Please see the following articles:

Sac Bee, Mon, 6/25:  Gov. Gray Davis not to blame for energy crisis, Enron
says

SD Union, Mon, 6/25: 3 new plants to generate electricity within weeks

SD Union, Mon, 6/25: Lucky Redding has energy to spare

SD Union, Mon, 6/25: $2 billion in rebates not good enough, Davis says

SD Union, Mon, 6/25: Port urged to seize Chula Vista plant

LA Times, Mon, 6/25: Demand Had Minor Role in Power Crisis Electricity

LA Times, Mon, 6/25: The State In the Dark, Trying to See Light at End of
Crisis

LA Times, Mon, 6/25: The State Power Regulators to Determine State Refunds
Energy

SF Chron, Mon, 6/25: BECHTEL HOLDS ITS OWN / Despite economic downturn,
S.F. construction giant's revenues remain steady

SF Chron, Mon, 6/25: THE ENERGY CRUNCH / $9 billion showdown over power /
State delegation seeking refunds

SF Chron, Sun, 6/24: Direct access falls victim to crisis

SF Chron, Sun, 6/24: Power players lay blame
Deregulation creators defend their actions

Mercury News, Mon, 6/25: Pending power plants in California face some problems

Mercury News, Mon, 6/25: County should unplug this energy-saving idea
(Editorial)

Mercury News, Mon, 6/25: The FERC loophole      (Commentary)

OC Register, Mon, 6/25: Energy talks could get hot

OC Register, Mon, 6/25: College cuts electricity use 20 percent

OC Register, Mon, 6/25: Cynical union ploy    (Commentary)

Individual.com (Businesswire), Mon, 6/25: LADWP Goes Solar, Welcomes Start of
Summer With
Conservation Kick-Off to Help L.A. Residents Beat the Heat

Individual.com (PRnewswire), Mon, 6/25: Duke Energy Refutes False Charges;
Plant Output Was
Controlled by California ISO

The Oil Daily, Mon, 6/25: California Power Suppliers May Have to Refund
Billions

The Oil Daily, Mon, 6/25: Californians Get Rude to Enron Executives   (Karen
Denne quoted)

LA Times, Sun, 6/24: Life After the Crisis   (Opinion, OpEd)

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

Gov. Gray Davis not to blame for energy crisis, Enron says
By Karen Gaudette
Associated Press Writer

SAN FRANCISCO (AP) -- California Gov. Gray Davis isn't to blame for
California's power crisis, and neither are electricity wholesalers, a Texas
energy executive told a crowd at the Commonwealth Club of California on
Thursday evening.
Jeffrey Skilling, CEO and president of Houston-based Enron Corp., wiped away
the remnants of a pie hurled by a protester and placed the blame squarely on
California's energy regulators.
The state Public Utilities Commission in the early 1990s put together a
broken market by preventing utilities to pass along the full cost of power
and discouraging power contracts that would have lowered dependence on buying
last-minute power, Skilling said.
"The regulators are now the people to whom Californians are turning to solve
the problem," Skilling said. "Because of these rules, the power consumers of
the state of California were thrown totally to the mercy of the spot market."
PUC president Loretta Lynch defended the regulators' actions last week,
saying utilities have been free to enter into long-term contracts. Utilities
countered that the PUC never made clear what contracts it would accept, which
left open the possibility they would later be overruled.
Enron has come under fire after accusations from Davis and state officials
that it and other energy companies forced electricity prices skyward by
holding back supply.
Enron denies such claims, and joins other power producers in arguing that the
state and utilities still owe them billions in unpaid bills. Davis
acknowledges that Pacific Gas & Electric, which has declared bankruptcy, and
Southern California Edison together still owe generators such as Enron, Duke
Energy, Mirant and Reliant Energy about $2.5 billion for past electricity
sales.
State officials counter that wholesalers charged as much as $9 billion in
illegal overcharges dating back to May 2000. The feuding groups are to meet
in a single room next week under a federal order to try and work out
agreements that could determine how billions of dollars will be divided.
Companies have said California's claims are wildly exaggerated.
The Federal Energy Regulatory Commission has already estimated that
wholesalers owe California $124 million in overcharges for the first four
months of the year. Davis and others say that's a mere drop in the bucket.
Enron has also been tied to President Bush's hands-off approach to the energy
crisis. Company chairman Kenneth Lay is a friend and one of Bush's largest
campaign contributors. Several prominent members of the Bush administration
hold stock in the company.
Enron is one of several major GOP donors accused of meeting secretly with
Vice President Dick Cheney as he drafted the Bush administration's energy
plan.
In May, Lay met secretly with California Republicans at the Beverly Hills
Hotel and pushed a plan that called for ratepayers to pay the billions in
debt racked up by the state's public utilities. The plan contended that
federal investigations of price gouging are hindering the situation.
The meeting drew such names as movie star Arnold Schwarzenegger, Los Angeles
Mayor Richard Riordan and Michael Milken, who pleaded guilty to fraud charges
in 1990 as head of the Drexel Burnham Lambert investment banking firm.
Enron is one of the world's leading electricity, natural gas and
communications companies, with $101 billion in revenues in 2000. It owns
30,000 miles of pipeline, has 20,000 employees and is active in 40 countries.
During the first quarter of this year, Enron's revenues increased 281 percent
to $50.1 billion.

3 new plants to generate electricity within weeks

Increase in supply reduces threat of summer blackouts
By Ed Mendel
UNION-TRIBUNE STAFF WRITER
June 25, 2001
SACRAMENTO -- Gov. Gray Davis said yesterday that three new power plants will
begin operating within 17 days, giving California its first new major
generators in more than a decade and easing the threat of blackouts this
summer.
News about the plants comes on the heels of other developments about
conservation and additional power supply that have given state officials
increasing confidence in California's ability to survive the power crisis
this summer.
"Optimistically," said Davis, "our conservation and generation effort will
help us minimize any disruptions this summer."

One of the new plants was scheduled to begin operating in August but instead
will come on line Wednesday. Edison International's Sunrise plant near
Bakersfield will supply 320 megawatts. A megawatt can provide enough power
for 750 to 1,000 households.
In addition to the Edison facility, Calpine will open its 500-megawatt Sutter
plant near Yuba City on July 2 and its 559-megawatt Los Medanos plant near
Pittsburg 10 days later. Both plants are expected to open according to
schedule.
"In the next 17 days we will put more power on line than California did in
the last 12 years," Davis said.
During the past decade, the governor said, the state added less than 1,000
megawatts with a number of small power plants, despite population growth and
increased power demand from the high-tech industry.
The fast-track modernization of a 450-megawatt Huntington Beach plant is
expected by late August. The plant was shut down about five years ago.
By September, Davis said, the addition of eight to 10 small plants that
operate during peak-load periods, as well as increased power from a variety
of other small generators, will raise the total of new power coming this
summer to 4,000 megawatts.
As further protection against blackouts, state power buyers revealed last
week that in recent months they have been able to send some surplus
electricity to a Canadian utility, BC Hydro, which will return the power in
July and August.
Despite efforts to increase the state's energy supply this summer, more
ultimately will be needed. California has been importing about 20 percent of
its power in recent years. Even though about a dozen power plants are
approved or under construction, Davis does not expect supply to match demand
until late 2003. Until then, the state will need surplus electricity
generation to make the deregulated market work properly, experts say.
Davis has said in the past that California should add 20,000 megawatts of
power generation in the years ahead. A new state Power Authority has been
created that could construct or buy power plants if the private sector does
not build a surplus of electricity generation.
Also, state officials suggest the trend among Californians to conserve
electricity may grow.
The state is spending $850 million on conservation programs, including
funding for energy-efficient equipment and an advertising campaign. The
program gives refunds to customers who dramatically reduce their electricity
consumption this summer.
State officials also expect electricity use to be reduced by "sticker shock"
from rate increases beginning this month for Edison and Pacific Gas and
Electric customers. Ratepayers are exempt from the increase if they use 130
percent or less of the baseline level of electricity, a minimal amount that
varies with regional climate zones.
A proposal to increase rates for San Diego Gas & Electric customers is
pending before the state Public Utilities Commission.
In addition to announcing the new plants, Davis yesterday reiterated his
demand that California deserves $8.9 billion in refunds from overcharges by
power companies. That issue will be the subject of mediation sessions that
begin today in Washington.
When the Federal Energy Regulatory Commission imposed regional price limits
last week, the regulators asked an administrative law judge to recommend
possible refunds by generators for overcharging.
Davis said the California negotiating team will be led by Michael Kahn,
chairman of the Independent System Operator, which runs the state's
electricity grid.
Davis said Kahn's team will present information supporting California's claim
of overcharging. The administrative law judge, Curtis Wagner Jr., suggested
last week that California may be owed a smaller amount, $2 billion to $2.5
billion.
The governor sent Wagner a brief letter replying to the judge's request for a
list of issues that should be considered in the conference.
"Our list is short," Davis said in the letter. "The conference must address
the need to have FERC order power sellers to refund the estimated $8.9
billion they have overcharged the people of the State of California."
While that session is taking place, Davis today plans to meet in Sacramento
with President Bush's two new appointees to the five-member FERC, Pat Wood
III of Texas and Nora Brownell of Pennsylvania.
Davis said that when he met with the president last month, Bush agreed to
send Wood to California to investigate natural gas prices, which are several
times higher in California than in New York.
"We agreed that there is no explanation for the disparity of prices between
California and New York when it comes to natural gas," Davis said. "We agreed
that was wrong."
The governor also said he will meet this morning with three former employees
of Duke Energy's Chula Vista power plant who have accused the company of
altering the plant's output to boost power prices.
The employees last week told a state Senate committee that they were ordered
to reduce power during peak-load periods and throw away good replacement
parts, which sometimes delayed maintenance.
"There may be another side to the story," Davis said. "But these three
employees worked 20 years, had no reason to mislead the state Senate, and
they testified under oath."
Duke denied wrongdoing and said power was reduced at the request of the
agency that runs the power grid, the Independent System Operator.
A Davis spokesman said yesterday that he did not know if the former employees
could qualify for a reward. In April, state Attorney General Bill Lockyer
announced a whistle-blower reward for information on price-gouging by power
generators.
Lockyer said the reward would be based on a percentage of what the state
recovers as a result of the information. He said the reward could be worth
$50 million or more.

Lucky Redding has energy to spare

By Steve Schmidt
UNION-TRIBUNE STAFF WRITER
June 25, 2001
REDDING -- How weird is this?
Folks in this hilly city have electricity to spare, pay little for it and
will pay even less next year.
When it comes to the state's year-old energy fiasco, this Northern California
community is an island. "And we feel very fortunate," says Violet Klaseen,
who has lived here 40 years.
Electricity rates in the San Diego area could climb an average 19 percent
this summer. The state's largest utility, Pacific Gas and Electric, is in
bankruptcy court. And an energy gap could spark more rolling blackouts across
the state come hot weather.
Not here.
Redding runs its own power company. Redding Electric Utility operates outside
the state's strained energy grid. It's also one of the few city-run utilities
in California with spare power to sell.
The company's wholesale revenues have doubled in the last year from sales to
other utilities and the state.
How did this working-class town near Mount Shasta get in this enviable
position? Was it business savvy? Luck?
"It was a combination of things," says utility director James Feider.
First came pain. Some utilities trimmed rates in the late 1990s as the state
moved to deregulate the energy market. But Redding Electric raised rates 23
percent to pay off $300 million in power plant debt and other costs.
Customers came unglued. Bills rose from 8 cents per kilowatt-hour to more
than a dime.
Today it's pocket money. Customers of San Diego Gas & Electric Co. pay an
average 14.4 cents per kilowatt-hour. That figure is expected to climb in
coming weeks. PG&E customers pay an average 15.6 cents, among the highest
rates in the nation.
Redding's rate will return to 8 cents next year, once the utility pays off
most debts. The company serves the city's 80,000 residents.
The utility is also focused on the future while many other agencies scramble
to meet short-term demands. Redding Electric is expanding capacity of its
natural gas-fired power plant by about 50 percent.
When the project is finished next year, Redding will produce more than half
of its own electricity.
Enron Corp., the nation's biggest electricity trader, will also supply energy
to the city utility at 4.5 cents per kilowatt-hour. Enron and Redding
Electric struck the deal last fall, before prices went from high to
astronomical.
Redding Electric is unusual among city-run power companies in California
because it has no direct ties to the major utilities.
"We've made some good strategic decisions," says Feider, who has run the
outfit since 1998. He's also president of the California Municipal Utilities
Association.
Gov. Gray Davis recently blasted municipal power companies, accusing them of
selling energy to the state at rip-off prices. He threatened to seize their
electricity, saying, "We're going to get that power one way or another."
The governor said city-run companies have charged the state 10 percent more
than the average price demanded by private generators.
But Feider says the governor was out of line. Feider says Redding Electric
could have sold its power elsewhere for more profit. One of the governor's
top energy advisers has said outfits such as Redding Electric have played
fair with the state.
Feider also says his utility needed to boost its sales price to cover the
skyrocketing cost of natural gas.
"We're willing to be cooperative and bend over backward, and here we get
attacked by the governor," he says.
Redding officials stress the hometown customers come first.
"I don't think we owe the rest of the state anything," says council member
Pat Kight. On the other hand, "we don't want to be isolationists up here. We
want to be good neighbors."
Redding provided the state with power late last year to help California avoid
blackouts. But it stopped selling to the state in January, after state grid
operators didn't pay a $5 million bill.
Redding is willing to help in a pinch, if the state can guarantee payment.
The utility also preaches conservation despite having power to spare. Energy
usage is down about 5 percent in the city, on the northern end of
California's Central Valley.
The company was created in 1920. There are about 30 city-run electric
utilities in the state, including in Sacramento, Los Angeles, Palo Alto and
Santa Clara.
Some experts say municipal utilities have advantages over other power
providers. Their operating costs tend to be lower and they have easier access
to electricity generated by the federal government.
City utilities were also exempted from California's now-failed deregulation
law. "That turns out to be a big advantage," says Bill Ahern, an energy
analyst with the national Consumers Union.
Now there's talk in Sacramento of boosting state government oversight of city
utilities.
"I'd prefer they'd leave us alone," Feider says. "We've done fine on our
own."

$2 billion in rebates not good enough, Davis says

ASSOCIATED PRESS
June 24, 2001
SAN DIEGO ) As an array of officials prepared to represent California in
federally ordered talks with power companies, Gov. Gray Davis on Sunday
discounted suggestions that the state will accept far less in electricity
rebates than he believes it's owed.
"We're going back to Washington with one goal, and that's to get back $9
billion," Davis said from San Diego in a telephone conference with reporters.
California officials contend that power generators have overcharged the state
and investor-owned utilities utilities $8.9 billion since last May. The
companies argue that the charges, which have reached as high as $3,380 a
megawatt hour, were justified.
"Power providers have been taking advantage of our market; they gamed the
system and ripped people off," Davis said.
On Monday, officials from the state, the utilities and the generators meet
under orders from the Federal Energy Regulatory Commission to negotiate a
settlement over the alleged overcharges.
The talks will be overseen by Curtis Wagner Jr., FERC's chief administrative
law judge. Wagner said Friday that he was optimistic a settlement would be
reached, but thought the amount would be closer to $2 billion or $2.5
billion.
Davis said Michael Kahn, chairman of the California Independent System
Operator, which manages the state's power grid, will lead California's
negotiating team. Also taking part in the talks will be representatives of
the Attorney General's Office, the Public Utilities Commission and the
Department of Water Resources.
FERC has authority only over private power generators, but the state claims
it also was overcharged by public entities ) such as the Los Angeles
Department of Water and Power and the trading arm of Canada's BC Hydro.
Davis senior adviser Nancy McFadden said a settlement with the private
generators would give the state leverage with the others. "We need to use the
forum that we've got available to us," she said.
Davis said the state will get a little more breathing room in the power grid
over the next two and a half weeks, when three new power plants producing a
total of nearly 1,400 megawatts are scheduled to go on line. A 320-megawatt
plant near Bakersfield is set to begin operating Wednesday, and will be
followed by a 500-megawatt plant near Yuba City and a 559-megawatt plant in
Contra Costa County.
The addition this summer of major power plants, smaller peaker plants and
cleaner-burning "qualifying facilities" should add 4,000 megawatts to the
state's overburdened power grid by Sept. 30, Davis said. That expansion and
ongoing conservation efforts will reduce the chances of rolling blackouts, he
said.
Davis also said that he will meet Monday with three former employees of one
power generator, Duke Energy, who testified before a California Senate
committee Friday.
The former employees, who were laid off in April, say they were told to shut
units down for unnecessary repairs in a scheme to drive up electricity
prices. The company called the claims "baseless."

Port urged to seize Chula Vista plant

3 ex-employees tell state Senate panel Duke rigged prices
By Bill Ainsworth
UNION-TRIBUNE STAFF WRITER
June 23, 2001
SACRAMENTO -- Two former mechanics at Duke Energy's Chula Vista power plant
said yesterday that the company's operation and maintenance policies were so
shoddy and reckless that Duke may have violated its lease with the San Diego
Unified Port District.
Those accusations, made before a legislative committee, prompted Sen. Steve
Peace to urge the port to nullify Duke's lease and take back the plant, which
provides the company with huge profits.
The Port District owns the plant, but in 1998 entered an agreement that
allowed Duke to operate it for 10 1/2 years.

"The port has all the leverage," said Peace, D-Chula Vista. "They just have
to exercise it."
Port officials yesterday declined to comment on whether this testimony would
spark an attempt to take control of the plant.
The mechanics were part of a trio of former South Bay Power Plant veterans
who repeated their explosive claims, initially made public Thursday, that
Duke repeatedly throttled down generators to create power shortages to drive
up prices, even during energy emergencies.
Their appearance before the state Senate Select Committee to Investigate
Price Manipulation received national media coverage.
Their accusations could provide the first inside evidence that power
companies withheld electricity to increase their profits -- a practice state
officials claim has cost consumers billions of dollars.
Duke officials denied all the accusations, saying the ex-employees do not
understand the complexities of running a power plant even though all three
worked at the Chula Vista facility for some 20 years. Further, company
officials said the plant has compiled an exemplary record of staying in
production.
"We've exceeded all our peers in North America," said Bill Hall, vice
president for western regional operations for Duke Energy, a North
Carolina-based company that owns three other power plants in California. Duke
officials will be allowed to testify at a future hearing of the committee.
At one point during yesterday's hearing, Peace read from the lease that
allows Duke to run the 706-megawatt South Bay plant. It requires Duke to
operate and maintain the plant according to "prudent utility practices."
Peace asked the mechanics whether Duke met these standards.
Both mechanics, Ed Edwards Jr. and Glenn Johnson, said no.
"It's prudent to making money," Johnson said of Duke's practices. "It's not
prudent to operating it safely."
The mechanics said Duke powered the turbines up and down so often the
equipment was in jeopardy of breaking down. They also testified that
supervisors required them to throw away new spare parts, a practice they
believe led to longer outages because they had to keep generators offline
while more parts were ordered.
Johnson testified that Duke reduced the maintenance staff at the South Bay
plant to seven or eight mechanics from 35. He said when he started with
SDG&E, the company took special pride in careful maintenance policies
designed to keep the equipment operating smoothly.
That all changed, he said, under deregulation. It changed even more when Duke
took control of the plant about April 1999.
"We were told we were no longer a family," Johnson said. "We were a
business."
And the business was lucrative, company officials had told the former
employees, even before prices started soaring last year.
About three months after the company took over the lease in April 1999, Duke
held a party at which plant manager Tom Guthrie told workers the plant had
made as much money in three months as the company had expected in a year,
according to the former employees.
Last year, the company held a similar party to mark the first anniversary of
the lease. Executives again were ecstatic. They told workers they had made as
much money in the first year as they had expected to make in five years, the
former employees testified.
The company's prosperity has continued. During the first quarter of this
year, Duke reported that profits increased 208 percent from energy sales and
trading.
Johnson also testified that Guthrie had told employees they weren't in the
electricity business, but the money-making business. As a result, he said, if
Duke could make more money selling the natural gas that powers the
electricity turbines, the company would shut the turbines down.
Guthrie's comments seem to contradict the plant's status as a "must-run"
plant that is required to take direction from the Independent System
Operator, which manages the state's electricity grid.
Attorney Michael Aguirre, who has criticized the Duke lease as a "sweetheart
deal," said he hopes the new information will help the public gain control of
the South Bay plant. Aguirre is suing Duke and other power companies, and he
persuaded the former plant employees to testify.
"It's huge, because this means we can take back the plant," he said. "We can
operate the plant for the people of San Diego and lower utility bills."
Hall, the Duke vice president, said he does not expect the testimony to lead
to a challenge of the lease.
"We're meeting all the contractual obligations with the Port of San Diego,"
he said. "We expect to be there for the duration of the agreement."
Port Commissioner Paul Speer yesterday said it was premature to discuss
voiding the lease.
During the first two years of the lease, Duke was required to retain all the
SDG&E employees. The three former employees who testified yesterday,
including plant operator Jimmy Olkjer, were among the workers that Duke chose
not to rehire in April, when the company gained full control over plant
employees.
Johnson yesterday provided new evidence that Duke withheld power to create a
shortage that would produce bigger profits. He said perfectly functioning
steam turbines frequently would be powered down, even during times of high
demand.
When he asked why the units were taken offline, he said, supervisors told him
they were "down for economics."
"Sometimes a unit would be down for economics for two or three days.
Sometimes it would be down for two weeks," he said. "In my opinion, it was
down to boost prices."
Duke officials denied they withheld power to manipulate prices. They say the
Chula Vista plant powered up and down to help balance the state's electricity
grid -- that is, to make sure demand met supply.
Hall did say that sometimes the Chula Vista plant would alter its output in
response to the energy market. "There are times when all the units aren't
needed in the marketplace," he said.
A state report released in March accused the company of withholding power 80
percent of the time last year from May to November to drive up prices.
Recently, the Federal Energy Regulatory Commission ordered the company to pay
a $10 million refund on power it sold to the state at $3,900 per
megawatt-hour. By comparison, power on the spot market is now selling for
between $40 and $70 per megawatt-hour. It was selling for about $30 about one
year ago.
The company previously had been ordered by federal officials to refund $20
million in overcharges.
The state Senate committee, chaired by Joseph Dunn, D-Laguna Niguel, made a
point of highlighting the heroic military backgrounds of two of the former
plant employees.
Olkjer received five Purple Hearts for wounds in Vietnam. And during a break
in the hearing, Johnson went up to the ornate chambers of the Senate to
receive a Medal of Valor he was awarded by the National Guard but had not
received.
Johnson earned the medal, the state's highest military honor, in 1987 when he
and two colleagues in the Guard risked their lives to dispose of dynamite
they found while fighting a brush fire.
Gov. Gray Davis plans to meet with the former power plant workers Monday.

California ; Metro Desk
Demand Had Minor Role in Power Crisis Electricity : Consumption has been
predictable, and rose less quickly than in other Western states. But supply
grew hardly at all, and reserves melted away.
ROBIN FIELDS
?
06/25/2001
Los Angeles Times
Home Edition
Page B-1
Copyright 2001 / The Times Mirror Company
California has been depicted as a power addict whose growing habit led
inexorably to the crisis that has roiled the state since May 2000.
Yet the state's electricity yen is the wrong target for blame--the least
volatile and least decisive piece of a larger puzzle, an analysis of
consumption patterns shows.
California consumption has been as regular as a heartbeat in the last decade,
sloping upward gently with a blip each summer. In the last year, demand's
predictability made it the lone calm spot within a hailstorm of dizzying
price peaks and supply lurches.
Moreover, California 's power consumption increased far less than that of its
Western neighbors, on whose excess supply it had come to depend.
"Yes, demand grew in California , but what people who have that discussion
ignore is that demand in the rest of the West grew even faster," said Severin
Borenstein, director of the UC Energy Institute in Berkeley. "We're all part
of the same grid."
Within the complex, sometimes murky power picture, demand was a problem
hiding in plain sight.
Starting in 1998, energy agencies began to warn that its slow swell, coupled
with stagnant supply, had left California with wafer-thin power reserves. In
retrospect, these agencies say, deregulation left them powerless to prevent
the impending collision between supply and demand.
When they hit head-on last summer, the amount of power used day to day by
Californians often had no relationship to the periods when the state
experienced blackouts or the highest wholesale prices, analysts said.
In the last 10 years, California 's power consumption has moved subtly, never
advancing more than 3.7% a year and, even at its height, lagging behind such
other measures as job growth and economic output.
In the early 1990s, recession savaged heavy-duty power users, ranging from
manufacturers to agricultural interests to the aerospace industry. The
industrial sector's usage actually declined from 1990 to 1995.
Overall, consumption inched up so slowly in the decade's first half--just
1.3%--that demand was of little concern as policymakers assembled the
mechanisms of deregulation, current and former industry officials say.
The system's reserve cushion--the extra supply available at peak times--was
estimated in 1993 at a robust 12% to 14.5%, without a single electron
imported from beyond California 's borders. With pressure off, utilities
shifted resources out of programs promoting conservation and redistributing
peak-hour consumption. Instead, they focused on new technologies that had
little immediate payoff.
"There was less emphasis on demand management," said Barbara Barkovitch, an
Oakland-based consultant who served on the California Independent System
Operator's board from its formation in 1998 until last June. "There was
nothing nefarious about it, but people always assume the future will be like
the present."
As the economy rebounded, consumption growth averaged about 3% a year. That
slight escalation--which fell within the expectations of forecasters at the
California Energy Commission--took on out-sized significance because it
occurred as supply stagnated.
"The problem was not one of demand in isolation, but that our demand kept
growing steadily, supply did not grow much at all, and the gap just shrank
progressively," said Ahmad Faruqui, the Palo Alto-based Electric Power
Research Institute's area manager for retail and power markets.
Regionally, the expansion was uneven, weighted toward the fast-developing San
Diego area and Northern California 's tech corridor. Consumption in San Diego
Gas & Electric's service area rose more than 17% from 1995 to 2000 and, for
the decade, increased almost twice as much as in the state overall.
The commercial sector's usage grew twice as fast in the decade's last five
years as it had in its first half as the economic mix shifted toward services
and offices loaded up on energy-eating technology.
The heady affluence of the late '90s also inflated residential consumption.
Consumers splurged on bigger houses, pools and spas, more appliances and
up-to-the-minute gadgetry, said Sean Randolph, president of the Bay Area
Economic Forum. Fixed retail prices meant consumers had little incentive to
rein themselves in, analysts said.
"We decided we were not going to have a process for adjustment on the demand
side," Borenstein said. "We relied entirely on the supply side and that
turned out to be a huge mistake."
Still, even as consumption grew, businesses became more efficient. Measured
per capita, California 's consumption remained modest compared to that of
less efficient, more weather-intensive states.
But gradually and quietly, the system's reserve margin shrank to 4% by 1998,
a third or less than they had been at their fattest. Even that depended
heavily on seasonal help from the other states that share California 's grid,
help they were increasingly less able to give.
Electricity consumption in Arizona, Colorado and Utah grew at about twice
California 's rate from 1988 to 1998. It expanded three times as fast in
Nevada. In these states, too, supply did not keep up.
The collapse that started in May 2000 could have begun a year earlier if not
for cool weather and plentiful rain, yielding cascades of Pacific Northwest
hydroelectric power.
At least six state, regional and federal energy agencies issued reports from
late 1998 to early 2000 warning that California 's reserve margin had
shriveled, that help from other Western states might decrease, and that the
state was one hot summer away from disaster.
"The Arizona-New Mexico-Southern Nevada and the California -Mexico areas of
[the Western transmission grid] may not have adequate resources to
accommodate a widespread severe heat wave or a higher-than-normal forced
outage rate for generation," wrote the North American Electric Reliability
Council in its June 1999 summer assessment. "Those areas are experiencing a
continuing trend of peak demand growth exceeding the addition of new
generation facilities."
But in the deregulated system, regulators no longer had a decisive hand in
balancing supply and demand. Officials at the California Energy Commission
say even analyzing the situation became harder as utilities became less
methodical in submitting their consumption data.
"Things got sloppier," said Michael Jaske, the commission's chief forecaster
since 1980. "The utilities started letting that stuff slide, poorer data was
coming in to us, and our management wasn't going after them the same way."
Marketplace incentives were supposed to replace government control, but new
supply did not materialize even though rising demand had created a clear-cut
opportunity.
Private generators say the system's uncertainties, plus California 's
environmental fervor and slow regulatory process, prevented the market from
working. Borenstein's assessment is blunt: "The reason that no one built
power plants was that no one thought you could make money at it."
Ultimately, the flurry of studies predicting an oncoming crisis circulated
among regulators and power industry insiders, but prompted little urgency
when it came to curtailing demand. The Davis administration focused on supply
instead, taking steps to expedite the approval process for power plants,
Davis spokesman Steve Maviglio said.
"Hindsight is always 20-20," he said. "We weren't having blackouts in '99, so
it didn't pop up on anyone's radar."
Summer 2000 took care of that, hitting like a sonic boom.
Hot weather caused consumption to jump almost 4% year-over-year, double the
decade-long average. Peak demand from May through August was consistently
about 10% higher than in summer 1999, averaging an extra 3,200 megawatts per
day--enough to power more than 3 million homes.
On Aug. 16, the day with the year's highest peak, Cal-ISO's so-called
spinning reserve--the amount of capacity that can be brought on line within
10 minutes--was 1.2%.
The causal link between heightened usage and other pressure signals, from
higher spot-market prices to staged emergencies, seemed clear.
Or was it? Peak demand still fluctuated within a narrow range only marginally
above long-standing forecasts. The so-called superpeak--the moment of highest
usage on summer's most brutal day--was lower than in uneventful 1999.
Moreover, after summer's heat ebbed, California 's consumption tapered.
Still, the power crisis' other symptoms raged on.
In November and December, wholesale power prices soared, California paid far
more for natural gas than the rest of the nation, and the first rolling
blackouts hit. Yet peak demand traced an almost identical line as it had the
year before, averaging a few megawatts less.
Peak demand was down again from January to April when rolling blackouts
returned, averaging about 1,600 megawatts less than in the same stretch of
2000, which passed without a single emergency.
State officials were quick to blame suppliers, but many industry analysts
point to the region-wide supply-demand equation.
These forces may continue to dominate, they acknowledge, even though
Californians have cut back on consumption faster and more this year than
state officials had dared to hope.
In May, peak demand dropped 10.4% below its 2000 level and consumption fell
11%, marking the fifth straight month of reductions.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Electricity Demand
Electricity use in California has shown no dramatic shifts over the last
several years, increasing at an average of about 2% a year. In the last year,
its predictability has stood in stark contrast to the gyrations of supply and
wholesale prices. Total consumption of electricity in the state, in thousands
of gigawatt-hours:
*
Source: California Energy Commission

California ; Metro Desk
CAPITOL JOURNAL
The State In the Dark, Trying to See Light at End of Crisis
GEORGE SKELTON
?
06/25/2001
Los Angeles Times
Home Edition
Page B-7
Copyright 2001 / The Times Mirror Company
SACRAMENTO -- It's dusk in the Capitol office of state Sen. Debra Bowen.
Actually, it's midafternoon. But she has the lights off to save electricity
and not much sun is coming through a shaded window.
Her thermostat is set at 76 degrees, but it feels warmer because outside it's
100 and she's up on the fourth floor.
There's a bright red, oversized cover framing a shiny white light switch by
the door. You can't miss it leaving the room. "That's for the people who have
trouble turning off lights," she says.
Bowen, 45, a Marina del Rey Democrat and environmental lawyer, represents the
good side of term limits. Conscientious and cutting-edge. She replaced a
termed-out, octogenarian senator, Ralph Dills, first elected to the
Legislature in the Great Depression.
Since coming to the Assembly in 1992, Bowen has focused on environmental
protection, foster children and high-tech--most recently trying,
unsuccessfully, to guard the privacy of Internet consumers.
But now, like the Legislature itself, she's bogged down with an all-consuming
issue that won't go away. The senator has been thrust into the middle of a
tangled energy mess she and other lawmakers unwittingly helped create with
their lemming-like votes five years ago.
This time, however, Bowen is a major player as head of the Senate energy
committee.
Something must be going right, I note. We haven't had any of those rolling
blackouts everybody had predicted for June.
"My biggest concern," she replies, sitting in the twilight, "is that we're
being fooled right now because of the early snowmelt. We've got more power
than we need."
Hydroelectric power being generated by the Sierra runoff, she explains, is
being sent to British Columbia. BC is using the California power and keeping
its own water stored behind dams. Later in summer, as this state runs dry, BC
will generate hydro and send it to us.
Thus every kilowatt California saves today can be banked in Canada and later
withdrawn during tough times.
"I don't want people to get the idea that just because we haven't had Stage
2s or blackouts we shouldn't be concerned," Bowen says. "We're still going to
be short power this summer. . . .
"But how do you expect Jane Citizen to figure all this out?"
Especially when Joe and Janice Legislator are having such a difficult time.
There is one vexing problem still facing the Legislature on energy. It has
passed bills promoting conservation, expediting power plant construction,
authorizing the state to sign long-term contracts for wholesale electricity ,
creating a state power authority and approving bond sales to finance it all.
What's left is how--and whether--to save Southern Cal Edison from bankruptcy.
The Legislature faces an Aug. 15 deadline to approve a memo of understanding
between Gov. Gray Davis and Edison. After that, the MOU presumably goes poof
and Edison collapses.
But the Legislature has a cocky way of ignoring and testing deadlines. Right
now there must be 100 ideas about how to handle Edison. Decision-making is
diffused. Bowen's energy committee, for example, is just one of three that is
holding Senate hearings on the Edison bailout.
"There's not much consensus," she acknowledges.
The governor's proposed Edison rescue involves state purchase of the
utility's transmission lines for about $2.8 billion. Democrats seem
ambivalent and Republicans are opposed. Long ago, the MOU was diagnosed as
DOA.
Senate leader John Burton (D-San Francisco)--the most powerful
legislator--thinks the MOU is a giveaway to Edison.
In the Assembly, Speaker Bob Hertzberg (D-Sherman Oaks) has been pushing a
unique alternative he believes could also work for PG&E, now struggling in
Bankruptcy Court. Under his plan, only the "core" residential and small
business users would be served by private utilities. Electricity would be
generated by the utilities themselves and regulated by the Public Utilities
Commission. Like the good old days before disastrous deregulation.
The "noncore" big power users who wanted deregulation in the first place
would buy electricity directly from the generators and marketers, presumably
at a savings. "They're the ones who brought this on us," Hertzberg says.
But, he adds, "there's a billion moving parts" and they're not fitting well.
For one, there may not be enough power to buy directly now that the state has
cornered so much in long-term contracts.
Bowen is one of the better ones. But not even she is sure what the
Legislature's next step should be. "We don't have a lot of room to move," she
says.
Nor a lot of time. If Edison goes bankrupt, it truly will be a dark day in
the Capitol.

California ; Metro Desk
The State Power Regulators to Determine State Refunds Energy: Generators and
California officials will work together for 15 days to solve the huge
mathematical problem.
MEGAN GARVEY
?
06/25/2001
Los Angeles Times
Home Edition
Page B-7
Copyright 2001 / The Times Mirror Company
WASHINGTON -- Starting today, federal power regulators will begin trying to
solve one of the riddles of the energy crisis: How much of a refund will
California get?
One thing seems clear: The reduction will be a lot more than the $125-million
refund ordered to date, in all likelihood soaring to more than $1 billion.
Over the next 15 days--the Federal Energy Regulatory Commission is mandating
no weekends off--warring representatives from power companies and the state
of California will sit at the same table in a government conference room
while a FERC task force wrestles the question to the ground.
The task is to determine the price that power would have cost if FERC's
decision to impose soft caps had been made not last week, but last fall.
It is a daunting mathematical problem, factoring in hourly charges during the
last eight months. To come up with a total, federal regulators, state
electricity officials and power generators must determine what the highest
price for a megawatt should have been under the soft price caps now in
effect. Then they have to figure out which companies--if any--were charging
more.
Under the recent FERC ruling, the price of electricity during any given hour
cannot exceed the actual cost of generating the least efficient--or most
expensive--power coming into the grid.
Curtis L. Wagner, the 72-year-old chief judge for FERC who is overseeing
negotiations on California 's overcharges, said of this morning's events: "It
will be a zoo."
Wagner, who headed into the weekend with three inches of documents to sort
through, explained that Gov. Gray Davis wants $9 billion knocked off the
amount the power generators charged California . "I don't really think it's
that high," said Wagner, predicting the refund will be more than $1 billion
but probably far from $9 billion.
"We have folks trying to do some adding now and some work on what the number
should be," he said.
Wagner said the money at stake will be the most he has worked on in his
nearly three-decade career at the agency.
Until recently, the likelihood of massive refunds seemed nil. Although
California lawmakers--led by Davis--had demanded relief for costs that ran as
high as 10 times or more than the rates a year ago, FERC officials had not
agreed.
And their minds seemed set. When FERC first proposed remedies for the
California price increases late last year, commissioners said: "Refunds may
be an inferior remedy from a market perspective and not the fundamental
solution to any problems occurring in California markets."
To date, FERC has ordered $125 million in refunds for alleged overcharges in
January and February.
But with the recent appointment of two new commissioners by President
Bush--Republicans Patrick H. Wood III of Texas and Nora M. Brownell of
Pennsylvania--FERC's position softened, leading to the price mitigation
ordered last week.
Now FERC is taking a closer look at the prices already charged.
California lawmakers have pegged overcharges at nearly $9 billion since the
California market went haywire last summer--a number that comes from a study
done by Cal-ISO, the operator of California 's electricity grid. Cal-ISO
officials acknowledged last week that the study might have significant flaws.
Among companies that may be required to reduce their bills are energy giants
Enron Corp., Mirant Corp., Duke Energy Corp., Williams Cos. and Reliant
Energy Inc.--all of which are expected to have representatives at the
negotiations. The companies have hotly disputed the amount of overcharges
alleged by Davis and other California lawmakers and point out that they have
yet to be paid for the vast majority of electricity sold in the state in
recent months.
Today, Wagner said he plans to make opening statements to the media. After
that, he said he hasn't determined how much of the wangling will be done
behind closed doors. If the parties don't come to an agreement in 15 days,
Wagner will have seven days to make a recommendation on refunds to FERC's
five commissioners.
It is a process that may be repeated down the road if Sen. Barbara Boxer
(D-Calif.) and other California politicians get their way. Boxer has
introduced legislation that would give FERC retroactive power to order
refunds--all the way back to July 2000, when San Diego first faced huge
spikes in electricity costs.

BUSINESS
BECHTEL HOLDS ITS OWN / Despite economic downturn, S.F. construction giant's
revenues remain steady
Todd Wallack
?
06/25/2001
The San Francisco Chronicle
FINAL
Page B.1
(Copyright 2001)
The economy is skidding. Tech firms are shutting plants and reining in
expansion plans. And two major engineering and construction firms, Stone &
Webster and Washington Group (formerly Morrison Knudsen) sought bankruptcy
protection during the past 13 months.
So, it would come as no surprise to hear that the world's largest engineering
and construction firm, San Francisco's Bechtel Group, is getting pinched by
the downturn.
Only it isn't.
Despite the slowdown in the economy and in some areas of construction,
Bechtel and many rivals are still busy upgrading cellular networks, building
railroads and airports, and completing new power plants.
"Our guys are working 80 to 100 hours a week completing deals," said John
Siegel, vice president of marketing and strategy for Bechtel's power plant
construction division. "You walk around at 9 p.m. and everyone is still
here."
Overall, Bechtel's sales dipped 5 percent last year to $14.3 billion, but
that's still up 13 percent from 1999 and a healthy 74 percent from 1996. The
company said operating margins improved last year. And employment jumped by a
quarter during the past five years to 41,000 worldwide, including 1,300 in
San Francisco. Both employment and sales are holding firm so far this year.
(The privately held firm doesn't release earnings figures.)
Bechtel isn't alone. Shares in Fluor, the second-largest engineering and
construction firm, and Jacobs Engineering Group nearly doubled in value
during the past 12 months. And some analysts are bullish on the future.
"We could be on the front end of a multiyear up-cycle," Merrill Lynch analyst
Fritz von Carp predicts.
CONTRARY CYCLES
Although the engineering and construction industry has long been vulnerable
to sharp downturns, von Carp said the cycles often differ from the rest of
the U.S. economy.
For instance, high energy prices usually spell bad news for most domestic
businesses. But an energy shortage could help spur a boom in new power
plants, refineries and pipelines -- lifting the petroleum sector out of a
decade-old funk. That has long been a major business for firms such as
Bechtel.
In addition, von Carp points out that government agencies typically garner a
large share of transportation revenue from gasoline taxes -- which aren't as
sensitive to downturns as income taxes and capital gains. California and
other states have also increasingly walled off those funds, so politicians
can't raid the transportation war chests to pay other bills when budgets are
tight.
Government agencies and big businesses also tend to initiate major projects
when times are good. But because the projects often take years to start and
complete, they often wind up ramping up after the economy has already slid
into recession. "It is really a late cycle," von Carp said.
This isn't to say that Bechtel's business is humming across the board.
Bechtel Executive Vice President Jude Laspa said sales remain lackluster in
its mining and chemical division. (And despite von Carp's predictions of an
upswing in the petroleum industry, Laspa said sales haven't picked up so
far.)
"We have some very robust businesses, and some that are in a cyclical
downturn," Laspa said.
TIGHT MARGINS
Engineering and construction companies also have to be content with lower
profit margins than those in many other industries. Like its rivals, Bechtel
typically pockets about 3 to 5 percent of revenues after taxes, Laspa said.
Operating margins are closer to 7 to 9 percent. (By contrast, anything under
20 percent is considered anemic in the newspaper industry.)
"This is a low-margin business," von Carp said.
Industry players are also increasingly taking on more risk, bidding on
fixed-price contracts to compete. In the past, many firms charged by the hour
and profits soared when projects became mired in delays. Now that companies
are getting only a lump sum for a development, major setbacks in a project or
two could sink a firm.
Stone & Webster of Boston, for instance, filed for Chapter 11 bankruptcy
protection last year, largely because of delays in building a gas-fired power
plant in Tiverton, R.I. Shaw Group later acquired most of the firm's assets.
Meanwhile, Washington Group of Boise, Idaho, foundered after it acquired
Raytheon's Engineers and Constructors unit, igniting a nasty court battle.
Washington accused Raytheon of concealing problems with several of the
projects and demanded compensation; Raytheon blamed Washington for
mismanaging the projects and insisted it owed nothing.
Although Bechtel doesn't let outsiders review its books, analysts say they
believe the firm has largely avoided such problems and is financially solid.
Bechtel executives point out that the company is 50 percent larger than its
next-biggest competitor.
"Bechtel is considered in the industry to be the pre-eminent engineering and
construction company," von Carp said. "It is a very good competitor with a
strong franchise in many markets."
ON TOP IN TELECOM
Bechtel has also enjoyed some luck lately.
For instance, some telecommunications equipment firms are doing so poorly
that one analyst compared it to a "nuclear winter." Dozens of data service
providers, such as NorthPoint Communications in Emeryville, have shut down.
Others have severely reined in their expansion plans.
But Bechtel's revenues are up 20 to 25 percent this year. George Conniff,
president of Bechtel's telecommunications and industrial business unit, said
his firm mainly serves financially solid firms, such as AT&T Wireless, which
are still going ahead with plans to add 8,000 new towers, despite the
slowdown. He also said the unit has picked up some consulting business
abandoned by equipment firms trying to narrow their focus to weather the
downturn.
"We're having a great year," Conniff said. "When the river is muddy, the fish
start to bite."
But no part of the business is doing as well as Bechtel Power.
A POWERHOUSE IN ENERGY
"The power business is doing spectacular," von Carp said. "It is the
strongest part of the market now, bar none."
Siegel said the company has 22 plants under construction worldwide -- up from
about nine four years ago -- and many more in the pipeline, particularly in
the United States. Siegel said the unit's revenue rose 15 to 20 percent last
year and is on pace to match that this year. He said the firm could probably
land even more business if it had the ability to pursue and handle more
projects.
Through another unit, Bechtel is also investing in power plants under
development in Hayward, Pittsburg and San Jose. The company struck a deal
with San Jose's Calpine in 1998 to spend $1 billion building several plants
in the Bay Area. Under the deal, the companies will jointly own the plants
and split the profits down the middle. Because of the strong demand for
electricity in California , Bechtel spokesman Jeff Leichtman said it will
probably wind up spending at least $500 million more than originally
announced.
Bechtel doesn't own any existing plants in the United States, so it isn't
among those accused of gouging consumers in the recent energy crisis. But
that's partly an accident of fate.
The firm's investment arm teamed with PG&E in the late '80s to start building
plants. But in 1996, PG&E offered to buy out Bechtel for most of the U.S.
operations; Bechtel sold the rest of its U.S. stakes shortly thereafter.
But Bechtel kept the shares in its overseas plants and bought out PG&E a year
later. Bechtel now operates the foreign plants through a division called
Intergen. It also owns more than half of Nexant, an energy consulting firm
based in San Francisco.
Now, at a time when many Bay Area firms are being hurt by the energy crisis,
Bechtel stands to cash in.
And Laspa said word is already leaking out. He said the firm is getting
inundated by resumes. "Potential employees know where the business is
strong," he said.
------------------------------------------------------------------ --------
----------------------------------------------------------
BIG JOBS
Bechtel has completed more than 20,000 projects and has 1,100 under way in 66
countries. Here are some notable landmarks Bechtel helped build:
-- Completed
Hoover Dam
Bay Area Rapid Transit subway
San Francisco Museum of Fine Arts building
Bay Bridge
Chunnel linking France to England
Hong Kong International Airport .
-- Current
Boston Central Artery (Big Dig)
AT&T Wireless (adding 8,000 cell sites)
Korea High-Speed Rail, South Korea
Antamina Copper and Zinc Mine, Peru
Alcan Alma Smelter, Quebec
----------------------------------------------------------------
CHART (1): BECHTEL AT A GLANCE Bechtel is the world's largest engineering and
construction firm. Despite a U.S. economic downturn, the San Francisco
company's sales and employment remain relatively healthy. . Headquarters: San
Francisco Local employment: 1,300 in San Francisco and 2,000 in California
Founded: 1898 Stock: Privately held CEO: Riley Bechtel . -- Revenues Bechtel
gets most of its revenue from building power plants and running government
facilities. . Power $3.1 billion Civil
   (bridges, tunnels, airports, etc.)          $2.1 billion
   Petroleum and chemicals                     $1.5 billion
   Pipeline                                    $1.2 billion
   Mining/metals                               $1.7 billion
   Telecom                                     $1.5 billion
Bechtel National Inc. (Federal gov.t facilities management) $3.1 billion
Sources: Bechtel ----------------------------------------------------------
CHART (2): BECHTEL LEADS THE PACK -- Construction/Engineering Firms
Rank/Company/HQ Revenue(x) . 1. Bechtel Group Inc., San Francisco $12.42 2.
Fluor Corp., Aliso Viejo (Orange County) $7.83 3. Kellogg Brown & Root,
Houston $5.34 4. The Turner Corp., Dallas $5.85 5. CENTEX, Dallas $5.4 (x) -
In billions; includes revenue from construction/engineering contracts only. .
-- Top Power Construction Firms Rank/Company Revenue(y) 1. Bechtel Group Inc.
$1,100
   2. Duke Engineering & Services                   $303
   3. Sargent & Lundy                               $292
   4. Black & Veatch                                $241
   5. Stone & Webster Engineers and Constructors    $234
(y) - In millions; Includes revenue from energy contracts only. . Sources:
Engineering News-Record

NEWS
THE ENERGY CRUNCH / $9 billion showdown over power / State delegation seeking
refunds
Lynda Gledhill, Christian Berthelsen
?
06/25/2001
The San Francisco Chronicle
FINAL
Page A.1
(Copyright 2001)
A critical showdown in California 's energy crisis starts this morning, as
state officials meet with energy companies to demand $9 billion in refunds.
A 15-day settlement conference, ordered as part of the Federal Energy
Regulatory Commission's decision last week to put price controls on wholesale
electricity prices, will bring together the parties that have been squabbling
for the past year.
"We are going to Washington with one goal, and that is to bring back $9
billion," Gov. Gray Davis told reporters yesterday. "The fact is that people
have taken advantage of the market, gamed the system and ripped people off."
But Davis' crusade may be dampened by challenges to the study the state used
to arrive at the $9 billion figure and by a FERC mediator's prediction that
California will walk away with less than it is demanding.
The Democratic governor's figure is based on an update of a March study by
the California Independent System Operator, which manages the sate's power
grid. Some energy experts argue the study is flawed, but the ISO stood firm
behind its methodology yesterday.
Curtis L. Wagner Jr., the FERC administrative law judge who will oversee the
meeting, said in an interview with The Chronicle yesterday that he was
optimistic a settlement would be reached.
Wagner said the $9 billion "seems a little high. And the generators' numbers
seem low. We'll probably come out somewhere in between."
The veteran mediator, who spent yesterday reviewing spreadsheets submitted by
the parties, said he will look at applying last week's commission price
control order back to October.
"I think we should put the refund issue to rest," Wagner said. "I'm sure we
can agree on a structure that is fair to everybody." Enron Corp, Reliant
Energy Inc., Duke Energy Corp., Williams Cos., Dynegy Inc. and Mirant Corp.
are among the companies facing allegations of illegally overcharging
California . The companies say the high prices were a result of the high
costs of natural gas used to generate power.
"There has been no evidence to suggest that suppliers bilked anyone," said
Mark Stultz, a vice president of the Electric Power Supply Association, which
represent the generators.
But Davis insisted that the state will recover the full amount it is asking.
"Under the law, FERC has no discretion," he said. "It is mandated to refund
excessive charges, if prices were found to be unjust and unreasonable, which
they were."
The governor, however, acknowledged that some of the money he is demanding
may be owed by municipal utilities that do not fall under FERC's
jurisdiction.
Davis adviser Nancy McFadden said municipal utilities such as Los Angeles
Department of Water and Power and BC Hydro that sold electricity to the state
have been invited to join the talks as well.
"We need the FERC to lay the basis to seek refunds from private generators,
and use that as a basis to seek refunds from public generators," she said.
California could face an obstacle in its case for the full repayment it
seeks. Under FERC rules, overcharges can only be authorized after a formal
investigation is ordered, which in this case started on Oct. 2, 2000. If
Wagner sticks to that time frame, it eliminates the summer 2000 months when
prices first began to spike.
"There is no question we can order refund from that (October) date forward,"
Wagner said. "Legally, there may be some question before that date."
But Wagner said a FERC regulations may not necessarily rule out broader
refunds. "That's the great thing about a settlement -- you can do anything,"
he said.
If no settlement is reached in 15 days, Wagner will forward his
recommendations to the full commission for its approval. California will then
have the option of pursuing the matter further in court.
California 's delegation will be led by Michael Kahn, a San Francisco lawyer
who chairs the ISO.
Davis also meets today in Sacramento with new FERC Commissioners Patrick Wood
and Nora Brownell to discuss the refunds and the high cost of natural gas in
the state.
Wood, who is expected to be named chairman of the commission in the fall, has
expressed his support for finding solutions to California 's power woes.

ENERGY CRUNCH
Direct access falls victim to crisis
Power-buying plan's future is in doubt
Bernadette Tansey, Greg Lucas, Chronicle Staff Writers
Sunday, June 24, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/06/24/M
NL67535.DTL
The option to shop around for the best deal on electricity -- one of the
cornerstones of California's deregulation plan -- could soon be scrapped.
Businesses may lose the right to cut their own deals with private power
suppliers, and environmentally conscious consumers could be barred from
shifting their business from utilities to renewable energy firms, unless the
Legislature acts quickly to save the program.
The potential cost savings of so-called direct access to competing
electricity providers was the plum that incited big businesses to fight hard
for deregulation in 1996. But the program -- although it was not responsible
for the soaring rates that piled up state and utility debt -- may be
sacrificed in the state's drive to recoup its costs.
The fate of the program was thrown into doubt last winter, when skyrocketing
wholesale electricity costs collapsed the nascent direct access market,
weakened the utilities and caused the state to take over power purchases.
Industry has been lobbying hard since then to keep the option open for the
future. But the problem for Gov. Gray Davis' administration is that the state
needs big industrial consumers to stay on as utility customers to help pay
off the $8 billion it has already spent buying power and the estimated $43
billion worth of power it has contracted to buy over the next 20 years.
Otherwise, the utility customers left behind -- householders and small
businesses -- will be stuck with the whole bill.
Competing proposals to allow companies to bail out by paying an "exit fee" to
cover a share of the cost are working their way through the Legislature.
But time is running short, state Treasurer Philip Angelides warned the
Legislature and the state Public Utilities Commission this month.
The state plans to issue $12.5 billion in bonds in September for power
purchases, and officials say underwriters want to to be assured that there is
a large enough revenue stream to repay the bonds.
Angelides and other state officials urged the Legislature and the PUC to
decide by the end of June either to ban direct access or lock in a procedure
to charge each departing company for its share of the state power costs.
"The hypothetical and theoretical desires for a direct access market and the
hypothetical and theoretical desire for a bond sale are now intersecting in
reality," said Assemblyman Fred Keeley, D-Boulder Creek (Santa Cruz County).
Industry advocates agree that firms should pay a fair share of the
electricity purchased on their behalf. But how much -- and how to make that
calculation -- is a complex issue they fear will be decided in haste, said
Dorothy Rothrock, a lobbyist for the California Manufacturers and Technology
Association.
"We are reacting to crises, real or man-made, and making decisions in a rush
without considering the consequences," Rothrock said.
The PUC is set to vote Thursday on a proposed urgency measure to suspend
direct access as of July 1. The ban recommended by a PUC administrative law
judge would continue as long as the state functions as power buyer for
utility customers -- conceivably through the term of state contracts ending
in 2020.
Lawmakers had authorized the PUC to suspend direct access last winter when
the state took over electricity purchasing. But a divided PUC delayed action
as legislators worked with industry to salvage the program.
Although direct access contracts are still legal until the PUC acts, in
effect the program was slammed into suspension by the brutal power price
hikes of the past 18 months. Threatened by exposure to rising wholesale
electricity rates, virtually all direct access customers have returned to the
utilities, where they are protected by the state rate freeze.
Even though the right to deal directly with generators has been on the books
since 1996, few businesses or householders actually did it.
Many of the residential customers who signed on with alternative suppliers
did so to support the growth of renewable power like solar and wind energy.
At its peak, the program drew about 224,000 households -- about 2.5 percent
of the customer base of California's major utilities. About 13 percent of the
industrial market contracted for their own power.
Industry has until tomorrow to file plans with the PUC to preserve direct
access under a proposal by public utilities Commissioner Richard Bilas, a
strong supporter of the program.
Commissioner Jeff Brown said he favors direct access, but the continuing
uncertainty over the form it would take jeopardizes the state's ability to
float its bonds.
Commissioner Carl Wood, a direct access opponent, said it should be
abolished, because it creates a danger that residential and small business
customers will be stuck paying for relatively high-cost contracts secured by
the state during the energy crisis, while large industries would be free to
buy cheap power from the newer, more efficient plants that will be coming
online in the next few years.
But Wood said even if the PUC suspends the option, the state Legislature
could order its reinstatement.
Sen. Debra Bowen, D-Marina del Rey, is carrying a bill to do that while
requiring the exit fees demanded by Angelides and state finance officials.
Without those safeguards, utility revenues would dive into a "death spiral, "
where rates would keep rising as more companies abandoned the system, Bowen
said, giving the remaining customers a deeper incentive to bail.
State legislators are set to meet this week to start deciding how
California's electricity market should be structured in the future. But
deadlines to deal with the state's financial hangover are pushing decisions
on direct access.
Bowen said it's unlikely her bill will be passed within a few weeks, the time
frame Davis administration officials have urged to give certainty to the
terms of the bond deal.
Angelides said the Legislature could still pass a law reviving direct access
before the bond language is written in July. But after that, the Legislature
cannot pass laws that change the terms of contract commitments made by the
state, he said.
"There is still a window to act here, but they have to act fast," Angelides
said.
E-mail Bernadette Tansey at btansey@sfchronicle.com and Greg Lucas at
glucas@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?A - 21

ENERGY CRUNCH
Power players lay blame
Deregulation creators defend their actions
Robert Salladay, Chronicle Sacramento Bureau
Sunday, June 24, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/06/24/M
N227488.DTL
Sacramento -- Five years after dismantling California's energy markets,
former Gov. Pete Wilson says he's proud of his role in deregulation and is
"stunned and outraged" that his successor tries to pin the blame on him.
Former state Senate President pro tem Bill Lockyer, now the state attorney
general, is both contrite and vengeful, recently saying he wanted to put a
powerful energy executive -- and friend of President Bush -- in prison with
an amorous cellmate named Spike.
Former Assembly Speaker Curt Pringle, presently a lobbyist, now forwards e-
mail jokes to fellow Republicans with Davis re-election slogans, including:
"Davis in 2002: Your bridge to the 18th century."
These were the leaders who brought deregulation to California. As they engage
in deflections and defenses one year after the state plunged into crisis,
their comments also highlight a newer debate over unintended consequences,
the role of the federal government in making things worse, and the
neglectfulness of subsequent politicians.
For his part, Wilson has become increasingly angry at the Davis
administration's "offensive and unfair" claims that Wilson and the
Legislature got the state into this mess.
"I'm afraid they have reached the conclusion that the response has been too
little, too late to avoid what will be hundreds of hours of blackouts, and
that they better find a way to blame somebody else," Wilson said.
Davis, he said, has blamed "the new administration in Washington, the old
administration in Sacramento, power providers. It's interesting, because
there was not a peep out of the lieutenant governor (Davis) at the time
during what I thought was a fairly active and public debate. He was hardly
without a voice,
but he certainly was without comment."
Wilson said Davis' performance over the past year called into question Davis'
1998 campaign slogan. "I used to laugh when he talked about being the
best-trained, best-prepared candidate in history," Wilson said. "But what the
hell."
DEREGULATION BILL
A tiny legislative committee that was dominated by state Sen. Steve Peace,
D-El Cajon, and then Assemblyman James Brulte, R-Rancho Cucamonga, wrote the
deregulation bill in 1996. Corporate lobbyists and utilities also had
tremendous sway over the legislation. Pringle, Lockyer and Wilson steered the
legislation their way.
The bill was a reaction to movements under way at the California Public
Utilities Commission and in the federal government. The bill essentially
unbundled the big utilities' monopoly over power, separating control of
selling, marketing and producing energy.
It also was supposed to cut rates 10 percent and pay utilities hundreds of
millions of dollars for investments they'd made in nuclear power and other
energy plants.
Wilson said Davis should, in fact, be grateful that the 1996 deregulation
bill encouraged power companies to expand into California. He contends that
without the measure, the state would be faced with a regulated market and 10,
000 fewer megawatts of power -- and more blackouts.
DAVIS' COMPLAINTS
Davis has continually said that California failed to build power plants in
the 12 years before his administration. In truth, seven smaller power plants
were built during Wilson's eight years, and deregulation started the process
on a host of others that are now being approved more quickly by the Davis
administration.
"We wanted to entice investors," Wilson said. "You can't do that if they're
not allowed to compete."
Wilson acknowledges that the state misread exactly how quickly California
would grow. During the high-tech boom, Silicon Valley built acres of "server
farms" to supply the Internet that accounted for a large amount of the
increase in new power usage in California.
Peace has point-blank blamed executives at Cisco Systems. He has said they
should be thrown in jail for simultaneously supplying the server-farm boom
and opposing the building of a power plant in Santa Clara County. Cisco
opposed the 600-megawatt plant, it said, to protect the health and welfare of
its employees nearby.
Wilson doesn't go as far as Peace in wanting to jail people. And he's not
willing to accuse out-of-state generators of price-gouging, in part because
"blanket condemnation" may scare away further investment in California -- and
it ignores that some municipal utilities in California charge high prices as
well.
"If they find that people have in fact manipulated the market," Wilson said,
"then they ought to come down hard on them."
LOCKYER'S HARDER LINE
As attorney general, Lockyer has opened an investigation into whether power
companies have conspired to push up electricity prices and gouge consumers.
Unlike Peace and Wilson, Lockyer is unwilling to defend the 1996 legislation
and deregulation.
"If I could repeal it and start all over again, I think that I would," he
said.
But even Lockyer acknowledges that the Legislature needed to do something in
1996. That's because it appeared inevitable that the utilities and corporate
interests would get some form of deregulation through the state PUC and the
federal government, which had already opened up the natural gas market.
"Our energy experts thought the PUC was doing it in a way that was overly
friendly to big business and would have ended up having residential customers
subsidizing big business," Lockyer said. "The efforts were made to try to
figure out how to make the market competitive without tilting toward big
business."
The real killer in deregulation, Lockyer contends, is that neither the
Legislature (himself included) nor the governor paid enough attention to the
supply end. That allowed a handful of firms to have near-total control over
power output, Lockyer said. Peace has called this the "domestic equivalent of
OPEC in the West."
Lockyer has been busy demonizing power firms as well. He still faces
criticism for telling the Wall Street Journal his plans for Kenneth Lay,
chairman of the Texas energy trader Enron Corp.: "I'd love to personally
escort Lay to an 8-by-10 cell that he could share with a tattooed dude who
says, 'Hi, my name is Spike, honey.' "
Lockyer, who told The Chronicle he was directing his comments to the East
Coast financial establishment, toned down a bit in a more recent interview.
"The system works well. It doesn't work when there is illegal activity and a
handful of companies that control the whole market," Lockyer said.
And then there is Pringle, who generally has escaped questioning for his role
in getting the 1996 measure passed.
Pringle said he had little impact on the legislation, relying instead on
Brulte.
But he puts some blame on consumer groups that offered Proposition 9 in 1998,
which set out to roll back much of the deregulation measure.
Wilson has charts from the state energy commission showing the application to
build plants spiked up after the measure was defeated. "At the most critical
moment," Pringle said, "when we were trying to suck development into the
state, you had trepidation."
Wilson, Lockyer and Pringle have been relatively silent on the matter when
compared with Peace.
Peace has been waging his own relentless war, both defending the 1996
legislation and accusing the federal government of "creating a flawed
national model of electricity deregulation and then (failing) to confront the
consequences."
The real culprit is far more complicated than just Proposition 9, Peace
contended in a recent letter to Bush.
The state PUC, he said, ordered utilities in the early 1990s to build more
plants, but the utilities got federal regulators to overrule the order.
Among other things, he said, the federal government uncritically adopted a
flawed plan separating the West's transmission system from the generation of
electricity. That allows generators to extort the grid operator by
threatening to withhold power, he added.
Pringle said he can't even attempt to get as detailed as Peace when it comes
to explaining what went wrong.
"Everyone has a degree in which they need to stand up, but the people in
charge today are in charge of fixing it," Pringle said. "If you want to go
around the rosy and say did Republicans blow something? Yeah. Did Wilson?
Yeah.
Lockyer, Brulte, Peace? Yeah. The consumer associations? We're all tagged."
E-mail Robert Salladay at rsalladay@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?A - 1

Pending power plants in California face some problems
Posted at 10:14 p.m. PDT Sunday, June 24, 2001
BY STEVE JOHNSON

Mercury News

Although California's summer energy outlook seems to be brightening, state
leaders still are counting on new power plants to boost competition and lower
electricity prices in years to come.
They may end up disappointed.
Even with 42 new power plants in the works before the California Energy
Commission as of early last week, the state can't be sure of how much power
they will produce or what prices they will charge, experts say. That could
prove troublesome, since 70 percent of the power the state plans to buy
through long-term contracts is supposed to come from these new plants.
Nor is there any guarantee of the price these plants might charge for the
rest of their power on the spot market, despite last Monday's order by
federal regulators to generally limit spot prices across the West.
Like much of what has happened since the state passed deregulation, the
future appears cloudy. Here's why:
?Critics say the price caps ordered Monday by the Federal Energy Regulatory
Commission contain loopholes that could allow California's electricity costs
to soar on days when it is desperate for power. And when the Mercury News
asked 12 of the companies involved in the recently approved or pending power
plants if they could promise that their spot market prices would be cheaper
than what California has been paying recently, none could.
?Of the 25 mostly private entities involved in these new power plant
projects, only six are generators new to the state, and most of their plants
are relatively small. That may slow the development of a more competitive
electricity market, which state officials say is needed to lower prices.
?More than a third of the electricity to be produced by these new operations
would be controlled by firms accused in recent lawsuits or governmental
actions of questionable pricing and, in some cases, outright gouging. State
officials claim that some of these companies, among other things, have shut
down their plants when electricity demand was high to artificially crimp
supplies and inflate prices.
?Some experts doubt that all of the proposed plants will get built. Several
power companies acknowledged that the intense criticism of them by California
officials and uncertainties over the economic viability of owning plants here
could cause them to delay or even abandon their projects. Others suspect
these firms eventually may cancel some of the plants they have proposed, to
keep power in short supply and prices high.
``I'm concerned,'' said California Public Utilities Commissioner Carl Wood,
when asked about the makeup of the firms proposing the new plants. ``It's the
same cartel. We will have more generation, but we will have the same players
owning and controlling it.''
Such comments irk power suppliers, who have repeatedly denied breaking any
laws or regulations governing the sale of wholesale electricity. Many of
these entrepreneurs find it particularly galling that the very state
officials accusing them of price gouging are begging them to build plants in
California.
Few politicians have been as vehement in their denunciation of electricity
suppliers as Gov. Gray Davis. Yet he is among those relying heavily on the
new power plants these companies are developing to help pull California out
of its energy crisis.
``Eventually when supply and demand come back into something approaching
balance, there will be genuine price competition,'' Davis said in December.
He repeated the point earlier this month, proclaiming that ``by the fall of
2003, we will have more power than we need. That will solve the long-term
problem.''
Davis isn't alone. Although power costs have fallen in recent weeks and
federal officials may impose tougher price controls on electricity, the
assumption that more plants is the key to solving California's troubles is
taken as gospel by many state and federal officials.
It seems logical enough. More power presumably would not only ease the threat
of blackouts, but relieve California of the need to pay exorbitant prices on
days when electricity is in short supply.
But calculating how much more power the state will wind up with, based on how
many plants are on the drawing board, is risky, say some state regulators and
consumer advocates.
``I have no confidence at the moment that a majority of those new plants will
ever materialize,'' because power companies are likely to maintain an
electricity shortage to keep prices high, said Michael Shames, of the Utility
Consumers Action Network. ``Why would they want to change what they've got?
They've got a sweet deal.''
Another reason plants might not get built is politics. Several firms with
projects in the works claimed that threats by state officials to seize their
plants or impose a windfall profits tax on their sales had made it harder to
obtain financing.
``Every time these politicians start spouting off to improve their own
political careers, they don't realize the damage they're doing,'' said Gary
Ackerman of the Western Power Trading Forum.
Just this month, Mirant Corp. of Atlanta received state permission to build a
530 megawatt plant in Contra Costa County -- enough to supply power to about
400,000 homes -- and it has applied to build a similarly-sized generator in
San Francisco. But its spokesman Chuck Griffin said both projects are on
hold, until Mirant feels more comfortable about the state's political and
economic climate.
``We have to be able to determine that it's going to be a viable
investment,'' he said.
Even if all 42 plants are built, many of the companies proposing them were
skittish about promising cheaper prices. They said it depends on such things
as the future cost of natural gas, which many of their plants use for fuel.
One firm California is counting on is Calpine Corp. of San Jose, which
already commands a modest fleet of small plants in the state and is
developing nearly one fourth of the 42 new plants.
Although Calpine has earned huge profits in recent months, it has a
relatively good reputation among consumer advocates and state investigators
who have reviewed its confidential power sales data. Moreover, Calpine's name
is conspicuously absent from recent lawsuits and federal legal filings that
have either accused other firms of gouging or questioned the reasonableness
of their prices.
Much of the power to be generated from Calpine's new plants will be sold in
long-term contracts to the state, according to company spokesman Bill
Highlander. But like other suppliers, he was vague about what it would charge
for the rest.
``It kind of depends on a whole number of factors,'' Highlander said,
including how much people conserve and how much power California can continue
importing from other states. Since no one can predict such things today, he
added, ``that's what makes it so difficult.''
If anyone should be concerned about the price of power it's the folks at PG&E
Corp., who have blamed high electricity costs for forcing their utility --
Pacific Gas & Electric Co. -- into bankruptcy. But even they wouldn't
speculate about how much they would charge for the power from their 1,048
megawatt plant in Kern County, which is to be built by their unregulated
affiliate, PG&E National Energy Group. PG&E's energy trading arm is among the
suppliers accused of questionable pricing practices, although PG&E officials
have denied any wrongdoing.
By the time the Kern County plant is done in two years, ``if we have a
situation where we are seeing a lot more generation come on line in the
state, economic law should dictate that prices will come down,'' said PG&E
Corp. spokesman Greg Pruett. But that's not for certain, he said, adding,
``we've all gone to school about how topsy-turvy the market could become.''
Like every other generator, PG&E doesn't plan to spend a lot of money
building a plant just to wind up giving away its electricity. ``Obviously,''
Pruett said, ``everyone who invests in these is doing so to earn a profit.''

Contact Steve Johnson at sjohnson@sjmercury.com or (408) 920-5043.

County should unplug this energy-saving idea
Published Monday, June 25, 2001, in the San Jose Mercury News
TURN off those computers, turn up those thermostats, replace those old
watt-sucking appliances. It's not just for people and business; it's
government's obligation too.
But please, there's no need to let energy conservation get in the way of
providing essential public services to the community.
The Santa Clara County board of supervisors set an admirable goal of cutting
energy consumption in county buildings by 20 percent. Thermostats are edging
up toward 78 degrees. Lights are on motion detectors and timers.
Non-essential elevators are out of service. So far, so good.
On Tuesday the board will consider another idea: closing the east wing of the
government center at 70 W. Hedding St. and offices on Berger Drive in San
Jose a few days a month.
Several county departments, including the tax collector, assessor and
clerk/recorder, would have extended hours four days a week, but would close
on Monday or Friday.
Closing buildings would definitely save the county money on energy bills, but
it's not worth it.
Most county residents visit the government center only a few times in their
lives -- to pay a delinquent tax bill, record a deed, get a birth
certificate. It would be impossible to get the word out to everyone in time
that the offices will be closed. Invariably, people will take time off from
work to trek to the county building for some urgent matter and find the place
locked up tight.
Several departments report that they would face serious delays in processing
documents if they had to shut down, which would cost people and businesses
time and money.
Why not close just some departments? At 70 W. Hedding, there's no way to shut
down the lights and air conditioning on one floor without shutting down the
whole system.
San Mateo County and the city of Palo Alto have had luck with similar
alternative work-week schemes. But San Mateo moved essential offices into
another building rather than close them down. And Palo Alto ran an extensive
education campaign to prepare people for the switch. The county doesn't have
time for that if the plan is to go into effect next month.
Supervisor Liz Kniss gets credit for exploring all options, but she and the
board should drop this one. The state of California managed to cut energy use
in its office buildings by more than 20 percent by just taking the usual
prudent steps, without eliminating any services. The county can do so, too.
Besides, where will the 1,400 affected county employees be on those days when
they aren't at the office? At home, most likely, running their air
conditioners, computers and TVs.

The FERC loophole
Published Monday, June 25, 2001, in the San Jose Mercury News
BY PETER NAVARRO
THE Federal Energy Regulatory Commission's new wholesale price limits will
save the Western states literally tens of billions of dollars in electricity
bills. As wonderful as that sounds, the FERC order still allows wholesale
generators to extract enough windfall profits to drive the region into
recession.
FERC's approach may also perversely lead to more air pollution and natural
gas shortages. In California, market manipulation has taken place on a
grand-theft scale.
In 1999, California's electricity bill was about $7 billion. Last year, it
was almost $30 billion for roughly the same amount of electricity. This year,
California's bill is well on its way to $50 billion annually. To stop this
ripoff, Gov. Gray Davis proposed ``cost-based'' price caps. Such caps are
calculated on a plant-specific basis. Each generator is allowed to recover
its cost of production, including a fair profit.
Thus, for example, a newer, highly efficient plant generating power at a
nickel per kilowatt hour would collect a nickel plus profit. The oldest,
least efficient plant that generated power for 20 cents would be allowed to
collect 20 cents plus profit. That proposal was categorically rejected by
FERC. Instead, the commission set a single price for all generators based on
the cost of the ``least efficient plant.''
The obvious problem with this umbrella pricing rule is that it still allows
generators to extract billions in windfall profits from consumers. Under
FERC's rule, the least efficient plant will collect 20 cents a unit to
recover costs, plus its profit.
However, the most efficient plant producing power at a nickel-per-kilowatt
also collects 20 cents per unit rather than a nickel and thus extracts a
windfall of 15 cents plus profit. Thus, under FERC's rule, wholesale
generators will still be able to capture billions of dollars extra from
consumers and businesses than under Davis' cost-based proposal.
FERC's approach is still subject to the same kind of strategic gaming that
has been the hallmark of this crisis. Generators will ensure that during peak
times, when the price cap is being established, the most expensive possible
plant is in operation -- whether it needs to be or not. This will peg the
price at the highest level.
In addition, FERC provides generators with a perverse incentive to run their
least efficient units more often. Since these least efficient plants are also
the highest polluting, the result will be dirtier air.
Moreover, the excessive running of these plants may also put a strain on
already stretched natural gas supplies. These least-efficient plants use up
to 40 percent more natural gas to produce a unit of electricity.
The bottom line: FERC's price limits will help California. But there still is
a danger that higher electricity costs could push California and the rest of
the West -- and eventually the nation -- into a nasty recession.

Peter Navarro is an associate professor of economics and public policy at the
University of California, Irvine. He wrote this column for the Los Angeles
Times.

Energy talks could get hot
FERC settlement conference on California's demand for a $9 billion refund
begins today.
June 25, 2001
By DENA BUNIS
The Orange County Register
WASHINGTON It's not quite as hot as a Lakers playoff ticket, but for energy
geeks, a seat in Hearing Room One at the Federal Energy Regulatory Commission
this morning comes pretty close.
Hundreds of suits with briefcases will file in at 10 a.m. sharp and put
billions of dollars -- not to mention the future of California's energy
market -- on the table.
"We're going back to Washington with one goal, and that's to bring back $9
billion," Gov. Gray Davis told reporters Sunday in a conference call from San
Diego. Davis stuck to that figure despite comments last week from the FERC's
chief judge to the Register that he anticipates only a couple of billion
dollars in refunds.
At issue is whether and how much power companies owe the state for wholesale
electricity rates that exceeded the "reasonable and customary" standard
federal law establishes. The more money the state gets back, the less
taxpayer money goes toward paying the bill for state-purchased power.
The FERC ordered this conference as part of its price-cap decision last week.
It has given the parties until July 9 to come to an agreement. If one isn't
reached, Chief Administrative Law Judge Curtis L. Wagner says he can either
ask for more time, ask the FERC itself to rule on the refunds, or suggest to
the FERC that it schedule a formal hearing on the matter, something
resembling a trial.
"First thing I want to do is find out how much is owed, how much has been
paid, what capacity the sellers still have, and what capacity is needed,"
Wagner said last week as he prepared for the marathon sessions. Once that's
done, he said, the refunds will be addressed, "or maybe the trading of some
amounts of money for longer-term contracts. It's all up in the air."
Michael Kahn, chairman of California's Independent System Operator, will lead
the state delegation to the settlement talks. The delegation includes
representatives from myriad state agencies, including the attorney general,
who has launched a criminal investigation of private generator charges.
The ISO has estimated that of the $9 billion in alleged overcharges, about
$4.7 billion was from private generators. The rest was charged by municipal
sellers and others who are not under the FERC's jurisdiction.
"We need the FERC to lay the basis for seeking refunds from private
generators, and we will use that as a basis for dealing with the generators
who are not under FERC jurisdiction," said Nancy McFadden, a Davis adviser.
McFadden also said the state won't agree to drop civil or criminal
proceedings against the generators as part of a refund settlement.
The generators and utilities -- which have denied overcharging Californians
for power -- were largely mum Friday, saying they didn't want to jinx the
talks.
But one power generator, Spokane-based Avista Corp., did speak out about the
possibility of refunds.
"We are opposed to retroactive refunds," said Avista spokesman Hugh Imhof.
"We believe it's fundamentally unfair to change the rules after the fact."
And Mike Zenker, an analyst at Cambridge Energy Associates, a prominent
energy-consulting firm, said the settlement conference will likely include
discussions of how state officials meddled in the fledgling market, which
could affect California's ability to get refunds.
"You can bet that generators are going to argue that the response of elected
officials exacerbated the crisis," Zenker said.
On Friday, the FERC commissioners expanded the scope of the talks, saying the
parties are free to include possible overcharges for power bought in the
Pacific Northwest. A number of Senators and members of Congress had
complained to the FERC at hearings here last week that Washington state and
Oregon should not be left out of these negotiations.
Wagner has decided to let the media in to take pictures and listen to the
opening statements of the parties. But when the real work starts, the doors
will close. And Wagner has admonished all the parties not to talk about what
happens in the hearing room to outsiders.
Not only will ratepayers in California be watching, but so will the players
in the home offices of generators nationwide. Wall Street also has a keen
interest.
"I think uncertainty is always hard on financial markets," said Paul Fremont,
an analyst at Jeffries & Co. who follows Southern California Edison and PG&E.
As far as Freemont is concerned, the utilities have nowhere to go but up.
"I don't think anybody is offering to provide refund money to the utilities,"
he said.
But utilities do point to the ISO financial analysis that chronicles the
alleged overcharges by the generators. That analysis goes back to May 2000;
the utilities were still buying power until Jan. 17 of this year.
ISO says $4.5 billion in generator overcharges occurred while the utilities
were still buying power.
"We are eligible for some of the refunds," said Gloria Quinn, Washington,
D.C., spokeswoman for Southern California Edison. The refunds, she said,
"would be used to pay off debt, and if any money was left over, it would go
to the customers."
Kahn, the ISO chairman, was cautious but optimistic that progress, if not a
settlement, would be achieved in the coming two weeks.
And for its part, the government of California's cards are face up.
Generators and marketers, Kahn said, "don't go into it thinking: 'I don't
know what California's position is.' They know what it is."
The question is, will that matter?
Register staff writers Kate Berry and Barbara Kingsley contributed to this
report.

College cuts electricity use 20 percent
A little hotter and a little darker, Saddleback College sweats out the
savings. Even with higher rates, May's bill is lower.
June 25, 2001
By JIM RADCLIFFE
The Orange County Register
MISSION VIEJO Even Saddleback College President Dixie Bullock hasn't been
spared.
One night last month, she was sitting still, writing an e-mail, when her
office lights went dark. The settings on new motion sensors installed that
day to save electricity were a little off.
"I'd have to wave my arms about to get the lights back on," she said.
The sensors, placed throughout campus to turn off lights when rooms are
vacant, were adjusted.
Bullock saw the incident as a small price to pay: Saddleback College used 20
percent less electricity in May compared with a year ago.
The reduction was due to the sensors and to thermostats set at 78 degrees
instead of 72. Kilowatts per hour dived from 1.1 million in May 2000 to
876,000 last month, said John Ozurovich, Saddleback's director of facilities.
Although electric rates have risen, the school's monthly bill shrank nearly
$11,000 -- to $94,599.
"I never thought that I'd rejoice over a $95,000 bill," Bullock said. "But I
am."
To help students and employees sweat it out in hotter rooms during summer
school, the Associated Student Government will pass out chilled water bottles
when temperatures get into the 90s.
Saddleback also is putting plastic covers on swimming pools at night to
retain heat. And the school is cooling water in a large tank during nonpeak
hours and later using the water with fans to cool buildings.
Beginning in late summer, Saddleback, like many other two-year schools in the
Mission Conference South, will switch from night football games to day
contests.
From January through May, Saddleback used 16 percent less electricity than in
the same period last year -- but paid 12 percent more for it.

Monday, June 25, 2001

Cynical union ploy
Most Californians by now know that environmental activists have over the
years used state and federal environmental rules to slow down the process of
building new power generators, thus adding to the current electricity crisis.
What they don't often know is that organized labor has used the same
environmental rules to stop plant construction also.
This at first sounds counterintuitive. Labor unions want to see such projects
built, given that plant construction provides lucrative work for trades
workers. But California unions have wanted more than a chance for union
contractors to bid on and win such projects.

When the unions do get PLAs - such as the agreement granted by the Orange
County Board of Supervisors to local unions for most public works projects
countywide - their involvement can drive up costs 20 percent to 30 percent.

They want a complete monopoly on major public construction projects. Unless
they are granted project labor agreements (PLAs), which ace out open shop
contractors and nonunion workers, they are willing to use environmental laws
to stop the projects completely.
Some critics call it economic blackmail.
When the unions do get PLAs - such as the agreement granted by the Orange
County Board of Supervisors to local unions for most public works projects
countywide - their involvement can drive up costs 20 percent to 30 percent.
That means fewer plants built for the same money.
It's the undertold story of the electricity crisis.
"In 1997 ( a consortium of plumbers, electricians, boilermakers and others
formed California Unions for Reliable Energy to target the approval process
of powerplants," wrote San Francisco labor attorney Mark R. Thierman in a
January column in Engineering News Record. "CURE has filed environmental
objections against projects by Sempra Energy, Occidental Petroleum and PG&E
National Energy Group."
As the article explains, the unions give up their environmental claims
against the project once the builders agree to give nonunion workers the
boot. "Since the exclusion of nonunion constructors, powerplants have become
more expensive to build and less likely to be built."
This isn't just one man's opinion. Other sources have uncovered the same
blackmail techniques. The Bakersfield Californian reported in December 2000
that "Labor unions have intervened in every new electrical power plant
proposed in energy-starved California. They have: Threatened lawsuits over
the San Joaquin wooly-thread, an endangered plant that is a small,
inconspicuous member of the sunflower family. Complained about diesel fumes
and cancer. ("
In fact, a May 1999 newsletter from the International Brotherhood of
Electrical Workers was upfront about the strategy. It said CURE feared that a
new wave of independent energy generators - i.e., private electricity
producers in the wake of deregulation - would build and operate plants
without union labor. "CURE dedicated itself to a statewide mission to prevent
this outcome."
Judging by the predicted blackouts and rising California electrical rates,
we'd suggest the unions succeeded mightily. Of course, every Californian will
have to pay for this cynical strategy.

LADWP Goes Solar, Welcomes Start of Summer With Conservation Kick-Off to Help
L.A. Residents Beat the Heat

June 25, 2001

LOS ANGELES--(BUSINESS WIRE)--June 22, 2001 via NewsEdge Corporation -
Residents and Businesses to Receive Largest
Energy Efficiency Incentives in L.A. History This Summer
The Los Angeles Department of Water and Power showcased its largest current
municipal solar construction project located at the Los Angeles Convention
Center and kicked off the summer solstice with conservation and solar
incentive programs to help Los Angeles businesses and residents beat the heat
during the upcoming months.
Councilman Mark Ridley-Thomas, LADWP General Manager David Wiggs, L.A.
Convention Center General Manager George Rakis, IBEW's Brian D'Arcy, Actor Ed
Begley Jr. and other environmental activists, city officials and community
leaders ushered in the summer solstice and kicked-off the LADWP's summer
conservation campaign into high gear at a new solar installation at a Los
Angeles Convention Center parking facility rooftop, with the downtown skyline
as backdrop.
The 250-kilowatt solar installation parking facility project, part of the Los
Angeles Convention Center 400-kW system, is scheduled for completion at the
end of summer. The Convention Center project's 5,200 solar modules, including
the 3,300 modules on the parking structure roof, will produce the amount of
energy powering 200 homes a day during peak times.
This system is part of an aggressive solar program funded by LADWP that will
install solar systems at 35 municipal buildings, including most branch
libraries and many parks, every year for the next five years.
"This summer we can beat the heat by making every kilowatt hour count," said
Los Angeles City Councilman Mark Ridley-Thomas. "Solar installations, like
those being constructed at the Los Angeles Convention Center facilities, and
energy conservation are powerful LADWP programs mitigating the potential for
long-term environmental disaster from global warming while keeping the lights
on in California this summer."
The event recognized the success of major solar, energy reduction and
greening incentive programs being adopted by 123,000 residents and businesses
across Los Angeles, including 80,000 customers who have signed up for Green
Power.
In the last 12 months, LADWP-sponsored energy efficiency programs conserved
24.5 megawatts -- enough energy to power 12,000 homes. And, energy
conservation efforts in the city of Los Angeles are expected to save an
additional 25 megawatts this summer. This megawatt savings is more than
double the energy conservation goal of 12 megawatts set for Los Angeles by
the state.
"Our customers have been good neighbors. We have already saved the 24.5
megawatts during the past year due to customer participation in our energy
efficiency programs. LADWP environmental efforts have been successful, and we
want to encourage all of our customers to keep up the great work in
supporting conservation and our other Green L.A. initiatives," said David H.
Wiggs, LADWP general manager.
"Angelenos have strongly embraced LADWP energy efficiency programs. From
super-efficient air conditioners and lighting systems to installations of
solar systems, cool roofs, chillers and more, residents and businesses have
taken personal ownership of the L.A. environment," said Angelina Galiteva,
LADWP's director of strategic planning.
"With support from the California Energy Commission, the LADWP is rolling out
the largest energy conservation incentives in its history this summer."
A total of $16 million in incentives from the California Energy Commission
has been earmarked for LADWP energy efficiency programs over the next two
years. But, because of demand, LADWP expects to spend these funds by the end
of summer, Galiteva said.
About Green L.A. and LADWP
LADWP's Solar Power, Energy Efficiency and Green Power initiatives are all
part of the Green L.A. Program that also includes the Cool Schools Tree
Planting effort, Electric Transportation and Recycling activities. For more
information about the LADWP's Green L.A. Programs, log on to www.GreenLA.com
or phone 800/GREENLA.
The Los Angeles Department of Water and Power serves more than 3.8 million
people in Los Angeles and was established almost 100 years ago to provide
water and electric needs to the city's businesses and residents.
CONTACT: Los Angeles Department of Water and Power | Walter Zeisl,
213/367-1342 | 213/792-5521 (cell phone) | 213/367-3227 (after regular
business hours)

Duke Energy Refutes False Charges; Plant Output Was Controlled by California
ISO

June 25, 2001

SACRAMENTO, Calif., June 22 /PRNewswire/ via NewsEdge Corporation -
Duke Energy (NYSE: DUK) today said the output of its South Bay power plant in
California was directed by the California Independent System Operator (ISO)
to track fluctuations in electricity demand, and the plant operated at top
reliability.
The company strongly denied allegations by three former plant employees that
power output was reduced at Duke Energy's own direction.
The workers making the allegations were employees of San Diego Gas & Electric
(SDG&E) who were not hired as part of the new operating team when Duke Energy
assumed full control of the South Bay power plant in April.
Bill Hall, vice president of Duke Energy's western operations, said, "These
allegations represent just one more page in a very long chapter of
misinformation disseminated by people who don't know the full story."
Hall reviewed the charges and the facts:
Charge: Output from South Bay was ramped up and down to manipulate prices
during times when energy supplies were short.
The facts:
* The units were operated under the direction of the California ISO to
meet system reliability and Duke Energy's contractual commitments.
* While the three ex-workers allude to log books from the plant control
room with notations from Duke Energy Trading & Marketing (DETM), the
former SDG&E South Bay employees apparently did not know that that the
ISO directs output through the DETM coordinator. Our records of ISO
directions match up perfectly with the logbook notations.
Charge: The most expensive unit was run at South Bay to drive up ISO prices.
The facts:
* South Bay's 15-megawatt, jet-fueled unit was designed principally to
provide start-up power to the station's steam units. This unit has been
made available to provide as much energy as possible to California
during the state's energy crisis.
* During the period in question, the jet-fueled unit was being operated
because the price of jet fuel was substantially less than the cost of
natural gas. This resulted in lower marginal costs.
* The 15-megawatt unit was being run to provide electricity to cover Duke
Energy's California contractual commitments. This electricity was not
being bid into the ISO market, so there was no way it could have
influenced ISO market prices.
Charge: Inventory management (including "throwing out spare parts") at South
Bay resulted in increased outage time to accomplish repairs.
The facts:
* At no time did lack of inventory result in a unit being unavailable for
service.
* The inventory management practices at South Bay represent standard
industry practices. Duke Energy purchased the entire inventory for
South Bay when we assumed operations for the plant in 1998. We retained
the parts and tools we deemed useful and disposed of inventory that was
damaged or obsolete.
* Duke Energy employees have taken extraordinary actions to keep our power
plants operating during California's energy crisis.
Duke Energy continues to deliver real solutions to the state's energy needs
and to operate its business with integrity.
Duke Energy will hold a media briefing immediately following the state Senate
hearing at approximately 4 p.m. (ET). Reporters not in Sacramento can call-in
at: 888/664-9965, passcode DUKE.
For additional information, please visit our Web site at
http://www.duke-energy.com/California .
Duke Energy, a diversified multinational energy company, creates value for
customers and shareholders through an integrated network of energy assets and
expertise. Duke Energy manages a dynamic portfolio of natural gas and
electric supply, delivery and trading businesses -- generating revenues of
more than $49 billion in 2000. Duke Energy, headquartered in Charlotte, N.C.,
is a Fortune 100 company traded on the New York Stock Exchange under the
symbol DUK. More information about the company is available on the Internet
at: www.duke-energy.com.
CONTACTS: Cathy Roche, 704-373-4860, or 24-Hour, 704-382-8333, or Tom
Williams, pager, 877-364-5170, both of Duke Energy.
MAKE YOUR OPINION COUNT - Click Here
http://tbutton.prnewswire.com/prn/11690X29746831
SOURCE Duke Energy
CONTACT: Cathy Roche, 704-373-4860, or 24-Hour, 704-382-8333, or Tom
Williams, pager, 877-364-5170, both of Duke Energy
Company News On-Call: http://www.prnewswire.com/comp/257451.html or fax,
800-758-5804, ext. 257451
Web site: http://www.duke-energy.com/California
Web site: http://www.duke-energy.com (DUK)

California Power Suppliers May Have to Refund Billions.
?
06/25/2001
The Oil Daily
(c) 2001 Energy Intelligence Group. All rights reserved.
Power marketers providing electricity in California may have to refund
several billion dollars to customers to compensate for overcharging, a
Federal Energy Regulatory Commission (FERC) administrative law judge said
Friday.
The potential refunds, however, will be no where near the $9 billion claimed
by California Gov. Gray Davis, Judge Curtis Wagner said. Wagner is to oversee
hearings on the alleged overcharges that begin Monday in Washington, D.C.
Industry sources have expected such action from federal regulators, who
already have acknowledged that the power suppliers had overcharged by several
hundred million dollars.
One issue that may complicate the matter is the amount of money that the same
power providers are owed by California utilities for electricity they
supplied, but for which they have not been paid.
The California governor last week said that power generators and marketers
including Duke Energy, Dynegy, Enron, Reliant Energy, Mirant, and Williams
Cos. may be due $2.5 billion just by Pacific Gas and Electric, which is in
bankruptcy. This does not include funds owed by Southern California Edison or
San Diego Gas & Electric.
Wagner's comments were not released until after the close of the New York
Stock Exchange on Friday. The shares of the natural gas and electricity
trading companies have been battered in recent weeks, in part because of
fears they would be required to make refunds.
(c) Copyright 2001. The Oil Daily Co.
For more infomation, call 800-999-2718 (in U.S.) or
202-662-0700 (outside U.S.).

Californians Get Rude to Enron Executives.
?
06/25/2001
The Oil Daily
(c) 2001 Energy Intelligence Group. All rights reserved.
Californians are being downright rude to Enron executives these days.
First, California Attorney General Bill Lockyer suggested that Enron Chairman
Kenneth Lay ought to be forced to spend some time in a prison cell with a
tattooed character named Spike who was looking for "companionship."
Thursday, an angry electricity consumer threw a cream pie in the face of
President and Chief Executive Jeffrey Skilling as he was preparing to address
a civic and business group in San Francisco.
According to wire service reports, the pie thrower was a woman from the
Biotic Baking Brigade, an organization that makes a practice of "creaming"
controversial figures. Past recipients include Microsoft Chairman Bill Gates
and San Francisco Mayor Willie Brown.
Skilling went ahead with his speech to the Commonwealth Club of California ,
telling them that Gov. Gray Davis was not responsible for the current crisis
because he had inherited the regulatory morass from the prior administration.
Davis was elected in 2000, succeeding Republican Pete Wilson.
Skilling, an ardent Republican, couldn't let the Democratic governor escape
without some criticism. He said that Davis had exacerbated the problem by not
addressing it promptly when the first signs appeared last year.
Enron Vice President Karen Denne said that company executives anticipated
some sort of demonstration by disgruntled electricity consumers. "Obviously,
this is a very emotional issue," she said. "There was risk in our coming to
the state, but we feel strongly enough about the issue that we felt it was
important to talk about the situation and what could be done to fix the
problem."
Denne maintains that listeners received Skilling's remarks favorably. "They
did seem to be receptive to the message," she said.
Wall Street also has been rather impolite to Enron of late. The company's
common stock continues to take hits, last week falling to a 52-week low of
$42.35. This is less than half the year's high of $90.75, reached in August.
Friday it was trading at around that same level.
The most recent decline came after the Federal Energy Regulatory Commission
issued an order imposing "price mitigation" rules on electricity sold to
California and 10 other states in the western power grid (OD Jun.15,p6).
The pounding prompted Skilling to issue a statement pledging that Enron would
make its earnings targets.
Barbara Shook.
(c) Copyright 2001. The Oil Daily Co.
For more infomation, call 800-999-2718 (in U.S.) or
202-662-0700 (outside U.S.).

Opinion; Op Ed Desk
Life After the Crisis
?
06/24/2001
Los Angeles Times
Home Edition
Page M-4
Copyright 2001 / The Times Mirror Company
For six months, Californians have been riding an energy crisis that is like
some movie monster--a weird, hard-to-comprehend creature that morphs and
fragments day by day.
Now, finally, the state is gaining a measure of control. The threat of
near-constant rolling blackouts through the summer is fading, though not
gone, and Washington has halfheartedly come to the rescue. What's still
needed is a long-term plan, a way to turn this monstrous puzzle into a
coherent whole.
As Chairwoman Debra Bowen (D-Marina del Rey) of the state Senate's Energy
Committee said, "What do we want this beast to look like? We've got to have
pieces that fit together."
What California will have by the end of this year is a ragged mosaic of
emergency edicts from Gov. Gray Davis, lots of hasty legislative action and a
multibillion-dollar debt from turning the state into the chief power
purchaser. Consumers already are paying higher electricity bills--much higher
ones for those who don't conserve. There is constant action in the federal
Bankruptcy Court and the acronymic stew of state and federal agencies.
The experience is unique in California history and might be likened to
Franklin D. Roosevelt's First 100 Days effort to battle the Depression. Need
more money? State Treasurer Phil Angelides goes to Wall Street and borrows
$3.5 billion. Need more power? The Legislature creates a California Power
Authority to build the state's own plants if necessary.
The crisis atmosphere eased last week, due in part to stronger federal
controls over wholesale power rates. Prices moderated. More plants were back
on line. The weather was hot, but no blackouts followed. The state finally
released details of its $43 billion in long-term energy contracts. Angelides'
loan will help end the bleeding of the state's general fund for power
purchases. And FERC promised to vigorously pursue refunds from the giant
power companies that grossly overcharged California this past year. It's
about time.
Soon, payment of back debt will have to be apportioned. First, what
percentage should be paid? Generators should be prepared to accept less than
100%. After that, taxpayers, utility customers and the utilities' parent
companies may have to shoulder more burden. That will be unpleasant.
Then what? Bowen plans to hold a hearing soon on "What should California 's
electricity marketplace look like?" Topics that need to be covered include
the future role of the utilities, improving natural gas supplies to the state
and restoring suspended environmental controls. The state should aggressively
increase alternative and renewable energy. It also needs to decide whether
there is any advantage in taking over the transmission grid and to figure out
the best way to get itself out of the power-buying business.
There can be no return to the old regulated system since most of the
utilities' old power plants are now owned by private generators. The
disastrous 1996 deregulation has already been largely undone. We know from
the state's hard experience that electric power is too critical to be trusted
entirely to the free market. What is not clear yet is how much regulatory
control is needed and who should supply it. There will be no easy answers,
but if we define the right questions, the beastly puzzle will start to make
sense.