, May 15, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/05/15/M
N146580.DTL&type=news

Sacramento -- Blaming the tech-stock slide, Gov. Gray Davis said yesterday
that there is a $3.5 billion hole in California's coming budget that he
proposes filling with relatively painless cuts that spare public schools.
By squirreling away billions from the past two years, when California had
huge budget surpluses, the Democratic governor avoided having to propose deep
whacks to existing state programs.
Instead, he wants to pare back one-time spending proposals, eliminating $250
million for cities and counties, and use unspent state money approved in past
budgets to cushion the blow.
"We knew this day would come. Happily, we had the discipline to prepare for
it," Davis said in presenting his spending plan.
The May revision, as yesterday's event is called, is when negotiations over
the state's spending plan heat up.
Lawmakers are supposed to approve their version of the budget by June 15 so
Davis can review it and have it in place for the start of the new fiscal
year, July 1.
Republicans, whose votes are needed for the document to be approved, said
Davis isn't being fiscally conservative enough. They say the plan drains
reserves without considering that the economic downturn could last more than
just a year.
"The budget's short overall. He needs to come up with more cuts," said Sen.
Dick Ackerman, R-Fullerton, vice chairman of the Senate Budget Committee.
"The reserve is not adequate. It's not a very realistic document because it
doesn't take into account the economic downturn or the size of our energy
costs."
The revision is simply a look at whether the projections the governor made in
his January budget still hold true. Instead of a total budget of $104.7
billion outlined earlier this year, Davis now envisions a spending package of
$102.9 billion.
For the first two years of Davis' administration those projections were
wildly conservative, yielding last year a staggering $12.3 billion in
unexpected revenue.
This year, a slack stock market and a cooling state economy had the opposite
effect -- for the first time in nearly a decade the state will take in less
revenue than it did in a previous year.
"The declining Nasdaq, more than anything else, is responsible for the drop
in revenue we're seeing this year," Davis said.
Davis predicts that the state next year will take in $5.3 billion less
revenue than this year.
However, higher-than-anticipated tax payments in April mean the state will
end the current fiscal year on June 30 with an extra $1.4 billion.
The governor uses that surplus and hundreds of millions of dollars in
transfers to winnow the next budget's shortfall to $3.5 billion.
He assumes a proposed bond sale this summer will erase the state's more than
$6 billion in emergency electricity purchases.
Davis said his two spending priorities are public schools and public safety.
In the face of the shortage, Davis not only gave schools what he offered in
his January spending plan -- some $1.8 billion above the minimum schools are
guaranteed by law -- but added $676 million.
Of the $676 million, $541 million is one-time money to help defray higher
power bills brought on by the state's energy crisis. That works out to about
$90 per student for higher energy bills, more than the schools had requested.
Because enrollment is higher than expected in January, per-pupil spending
fell slightly from $1,176 to $1,168. School officials throughout the state
were pleased that their budgets weren't cut, as they work to raise test
scores through a variety of new programs.
Kevin Gordon, a lobbyist for school administrators, said that if school
districts suddenly had to deal with funding cuts, they would be hard pressed
to continue the progress in academic achievement seen recently.
Davis does not cut higher education, either, giving it a 2 percent increase
over this year, as opposed to the 4 percent increase he pitched in January.
He also preserves $160 million to begin construction of a new University of
California campus in Merced but, to save money, pays for it with bonds
instead of cash.
Among the one-time items eliminated was $40 million for a three-county pilot
project to experiment with touch-screen voting.
Davis also cut $350 million from the the state's housing department,
including $200 million in grants to cities and counties that increase their
stock of homes and apartments.
The governor eliminated a $37.5 million proposal to clean up toxic-waste
sites in urban areas and pared down to $10 million from $100 million a
program to clean up beaches, mainly in Southern California.
Davis abandoned several tax cuts he proposed in January to save $50 million.
Among the casualties was a three-day sales tax holiday in August for back-to-
school shoppers.
Davis also assumes that a quarter-cent sales tax cut caused by the state
being so flush with cash will end next January, allowing consumers to
contribute $1.2 billion in additional taxes to help fill the budget hole.
The key to Davis' budget proposal is spending $5 billion of the state's $6
billion reserve.
That means in the fiscal year beginning July 1, the state will spend some $5
billion more than it takes in, a potentially dangerous gamble if the economy
doesn't rebound in 2002, when Davis stands for re-election.
"Reserves are for rainy days," Davis said of the spending. "It's starting to
rain."
Said Assembly GOP leader Dave Cox of Carmichael, "I'm very troubled because
no reserve means no room for error -- and the governor has made too many
errors already."
The revised state budget .
Gov. Gray Davis presented yesterday his revised budget for 2001-02, which
includes $3.5 billion in cuts over last year. The stock market decline
hammered the state treasury, which relies heavily on capital gains taxes. The
document must be approved by the Legislature and signed by July. .
OVERVIEW
-- In the bank: $6.7 billion
-- New revenues: $74.8 billion
-- Total available: $81.5 billion
-- Expenditures: $79.7 billion
-- Balance: $1.8 billion for reserves and lawsuit payouts.
-- Total spending: $102.9 billion (including $3.1 billion in bond revenues),
down from $104.7 billion January estimate. .
MAJOR CUTS
-- Transportation: $2.5 billion saved over two years by deferring money sent
to Caltrans until 2007-08; no projects delayed, governor claims.
-- Local government: $250 million in discretionary cash eliminated and police
lose $50 million in techno-
logy grants.
-- Environment: $90 million from Clean Beaches Initiative, gutting Davis'
program to clean up water reaching the ocean, and cuts of $37.5 million from
program to help clean up toxic industrial sites.
-- Housing: $348.5 million cut in proposed housing budget, including local
incentives to build more houses and apartments and help families with down
payments.
-- Voting: $40 million cut for a touch-screen voting trial project in three
counties.
-- State Library: $5.8 million cut.
-- Alcohol and drug programs: $34.7 million overall, including cuts in youth
and adult treatment.
-- Prisons: $50.3 million reduction, mainly because there are fewer inmates.
.
Source: Office of Gov. Gray Davis.
E-mail Greg Lucas at glucas@sfchronicle.com and Robert Salladay at
rsalladay@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?A - 4

PUC puts off vote on rates
Posted at 10:43 p.m. PDT Monday, May 14, 2001
BY VBY MICHAEL BAZELEY

Mercury News

Abruptly postponing a decision until today, state regulators on Monday began
revising an electricity rate proposal, with indications that businesses would
get more of a break and residential customers would take a greater hit.
Public Utilities Commission member Jeff Brown said he asked for the changes
late Friday after hearing testimony from business groups that a huge rate
increase would hurt the state's economy. Brown said he was particularly
concerned by the big increases proposed for electricity rates for peak-period
usage.
``There are some people that cannot go off-peak,'' Brown said, ``and those
people will pass their costs on to consumers, or they might take their
business out of California. Either way, the impact on the economy will be
very high.''
Under the revised proposal, moderate residential users apparently will take a
slightly bigger financial hit. At the same time, industrial users would be
less affected, and agricultural users would get a big break, with their
highest average increase dropping from 30 percent to 20 percent or less,
Brown said.
Brown's efforts to change the rate proposal apparently were being pushed by
Gov. Gray Davis, who appointed Brown and has taken an active interest in how
the $5 billion rate increase is divvied up among users.
Davis presented his own rate proposal to the commission a couple of weeks
ago. It gave agricultural groups and industrial users a bigger break than
plans released by the PUC last week.
``Our staff has been working with Mr. Brown to make the rate increase reflect
the governor's wishes,'' said Davis spokesman Steve Maviglio.
Last week, the commission released two proposals for how to distribute the
increase -- one from Commission President Loretta Lynch and one from
Administrative Law Judge Christine Walwyn.
Both proposals created a tiered system for residential users, with the
biggest power hogs getting slapped with the highest rates. And both skewed
the rate increase against commercial and industrial users. According to one
PUC analysis, the average increase for industrial users was 50 percent, with
some businesses facing on-peak rate increase of 250 percent.
Although business groups have enjoyed disproportionately lower rates in
recent years, they reacted strongly to the plans, insisting the higher
electric rates would drive some companies to ruin and hurt the state's
already foundering economy.
Attorneys representing agricultural, industrial and big and small business
groups dominated the final rate-setting hearing Friday. And groups such as
the California Manufacturers and Technology Association urged their members
to bombard the PUC with letters.
The limits of relief
Brown said he had originally tried to bring the average increase for
industrial users down from 50 percent to 45 percent, but that shifted too
much of the rate increase onto residential users.
``So we're looking at a very little more for residential users and taking it
down a little for industrial,'' Brown said.
Lynch had not released details of the revised proposals Monday night.
But Brown released figures that he said were being seriously considered.
Customers who keep their usage within 130 percent of their baseline would
still be exempt from higher rates, as required by state law.
Among Pacific Gas & Electric customers, moderate residential users (between
130 and 200 percent of baseline) who originally faced a 28 percent rate
increase would now see a 33 percent increase, Brown said. Heavier users would
see the rise in their rate jump from 39 percent to 55 percent. But the
heaviest residential users, originally slated for a 147 percent increase,
would now see a rate increase of only 75 percent.
Consumer groups were not happy.
``This is really hitting people who are moderate users who cannot fit within
their baseline,'' said Michael Florio, an attorney with The Utility Reform
Network. ``It's going easy on the really exorbitant users, who you would
think are pretty well-off.''
Lynch said immediately after the meeting that she wanted to spread more of
the rate increase to other residential users ``to ensure conservation
incentives are at every tier.'' And indeed, some energy experts had urged the
commission to be more aggressive with the residential rates as a way to spur
conservation.
Skeptics abide
But one consumer advocate scoffed at the notion, arguing that higher rates
will not lead to significantly higher conservation by homeowners.
``It seems like big industry and the environmentalists have gotten together
to try to get people to conserve through higher rates,'' said Harry Snyder,
senior advocate at Consumers Union in San Francisco. ``But the way to
conserve is not through forcing it.''
Snyder accused the commission of doing the ``hokey-pokey, changing everything
by the reaction they get.''
Anti-rate-increase activists dominated much of Monday's meeting, showing up
dressed as ``Ratebusters'' and frequently interrupting the meeting with
chants (``I ain't payin' no hikes!'').
All they apparently got in return were a few chuckles from the commissioners
and stern glares from the many California Highway Patrol officers stationed
around the room.
The commission is scheduled to vote on the new rate plan today at 2 p.m.

Mercury News Staff Writer Mark Gladstone contributed to this report.

Cheney urges patience over energy costs
Published Tuesday, May 15, 2001, in the San Jose Mercury News
BY RON FOURNIER

Associated Press

WASHINGTON -- Vice President Dick Cheney, point man for the administration's
new energy policy, said Monday there are no easy or quick solutions to rising
energy bills. He accused the Clinton administration of doing ``stupid
things'' like tapping the Strategic Petroleum Reserve to cope with shortages.
In unusually blunt terms, Cheney also dismissed Democratic demands for price
limits and a federal investigation into allegations of price gouging by
gasoline companies.
``That's exactly the kind of misguided -- I'm trying to think how to state
this gracefully -- politically motivated policies we've had in the past,'' he
said in an interview.
Cheney left open the possibility of President Bush backing a reduction of the
federal gasoline tax and spoke positively about fuel economy standards for
automobiles.
The overall message was one of patience.
``These problems did not arise overnight. They're not something that just
suddenly dropped out of the sky,'' Cheney said three days before the release
date of his task force's much-awaited energy report.
Cheney had just finished eating lunch with former House Speaker Newt Gingrich
when he sat down in his West Wing office for the interview. The 60-year-old
heart disease patient said he had recently dropped 20 pounds.
His energy report will offer strategies for increasing the nation's supplies
through expansion of nuclear power, increased domestic oil drilling and more
efficient movement of energy.
Cheney did not close the door to raising automobile gas mileage requirements,
which have been unchanged since 1975.
Cheney met with several building and trade labor leaders Monday, hoping to
convince them that Bush's plan will produce thousands of jobs. ``We believe
this might be a way to start solving this problem and getting more supply,''
Teamsters President James Hoffa said afterward.
Cheney criticized California Gov. Gray Davis for suggesting that the
administration's ties to the oil industry are affecting the report. ``It's an
effort just to try to pass the blame onto somebody else,'' Cheney said.

Finding: gas-price inflation possible
Published Tuesday, May 15, 2001, in the San Jose Mercury News
BY H. JOSEF HEBERT

Associated Press

WASHINGTON -- With partial control of a key pipeline, El Paso Corp. probably
wielded enough market power to inflate the cost of natural gas going into
Southern California last year, according to staff findings of a federal
energy agency.
The conclusions by a Federal Energy Regulatory Commission staff economist
came amid administrative hearings into allegations that market manipulation
by El Paso Corp. led to soaring natural gas prices in California last year.
California regulators allege that El Paso Corp., which owns a gas marketing
company as well as one of the largest pipelines connecting Southwest gas
fields to California, used its market power to inflate the price of gas sold
in California last year by as much as $3.7 billion.
El Paso Corp., based in Houston, Texas, has denied that it overcharged
customers or manipulated markets. It has attributed the high cost of gas to
supply and demand and to constraints in California's distribution system.
Curtis Wagner, FERC's chief administrative law judge, began a week of
hearings Monday into the allegations and is expected to produce a finding by
the end of June. The full commission will be able to either accept or reject
the ruling.
``We're confident El Paso will be completely exonerated. We did nothing
wrong,'' said Norma Dunn, a senior vice president of El Paso Corp., after the
first day of the FERC hearing.
The allegations stem from an agreement in February 2000 in which El Paso
Natural Gas Co. sold to El Paso Merchant Energy, a marketing company, the
right to ship 1.2 billion cubic feet of natural gas on its pipeline from
Texas and New Mexico into California.
The deal between the two subsidiaries of El Paso Corp. accounted for about 30
percent of the pipeline's capacity and about one-sixth of California's daily
demand.
FERC has said there was nothing wrong with the deal itself, but ordered a
further investigation to determine whether El Paso used the capacity to
manipulate the market and drive up prices of natural gas going into
California.
Southern California Edison, one of California's financially struggling
utilities, submitted a report to FERC last week alleging that El Paso's
market strength resulted in $3.7 billion in added natural gas costs during a
13-month period ending last March. It said high natural gas prices added $1
billion to the cost of electricity produced by Edison's gas-fired power
plants alone.

Edison has loss of $617 million
Utility's parent takes power- buying charge, cancels dividends.
May 15, 2001

From Register news services
Ontario - Edison International, the owner of the state's second-largest
utility, had a first-quarter loss after a $661 million charge for buying
power at surging prices it couldn't pass on to customers.
The loss of $617.3 million compares with net income of $109.5 million a year
earlier, the company stated.
The loss was the result of the one-time charge of $661 million, reflecting
Southern California Edison's unreimbursed cost of buying power on the
wholesale market and not being able to pass the cost to consumers, the
company said. Without the charge, Edison International had earnings of about
$43 million, compared with $110 million in the same quarter last year.
Southern California Edison reported earnings of $62 million, compared with
$113 million a year earlier.
In a separate action, Edison's board of directors voted to eliminate the
second-quarter dividends on its common stock that would have been paid to
shareholders July 31.
At the company's annual stockholders meeting Monday in Ontario, shareholders
lined up to pepper Chief Executive Officer John Bryson with questions and
comments, mostly blasting state and federal regulators but also questioning
company decisions over the past year.
PG&E Corp.'s Pacific Gas & Electric, the state's biggest utility, filed for
bankruptcy in April. Edison, based in Rosemead, had a $2.5 billion loss in
the 2000 fourth quarter.
Pacific Gas & Electric had $9 billion in debt from power- buying losses and
lost $951 million in the first quarter.
Bloomberg News and The Associated Press contributed to this report.

Edison shareholders feeling the heat as values plunge
Large numbers are at or near retirement, reflecting belief that utility
investments are low-risk.
May 15, 2001
By NIGEL HUNT
Reuters
ONTARIO - Their dreams of a modest return having been transformed into a
nightmare of vanishing equity, shareholders of Edison International displayed
plenty of anger and even some tears Monday, but no one seemed quite sure who
to blame for their misfortune.
"All the shareholders want is 6 percent" return on their investment, said
Robert Byrne of Los Angeles, one of about 800 who attended the annual
shareholders meeting here Monday.
Edison International, parent of near-bankrupt utility Southern California
Edison, has seen its stock value plunge and has suspended dividend payments
after running up billions of dollars of debt buying power on behalf of
customers at high prices in the wholesale market.
State regulators have prevented the utility from fully recovering those
costs, driving it to the brink of bankruptcy.
The state's largest utility, Pacific Gas & Electric Co., filed for Chapter 11
bankruptcy protection last month.
Shareholders are heavily weighted toward those planning to retire shortly and
those who have already retired, as an investment in a utility has
traditionally rendered a small but safe return.
Some shareholders blamed state regulators for the crisis, others accused
out-of-state power companies that had profited from the high prices.
Edison's management also did not escape.
"If I was (Edison director) Warren Christopher or (Chief Executive Officer)
John Bryson, I would have put a bulletproof vest on today," said Byrne,
adding that the company's leadership didn't have the "moxy" to deal with the
crisis.
The crisis is linked to California legislation deregulating its power
markets, passed in 1996 and implemented in 1998. State laws limited what the
utilities could charge but not what they had to pay to buy power.
"I believe Edison certainly shares the blame. They should never have agreed
to deregulation," said shareholder Edward Boulter of Dana Point.
Others, however, pointed the finger elsewhere. "I blame the PUC (California
state regulators) for implementing a restructuring program which they weren't
prepared for and couldn't handle," said Jack Bosna of Fullerton, who said he
had held the company's stock since the 1930s.
Bryson told shareholders the company is in the midst of "the most deeply
threatening crisis in its 115-year history."

Energy notebook for Tuesday, May 15
PUC postpones decision on power rate hikes to today.
May 15, 2001
From staff and news service reports
SAN FRANCISCO - The state's top energy regulator delayed until today a vote
on two proposals to raise electricity rates while it worked on details of how
much industrial and small business customers should pay.
"I regret the delay, but revisions are still being made this morning and we
will not be ready to decide this until a meeting tomorrow," said California
Public Utilities Commission President Loretta Lynch.
The meeting is scheduled for 2 p.m.
Jeffrey Brown, a commissioner and former San Francisco public defender, said
the PUC is "trying to reconcile some of the rate increases without
astronomically burdening any one customer class.''
"There are some potentially high percentages that businesses could get hit
with, so the question is, how do you bring it down for industrial and small
business customers?'' he said.
Business groups complained to the commission that the proposed rate hikes
would damage California's economy and have suggested that more of the burden
should be shifted to consumers.
The two rate proposals seek to raise $5 billion this year to repay the
California Department of Water Resources, which is buying electricity on
behalf of the state. But rate increases of between 20 percent and 50 percent,
on average, still would not close the gap between retail prices, which were
frozen by the state's 1996 deregulation law, and a tenfold leap in wholesale
electricity prices since last May.
State legislators seeking alternate ways to save SCE
Sacramento - California legislators are proposing alternatives to Gov. Gray
Davis' plan to save Southern California Edison from bankruptcy.
"If we want Edison to continue as a utility serving Southern California,
someone has to step in," said Paul Smith, chief of staff to Democratic
Assemblyman John Dutra. "There's no way the current agreement gets through
this place."
Edison is nearly insolvent because of soaring wholesale-power rates and a
deregulated market that temporarily froze consumer prices. Edison agreed to
sell power lines to the state for $2.7 billion and the right to issue $2
billion in bonds in a rescue pact negotiated by Davis's advisers.
Reuters, Bloomberg News and Associated Press contributed to this report.

Gas supplier faces charges of price fixing
Hearings explore allegations that El Paso Corp. inflated rates for gas sold
in California.
May 15, 2001
By KATE BERRY
The Orange County Register
California's largest natural gas supplier, El Paso Corp., faced allegations
Monday in Washington and Sacramento that it wielded its market power to
manipulate natural gas prices in California.
The Federal Energy Regulatory Commission began hearings in Washington into
the allegations that El Paso, based in Houston, inflated the price of natural
gas sold in California last year by as much as $3.7 billion.
In papers filed as part of the proceedings, FERC staff economist Jonathan
Ogur said it "is likely that El Paso Corp. had and exercised market power"
that allowed it to keep the price of gas "above the competitive level for a
significant period of time" last year.
El Paso owns four pipelines into California.
The gas supplier has denied allegations that it overcharged customers or
manipulated the market.
It has attributed the rise in natural gas prices to increased demand and
limited pipeline capacity in the state.
"We are confident that once the facts are presented, El Paso will be
vindicated," said Norma Dunn, a senior vice president at El Paso who attended
the Washington hearings.
Natural gas is the primary fuel used by electricity generating plants in
California. Soaring natural gas prices are part of the reason why electricity
costs have risen tenfold in the state since a year ago.
Wholesale natural gas prices rose from $3 per million British thermal units
in January 2000, to as high as $60 per million Btu in December.
Natural gas spot prices in California have been two to 10 times as expensive
as prices across the border in Arizona, trading Monday at a high of $11.25
per million Btu, compared with a high of $3.35 in Arizona, traders said.
The allegations against El Paso stem from a February 2000 agreement between
two of its subsidiaries.
In the agreement, El Paso Natural Gas sold to a marketing arm, El Paso
Merchant Energy, the right to ship 1.2 billion cubic feet of natural gas to
California. The deal between the two units accounted for about one-sixth of
California's daily demand for natural gas, and 30 percent of the pipeline's
capacity.
That contract and others El Paso signed with Dynegy Inc. and Enron Corp. put
the companies in a position to wield market power by giving them more
pipeline capacity than they needed, according to the California Public
Utilities Commission, which filed the allegations against El Paso with FERC.
The contracts contained profit-sharing agreements between the participants
that the CPUC alleged were "anti-competitive."
"Contracts that gave natural gas marketers control of vast amounts of El
Paso's interstate pipeline capacity helped push California's gas prices above
the national average," said a report issued Monday by the California Assembly
energy oversight subcommittee. "By retaining more capacity, the marketers
increased its scarcity, which helped artificially inflate border prices," the
report stated.
The subcommittee alleged that El Paso Natural Gas structured a February 2000
capacity auction to favor El Paso Merchant Energy.
El Paso called the report "a sham'' and "a charade'' and attacked the
report's staff for using a consulting firm hired by Southern California
Edison, which like the CPUC filed a complaint against El Paso with FERC.
All of the contracts between El Paso, its affiliates and other energy
companies were approved by FERC. The company has cited approval of the
contracts by FERC as proof that it acted legally.
Separate lawsuits filed on behalf of California consumers allege a broader
conspiracy theory involving El Paso.
The suits allege that executives of El Paso Natural Gas, and two units of
Sempra Energy - Southern California Gas, and San Diego Gas and Electric - met
in a Phoenix hotel in 1996 and conspired to dominate the Southern California
natural gas market by agreeing not to compete.
The Associated Press contributed to this report.

[B] POWER UPDATE/ Calif. PUC delays final rate hike vote to Tues

(BridgeNews) May 14, 2103 GMT/1703 ET

.................................................................

TOP STORIES:

California PUC delays final rate hike vote until Tuesday

San Francisco, May 14 (BridgeNews) - The California Public Utilities
Commission Monday delayed a decision on a rate hike for Pacific Gas &
Electric
Co. and Southern California Edison electric utility customers until Tuesday.
CPUC President Loretta Lynch said she delayed a vote to review the orders
further. The CPUC meeting is scheduled to begin at 1400 PT Tuesday.

( Story .19496 )

FULL: Kerr-McGee to buy HS Resources for $1.7 bln

New York, May 14 (BridgeNews) - Kerr-McGee Corp. agreed to acquire HS
Resources Inc. for $1.7 billion, including the assumption of debt worth $450
million. Kerr-McGee will pay $66 per HS Resources share in cash for 70% of the
purchase price and stock in the ratio of 0.9404 Kerr-McGee shares for each HS
Resources share for the remaining 30%. The purchase is expected to increase
Kerr-McGee's daily gas production volumes by 15% and reduce lifting costs by
about 6%. The transaction is expected to add to Kerr-McGee's earnings and cash
flow immediately. --Rohan J. Soares, BridgeNews

( Story .14048 )

US Press: Bush energy plan to rely on private industry

Washington, May 14 (BridgeNews) - The energy plan to be announced by the
White House on Thursday will rely mostly on the production efforts of private
industry and not government efficiency mandates to solve the U.S. energy
crunch, the Wall Street Journal reported Monday.

( Story .14039 )

.................................................................

OF INTEREST:

--AMERICAS--

US EIA: N.Y. ConEd customers may see high summer power prices

New York, May 14 (BridgeNews) - A combination of transmission congestion
around New York City, continuing high wholesale prices and electricity demand
exceeding supply in any one area could mean Consolidated Edison customers will
experience high prices this summer, according to a report released Monday by
the U.S. Energy Information Agency. Out-of-state generation will be needed to
meet summer 2001 peak demand unless new generation is installed.

( Story .20725 )

EIA: Natgas builds must be over 9 bcf/d to hit 2.7 Tcf by Nov 1

New York, May 14 (BridgeNews) - Natural gas storage injections must average
more than 9 billion cubic feet per day during the April to October injection
season just to reach 2.7 trillion cubic feet, according to a recent report by
the U.S. Energy Information Administration. The report, which was prepared at
the request of Secretary of Energy Spencer Abraham, contains the agency's
views
on demand, production and storage trends in the natural gas industry.

( Story .18528 )

Study says natgas prices do not drive Calif. electricity prices

New York, May 14 (BridgeNews) - Natural gas prices in California do not
drive electricity prices, according to a study released by the National Gas
Supply Association (NGSA). The report, authored by a former U.S. Energy
Information Administration economist, says a study of 52 weeks of pricing data
reveals that wholesale electricity and wholesale natural gas prices appear to
fluctuate completely independently of each other.

( Story .19747 )

Interview: El Paso exec: Calif. energy crisis is state's fault

New York, May 14 (BridgeNews) - California officials want to shift blame

for the state's energy crisis from California's own inaction to others, with
out-of-state companies like El Paso Corp. their target, El Paso Senior Vice
President Norma Dunn told BridgeNews Monday. Dunn said Monday's Federal Energy
Regulatory Commission hearing on natural gas issues will find El Paso has not
exercised market power to spike price for natural gas in California.

( Story .18401 )

PG&E lifts flow order for Calif. natgas pipe effective Tues

New York, May 14 (BridgeNews) - Pacific Gas & Electric's California Gas
Transmission (CGT) unit has lifted a system-wide operational flow order (OFO)
in effect since Saturday on its natural gas pipeline system effective Tuesday.
CGT forecasts natural gas flows on its pipeline to be within operating limits
Tuesday and Wednesday. Natural gas prices for next day delivery at PG&E's
citygate were said to be stronger after the OFO was lifted.

( Story .16310 )

NRC sends inspection team to N.Y. Indian Point 3 nuclear unit

New York, May 14 (BridgeNews) - The loss of a cooling system in a
spent-fuel holding tank last week has prompted the Nuclear Regulatory
Commission to send an inspection and evaluation team to Entergy's 980-megawatt
Indian Point 3 nuclear unit in New York, the NRC announced Monday.

( Story .18245 )

--EUROPE--

Ukraine, Turkmenistan sign 250 bln cbm 5-year natural gas deal

Kiev, May 14 (BridgeNews) - Ukraine and Turkmenistan on Monday signed a
huge natural gas deal that is aimed at further reducing Ukraine's dependence
on
Russian natural gas imports over the next five years. Ukraine is set to import
250 billion cubic meters of Turkmenian natural gas in 2002 through 2006,
President Leonid Kuchma of Ukraine and Separmurat Niyazov of Turkmenistan said
at a press conference.

( Story .12683 )

Statoil lifts Q1 net profits on higher gas, marketing earnings

Oslo, May 14 (BridgeNews) - Norway's state oil and gas producer Statoil on
Monday reported first-quarter pretax profits of 15.443 billion kroner, just
over 2 billion up on the 13.361 billion reported a year earlier. Net profits
after tax and minority interests were 4.328 billion kroner against 3.613
billion. Turnover was lower however at 50.694 billion against 54.491 billion.

( Story .11564 )

FULL: UK Innogy buys US Electrosynthesis for $11 mln

London, May 14 (BridgeNews) - Innogy Holdings PLC said Monday it acquired
Electrosynthesis Company Inc. for $11 million as part of its plans to develop
Regenesys - its electricity storage technology. Electrosynthesis, based in
Buffalo, New York, is a commercial research and development company. --London
stocks desk, BridgeNews

( Story .11233 )

--ASIA/PACIFIC--

Japan's TEPCO resumes operations at 1.1 mln-kw  nuclear unit

Tokyo, May 14 (BridgeNews) - Japan's leading utility firm, Tokyo Electric
Power Co. Inc. (TEPCO), resumed normal operation Saturday at its 1.1-million-
kilowatt No. 2 unit at its Fukushima Daini nuclear power plant, which has been
shut since May 7 to investigate a valve snag, TEPCO said Monday.

( Story .14348 )

Japan's Chubu Electric shuts 1.14-mln-kw nuclear unit for work

Tokyo, May 14 (BridgeNews) - Japan's Chubu Electric Power Co. shut the
1.14-million-kilowatt No. 4 unit at its Hamaoka nuclear power plant on Sunday
for regular annual maintenance, a company spokesman said Monday. The company
plans to resume generation at the unit in mid-June.

( Story .14107 )

.................................................................

SPOT NEWS LINKS:

Media://NewsSearch::/source=mar/category=n-eny/go/search

.................................................................

THE MARKETS:

US FUTURES:                           UK FUTURES

.1908  NY Natural Gas Pre-Opg         .1795  IPE Nat Gas Review

.1906  NY Natural Gas Review          .1794  IPE Nat Gas Midday

.1747  NY Natural Gas

US/CANADA CASH NATURAL GAS            UK/EUROPE CASH NATURAL GAS

60

.1894  Henry Hub natural gas          .1807  UK Spot Gas

.1884  US/Canada Spot Natural Gas

US CASH ELECTRICITY                   UK/EUROPE CASH ELECTRICITY

.8575  California PX: Next day        .1892  UK Power Index

.8576 .8577 WSCC Forwards (AM/PM)     .1889  Nordic Power Market

.8585 .8586 PJM Forwards (AM/PM)      .1890  Spanish Power Market

.8593 .8594 Cinergy Forwards (AM/PM)  .1844  UK EFA Power Market

.8597 .8598 Entergy Forwards (AM/PM)  CANADA CASH ELECTRICITY

.8601 .8602 ERCOT Forwards (AM/PM)    .5637  Canadian Power Market

.8603  New England Forwards

.8587 .8600 TVA Forwards (AM/PM)

OTHER

.1873  US Nuclear Plants Operating Status

.2029  BRIDGE CALENDAR: US POWER: Key events to watch

.2030  US Utility Deregulation Digest

.1704  US Utility M&A Digest

.................................................................

SYMBOL LINKS:

Click below for adamb chart in Athena  NATURAL GAS

NYMEX - Media://Chart:NYMEX:/symbol=US@NG.1

IPE - Media://Chart:IPE:/symbol=GB@NGP.1  NYMEX ELECTRICITY

Palo Verde electricity - Media://Chart:PaloVerde:/symbol=US@VK.1

COB electricity- Media://Chart:COB:/symbol=US@OW.1

Cinergy electricity - Media://Chart:Cinergy:/symbol=US@CN.1

Entergy electricity - Media://Chart:Entergy:/symbol=US@NT.1

PJM electricity - Media://Chart:PJM:/symbol=US@QJ.1

.................................................................

BridgeNews

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