Please see the following articles:

Houston Chron, Sun, 4/1:  "Corporate greed isn't to blame for energy crisis
in California"

Sac Bee, Mon, 4/2:  "Report: Potential rate hike included in California power
talks"

San Diego Union, Sun, 4/1:  "Davis softens on rate hikes; Democrats fear
backlash"

San Diego Union, Sun, 4/1:  "Some question value of transmission lines"

LA Times, Mon, 4/2: "This Summer, Power-Hungry U.S. May Feel West's Pain"

LA Times, Mon, 4/2:  "State, Edison Discussed Pact to Pay off Firm's Huge
Debt"

LA Times, Mon, 4/2:  "Vegas lights Undimmed"

SF Chron, Mon, 4/2:  "Power Crisis Batters Budget
Stock slide, rate increases erode state's revenue "

SF Chron, Sun, 4/1:  "Davis Blames Crisis On State Republicans
But Democratic controller points at governor "

SF Chron, Sun, 4/1:  "Rate Increases May Be Just Beginning
Unanswered questions now may mean higher bills soon "

SF Chron, Sun, 4/1:  "Energy Department Rethinking Clinton Appliance
Efficiency Rules "

SF Chron, Mon, 4/2:  "Hydrogen Powers Energy Hopes
Experts say it may be the fuel of the future "

Mercury News, Sun, 4/1:  "Consumers bemoan formula for power-rate hikes"

Mercury News, Mon, 4/2:  "High energy prices place firms higher in Fortune
500 ranks"

Mercury News, Mon, 4/2:  "As energy policy lurches, is Gov. Davis in charge?"
     (Editorial)

Orange County, Mon, 4/2:  "Businesses battle the blackouts"     (Commentary)

Individual.com, Mon, 4/2:  "California ISO Declares Stage Two Electrical
Emergency;
Continued Conservation Urged as Power Supplies Remain Limited"

Individual.com, Mon, 4/2:  "[B] PG&E says it will take $4.1 bln charge on
uncollected
power costs (Wrap)"
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OUTLOOK
Outlook
Corporate greed isn't to blame for energy crisis in California
JERRY TAYLOR, PETER VANDOREN

04/01/2001
Houston Chronicle
4 STAR
4
(Copyright 2001)

TO hear California's politicians tell it, heartless power- generating firms
are the cause of the high price of West Coast electricity.
Deregulation, the populists claim, allowed them to sell electricity at
astronomical prices in an utterly dysfunctional wholesale market. The Federal
Energy Regulatory Commission has now joined the witch hunt, ordering power
generators to refund the state of California $124 million for "overcharges"
during the power emergencies in January and February. The only problem with
price controls, we're told, is that they're not more aggressively applied.
Have we learned nothing from economic history?
The commission maintains that it cost 27 cents on average to produce a
kilowatt hour of electricity during peak demand periods last January.
California regulators, however, report that they paid an average of 28 cents
for that power on the daily spot market. During February, wholesale natural
gas prices exploded, resulting in production costs of 43 cents per kilowatt
hour. Unfortunately, no published data exist to discern what that power
actually sold for. But given the size of the commission-ordered rebates and
the extent of the markups observed in previous months, it's unlikely that
wholesale prices were more than a few cents higher on average than production
costs. Nonetheless, because the commission's mission is to prohibit "unjust
and unreasonable" wholesale prices, the commission wants the generators to
give back the difference charged during the power emergencies earlier this
year.
The economic populists have seized on those commission orders as proof that
they're being robbed blind. But hold on a minute: The commission's data
clearly show that high wholesale electricity prices (which hovered around 3
cents per kilowatt hour before the crisis hit last year) are primarily the
result of higher production costs, not corporate greed. To be sure, industry
analysts believe that actual production costs during power emergencies are
far higher than the commission believes, but at least the commission has
recognized that input prices explain most of the spike. The upshot is that
higher production costs would have sent wholesale electricity prices through
the roof even if the Legislature had not "deregulated" its electricity market
in 1996.
The commission also implicitly concedes - rightly - that the highest cost
source of supply needed to meet demand is the legitimate price for all power
sold in the state. For instance, the cost of producing a kilowatt hour of
nuclear, coal, or renewable-fired electricity ranges from 2 cents to 6 cents,
but the commission does not propose to require those generators to price at
cost.
Given the overall shortage of electricity in the Western region, the
commission grants those power generators the right to charge what the market
will bear.
But wait: Why is it OK with the commission if some generators charge what the
market will bear, but not OK for other generators to do likewise? Top
electricity economists spanning the ideological spectrum agree that power
supplies are so tight in the West that most natural gas-fired generators can
charge more than their costs and still find willing buyers. Not only is this
not a crime were it to occur in any other market, it's necessary if
electricity is to be allocated to those who need it the most.
For the sake of argument, let's assume that about a nickel out of each
kilowatt hour sold during the peak demand periods in January represents
"profiteering." If so, don't blame the free market . . . it doesn't exist. In
California, generators can charge whatever they want during a crisis without
fear that the prices they name will reduce sales because the state insists
upon maintaining retail price controls. This is called a "dream scenario."
Without those rate caps, generators would find that high prices reduce sales,
providing a disincentive against charging the moon. The upshot is that retail
price controls are themselves primarily responsible for whatever mischief
exists.
Still, we're arguing about a nickel out of a bill of 28-45 cents per kilowatt
hour. That's a lot of to-do about relatively nothing. Drum all those alleged
excess profits out of the market and we're still in a world in which
California ratepayers are getting one heck of a free ride. Even with the 40
percent rate hike passed last week, California ratepayers are still paying
only one-third to one-fifth the cost of the power they are consuming.
You don't need a Ph.D. in economics to understand that subsidies like that
will inevitably result in excessive consumption, scarcity and blackouts.
Those who think that denying the laws of supply and demand are the best way
out of this mess will soon be pondering such thoughts in the dark.

Drawing: (p. 1)

Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.
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Report: Potential rate hike included in California power talks
LOS ANGELES (AP) -- The state's negotiations to buy power lines from ailing
Southern California Edison included a draft proposal that could mean another
rate hike for customers, the Los Angeles Times reported Monday.
The newspaper said it obtained a 40-page draft memorandum of understanding,
dated last week, that among other things could obligate Edison customers to
help pay the utility's massive debt through a "dedicated rate component" --
potentially a rate hike -- even if no power line deal is reached.
The component, which wasn't specified, wouldn't show up in bills for two
years, according to the draft.
The document was dated Tuesday -- the same day that the state Public
Utilities Commission approved record rate increases of up to 42 percent for
Edison and 46 percent for PG&E.
The PUC was scheduled to meet Monday to determine how best to hear from as
many different groups as possible before implementing the increase.
A spokesman for Gov. Gray Davis said Sunday that the draft memorandum -- one
of several floated in the state's ongoing, nearly two-month-old talks with
Edison -- already is obsolete.
"This draft is ancient history," Steve Maviglio said. "We have moved beyond
that, and continue to make progress and hope to be able to make an
announcement shortly." He did not provide other details.
On Friday, Edison officials described as "very active" talks with the
governor's office over the sale of its transmission lines to give the
struggling utility a cash infusion. But SCE chief financial officer Ted
Craver said a deal was not imminent.
In addition to Edison, Davis wants to buy electrical lines from Pacific Gas &
Electric Co. and San Diego Gas & Electric Co. for a combined total of about
$7 billion.
Edison and PG&E say they've lost nearly $14 billion since June to high
wholesale prices.
Talks between the state and PG&E are awaiting the outcome of the Edison deal,
PG&E spokesman John Nelson said Sunday.
Meanwhile, the Bush administration on Sunday reiterated its opposition to
price controls as a method of halting soaring energy costs, including
California's.
"Our view is that price caps on energy create shortages. They created the gas
lines of the 1970s," U.S. Energy Secretary Spencer Abraham said on ABC's
"This Week."
"If we did them in California, for instance, where this call has gone out,
we'd have more blackouts this summer, they'd last longer, and they'd go on
into the future," Abraham said.
As for helping the state, "we're doing the most that we can," Abraham said.
"But as I've said, we don't have a generator in the basement of the
Department of Energy where I can automatically send electricity, whether it's
to California or another part of the country."
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Davis softens on rate hikes; Democrats fear backlash

By John Marelius?
UNION-TRIBUNE STAFF WRITER
April 1, 2001
ANAHEIM -- Gov. Gray Davis all but abandoned his once-adamant opposition to
electricity rate increases yesterday as angst over the potential political
fallout from the energy crisis dominated what had been planned as a weekend
of celebrating Democratic electoral gains in California.
In a speech to the California Democratic Party Convention, the governor
sketched the outlines of an alternative he is expected to propose to the rate
increases of up to 46 percent approved last week by the state Public
Utilities Commission.
"If a rate increase becomes absolutely necessary to keep our lights on and
keep our economy strong, you can be sure of one thing from this governor:
I'll fight to protect those least able to pay, reward those who conserve the
most and motivate those who are the biggest guzzlers to cut back," Davis
said.

Some question value of transmission lines
?

Meanwhile, state Controller Kathleen Connell pointedly decried a "delaying
and incremental" approach to the energy crisis and warned of a voter backlash
against Democrats in next year's elections.
"Just ask President Jimmy Carter what happens when you stall and you don't
solve the gas-line problem," Connell said. "We don't want to have that happen
to California Democrats."
Davis, who has a history of animosity with Connell, shrugged off the unstated
but obvious critique of his handling of the crisis.
"Everyone's entitled to their point of view, but I believe that we've moved
at warp speed to address this problem," he said. "I'm pleased that we've been
able to keep the lights on most days. .?.?. Maybe if she's not happy with
that, she can run for governor next time."
One analyst speculated that may be exactly what Connell has in mind. She is
running for mayor of Los Angeles but is not expected to be a major factor,
and term limits prevent her from seeking a third term as controller next
year.
"It's the opening salvo in the 2002 Democratic primary campaign," said Sherry
Bebitch Jeffe, a political scientist at the University of Southern
California. "I don't know how else to interpret it."
With the election of President Bush and Republicans in control of Congress,
the Democratic Party finds itself in its weakest position nationally since
the Eisenhower administration. Yet in California, Democrats are in their
strongest position in decades as they hold all but one statewide office and
wide majorities in the state congressional delegation and both houses of the
Legislature.
A succession of convention speakers -- U.S. Sen. Barbara Boxer, House
Minority Leader Dick Gephardt of Missouri and Democratic National Committee
Chairman Terry McAuliffe -- excoriated Bush's assault on Democratic
environmental and worker safety regulations and held up the California
Democratic Party as a national model for Democratic electoral success.
"If every Democratic Party in the country did what California did for House
Democrats, I would have the (House speaker's) gavel today," Gephardt said.
For the first time, Democrats are holding their state convention in Orange
County, a Republican stronghold where Democrats have been making solid
inroads because of the steady influx of immigrants from Asia and Latin
America.
"This ain't your grandfather's Orange County," Davis crowed. "You know,
Orange County has a Republican past, but it has a Democratic future."
Such self-congratulation was tempered by the awareness that because Democrats
hold such a position of dominance in California, voters will expect them to
solve the electricity problem even as Democrats continue to blame it on the
deregulation policies of former Republican Gov. Pete Wilson.
"There will be no excuses for Democrats in this state because we dominate
state government," Connell said.
She warned that continued "finger-pointing" would not solve the problem.
Other speakers continued to hammer away at Wilson as some of the walls in the
Anaheim Convention Center bore posters reading, "Wilson did it." And then
there was the message inside the fortune cookies: "Energy fiasco. DNA proves
Wilson at crime scene."
"What the voters have to understand is that we inherited this crisis," said
California Democratic Party Chairman Art Torres, who was elected to a second
four-year term yesterday. "Now we've got to deal with it, and we should be
held accountable on how we deal with it."
Davis remains a strong favorite to win re-election next year, but his
once-robust popularity apparently has taken a major hit in recent weeks,
especially when blackouts began rolling across the state.
"There are people polling and they show enormous deterioration in Davis'
numbers, and it looks like he's got some real political problems," said
Democratic strategist Bill Carrick. "But ultimately, he's going to be judged
on how he manages the crisis and can he get a solution on this before next
year that makes some sense to people."
For months Davis said electricity rate increases were out of the question and
recently claimed he could have solved the problem in 20 minutes if he had
been willing to entertain them.
When the PUC voted its increase for Pacific Gas and Electric Co. and Southern
California Edison Co. on Tuesday, Davis called the action premature, but did
not offer an alternative. Yesterday, he said he was consulting with financial
analysts and would propose a rate plan before the end of the 30-day period
before the action of the independent commission becomes final.
"I will have a fuller statement within the next two weeks, at which time I
will speak to what if any rate hike I think is appropriate and how tiered
pricing should be implemented," the governor said.
Davis lashed back at Republican legislators who have escalated their
criticism of his handling of the crisis. He blamed the GOP for the ill-fated
1996 deregulation without mentioning that the plan cleared the Legislature
with unanimous Democratic support.
"The Republicans who were so enamored with deregulation just five years ago
have become even more enamored with criticizing me as I try to clean up their
mess," Davis said. "May I remind our Republican friends that this
deregulation disaster was authored by a Republican legislator, passed by a
Republican Assembly, signed into law by a Republican governor and implemented
with undue haste by a Republican PUC."
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Some question value of transmission lines

By Jeff McDonald?
UNION-TRIBUNE STAFF WRITER
April 1, 2001
Transmission lines have been upgraded. Poles are taller and sturdier.
Electricity is shuttled farther and faster than ever before.
But like internal combustion engines or indoor plumbing, not much has changed
over the past 100 years in the fundamental design of the distribution network
that pushes power across North America.
The electric grid, a vast collection of wires and switches, has served
millions of homes and businesses since the late 19th century. The grid has
been expanded again and again, decade after decade.
Now, with Gov. Gray Davis negotiating to buy huge sections of the grid owned
by three cash-hungry California utilities, questions are being raised about
the long-term value of such a dated delivery system.
Is the web of power lines a key link in the supply chain whose worth will
climb higher and higher as demand for electricity grows? Or will looming
technology render the grid obsolete even before the state can pay off the
bonds it issues to buy the system?
"The usefulness of the grid is still intact -- it does work," said Mark
McLaughlin, a researcher with the Alternative Energy Institute, a Tahoe
City-based group that promotes renewable power sources.
But "it will become less important over time -- 10, 15 years," he said. "As
for being completely reliant on it, that is changing now and will continue to
change at an ever-increasing pace."
Technological advances already are redefining traditional electricity
delivery.
With blackouts crippling businesses across the state -- and additional
outages forecast for this summer -- more and more companies are investing in
so-called distributed generation, a broad term applied to any number of
devices that can make power on-site.
Increasingly popular products such as microturbines, cogeneration plants,
photovoltaic systems and residential fuel cells allow consumers to limit
their reliance on utility companies such as San Diego Gas and Electric.
"This (power) crisis has generated a huge amount of interest in the product,"
said Mark Kuntz of Capstone, a San Fernando Valley-based company that markets
30-and 60-kilowatt microturbines.
"We're in the process of responding to that interest and turning it into
orders."
The abundance of alternatives for businesses and homeowners has propelled a
new debate: what to do with the surplus power produced by distributed
generation systems.
Investors are banking that the electric grid will remain hugely valuable
because it can move energy in any direction.
"We are building a company around our bullishness on the grid," said Fred
Buckman, chairman of Trans-Elect Inc., a private Washington, D.C.-based
company that plans to spend $15 billion acquiring transmission lines.
"The deployment of smaller distributed generation systems will reduce the
rate at which we have to grow the transmission system, but we don't believe
it will replace the grid."
Trans-Elect bid up to $5 billion for the lines owned by Southern California
Edison, Pacific Gas and Electric, and SDG&E. But that offer was pushed aside
by utility company executives when it became clear that Davis wanted the grid
for the state of California.
More important to utilities, however, may be the eventual sales price.
Edison agreed in principle to sell its share of transmission lines to the
state for $2.76 billion. But details of that proposed deal -- announced in
February -- remain to be worked out.
In the meantime, lawmakers are growing anxious about continuing delays. Some
legislators say Davis should rethink buying the grid and instead consider
acquiring the utilities' hydroelectric networks.
The $2.76 billion price tag for the Edison lines is about 2.3 times the their
book value -- the base worth used by regulators to set rates of return.
If PG&E and SDG&E reach similar deals with the governor, the cost of
acquiring some 32,000 miles of transmission lines could reach $7.4 billion --
too much, some consumer advocates worry, to make the transaction a good deal
for ratepayers.
Public ownership of the grid would give the state a powerful hand in dealing
with federal energy regulators, who so far have refused to rein in power
generators, consumer groups say.
The acquisition also would curtail unnecessary additions to the system,
investments that provide guaranteed profits to the current owners, activists
say.
"The state isn't looking to make money expanding the system," said Michael
Shames of the Utility Consumers' Action Network. "The state can establish a
policy that says no new grid will be built where distributed generation can
substitute."
But many experts believe that even as microturbines, fuel cells, windmills,
solar power and more cogeneration plants take root in coming years, the grid
will be needed to deliver surplus power to other places that can use it.
Without having ways to move power from place to place, a major benefit of
distributed generation would fall by the wayside.
"The only way small assets are useful is if they can be shared when some
power isn't needed, and you can't do that without a grid," said Mark P.
Mills, an energy consultant and co-editor of the Digital Power Report.
"The grid becomes more important the more you distribute things."
Nancy Floyd is a co-founder of Nth Power, a San Francisco venture capital
group that seeks investment opportunities in utility innovations --
particularly the transmission and distribution of electricity.
Five years ago, the firm had $50 million to spend. By 1999, the investment
pool had climbed to $350 million. Last year, the company portfolio soared to
$1 billion.
"This is an area that's attracting a lot of capital, which means you're going
to have a steady stream of new products and services," Floyd said. "That is
the bright side of deregulation."
Pure Energy Corp. of Syracuse, N.Y., has operated the Iceoplex cogeneration
plant in Escondido since 1994. It sells its 50 or so megawatts to SDG&E,
which transmits the power over the grid for use by its customers.
The firm has been floating plans to double capacity at the plant just east of
Interstate 15, but company executive Jack Wolf said a ruling by California
regulators last week has him rethinking expansion plans.
Adding new turbines or cogeneration plants can rub neighbors the wrong way.
Smokestacks billow out steam, which some residents say is unsightly even if
the plume of white is only harmless water vapors.
Wolf said his company met several times with Escondido residents to iron out
concerns about boosting capacity at the Iceoplex.
"If you're doing something like (expanding), you've got to meet with the
communities, understand what their concerns are and work with them," Wolf
said.
Taxpayer advocates, meanwhile, do not worry whether the grid will remain
viable over the next decade or two. Instead, they fear the government
takeover of an aging network of poles and wires.
"You're going to be socializing a massive infrastructure," said Jonathan
Coupal, director of legal affairs for the Howard Jarvis Taxpayers
Association.
"The state of California can't even maintain the damn roads," he said. "Now
we're going to be taking on not only the purchase but the ongoing maintenance
of a huge infrastructure?"
At the National Renewable Energy Laboratory in Golden, Colo., researchers
work to improve the efficiency of alternative energy programs and promote
their use among mainstream consumers.
But even as workplaces and neighborhoods across the country move toward
supplying their own power, the transmission system will remain a vital part
of the network that delivers electricity from place to place, experts say.
"Will the grid be obsolete in 20 years? Absolutely not. Things don't move
that fast," said George Douglas of the National Renewable Energy Laboratory.
"But we need to be forward-looking.
"If each office park and subdivision has its own power source, that doesn't
mean you don't want them linked, because things do fail."
Stanford S. Penner, director of the UCSD Center for Energy Research, is
convinced that the power grid will remain critical for decades to come.
History has shown that implementing new technology takes far longer than
inventing it, he said.
"The turnover by a new technology has usually taken 40 to 50 years," he said.
"Twenty years from now, they will still be relying on the transmission lines.
Forty years from now, they may be starting to phase them out."
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This Summer, Power-Hungry U.S. May Feel West's Pain

By ERIC SLATER, Times Staff Writer

?????CHICAGO--California's electricity meltdown has been so spectacular that,
until recently, much of the rest of the country was sitting back, feet up,
watching the rolling-blackout show on television.
?????No longer. As summer approaches, utility operators across the nation are
scrambling to shore up their own systems, many of which are themselves in the
murky middle of deregulation and in varying states of neglect and disrepair.
?????In Chicago, the recently overwhelmed power provider actually advises
competitors on where to build power plants. In New York City, officials say
the difference between light and dark this summer may be 11 mini-generators.
And in states from Arkansas to North Carolina, legislators are watching
California's deregulation fiasco and slamming the brakes on their own plans.
?????The West is bound to suffer the most this summer, experts agree, but
it's going to feel long and hot across much of the rest of the country,
whether it really is or not. And with the economy already sputtering, the
largest power shortage since the Arab oil embargo of 1973 could be nudging
the country toward recession.
?????"Pray for continuous clouds," advised San Francisco-based energy
consultant Edward Kahn.
?????A good word for cheaper gasoline in the Midwest, strong backs for coal
miners in the South and lower natural gas prices from coast to coast might be
in order as well.
?????In the U.S., electricity flows a bit like water in that the two largest
grids separate roughly along the Continental Divide. Power generated in the
West stays there, for the most part, and likewise the juice in the East.
(Texas has its own grid.)
?????With California, the world's sixth-largest economy, continuing to
founder after its steady diet of deregulation mistakes, the other 10 mostly
rural states in the Western grid are likely to suffer as well. As Rep. Jay
Inslee (D-Wash.) put it: "You can, today, see blackouts coming, big as life,
and an energy crisis going into the fall."
?????The Eastern Interconnect, however, is larger than its Western sibling,
more diverse in its sources and more complex in its physical structure, and
thereby protected from some Western-style utility woes. But, from a serious
transmission-line bottleneck near Eau Claire, Wis., to a 28-year-old Florida
law that some say is stifling much-needed growth, the Eastern grid has its
own kinks, soft spots and weaknesses.
?????If things start getting out of hand on this side of the Rockies, the
first fissure is likely to appear in the last place a fissure is needed: New
York.
?????When rates for many California customers shot up by as much as 46% last
week, New Yorkers could commiserate. They have seen their rates rise 40%
since 1999. A sweltering July or August could send prices up an additional
50%, some analysts predict. As in California, New York has deregulated its
power industry, so the market, not the state, sets the price. And as in
California, New York is heavily dependent on natural gas to fire its
generators--a commodity whose price has skyrocketed recently.
?????New York, again like California, also fell behind in the construction of
new plants--the last one going up in 1995--even as demand was growing
dramatically.
?????Now the city's power provider, Consolidated Edison, figures it has a
thin insulation of extra kilowatts to get it through the summer--unless it's
a bad one. Just in case, Con Ed wants to sprinkle the 11 mini-generators
throughout the city. Environmentalists, concerned about the air pollutants
the generators will kick out, have already filed suit to stop the plan.
?????Upstate New York has electricity surpluses ready to sell to the Big
Apple. So does the nearby PJM (Pennsylvania, New Jersey, Maryland)
Interconnection, which serves more than 22 million customers along the
Eastern Seaboard and has deregulated cautiously and effectively.
?????But "New York City--even assuming those generators come on line--is
going to be nip-and-tuck," said Bill Brier, vice president of Edison Electric
Institute, which represents private utilities.
?????The reason: Transmission bottlenecks make it all but impossible for the
city to import power on especially bad days. The Eastern grid is a much more
intricate web than that in the West, a mesh of more and smaller lines
ferrying electricity to a more evenly distributed population. But
deregulation has fundamentally changed how the grid is used without preparing
it for its new free-market role.
?????Constructed as a heavily regulated series of channels for efficiently
floating power from one utility with extra power to another in need, the grid
is now open to private electricity merchants who sell to the highest bidder.
In 1996, 25,000 transactions took place on the grid, according to the Edison
institute. By 1999, that figure had rocketed to 2 million.
?????"That," said Brier, "is why you're having more and more bottlenecks in
the system."
?????While deregulation has forced utilities to open up their transmission
lines to competitors, it has also allowed the marketplace--rather than
need--to dictate where new lines are strung.
?????In Minnesota, state officials would like new lines to come in from the
west and north, bringing cheap power from the Dakotas and Canada. But
Minnesota utilities would rather build lines in the opposite direction,
enabling them to sell power to Chicago and Milwaukee for perhaps twice the
price they're getting from Minnesota customers.
?????Of course, the utilities are running into the problem that always
accompanies proposed construction of 13-story metal towers buzzing with
megawatts: massive public opposition. In Wisconsin, a powerful grass-roots
group called Save Our Unique Lands calls one proposed line a "250-mile scar"
and points out that the line would go primarily to benefit not Wisconsinites
but their oft-derided urban neighbors, Chicagoans.
?????Just two years ago, Chicago, not California, was the daytime nightmare
of the electrical world. A summer of blackouts large and small began in July,
when more than 100,000 customers lost power on a 104-degree day, and
continued on and off for weeks, with 30 blocks of the central business
district going black for hours one Thursday afternoon.
?????Mayor Richard M. Daley went ballistic when Commonwealth Edison revealed
it couldn't warn of rolling blackouts because it wasn't sure how its
byzantine cable system works. After hundreds of millions of dollars in
upgrades, Chicago will still be vulnerable to blackouts this summer. But the
outages will be isolated problems of overload or mechanical breakdown, not
the systemic failures likely in the West.
?????In Illinois, restructuring that began in 1997 has gone relatively
smoothly, and the state and much of the Midwest has benefited from solid
policy and a decent amount of luck.
?????Just over half of Illinois' power comes from coal-fired plants, which
are cranking it out at a fraction of the cost of natural gas-driven
generators. An additional 42% comes from Illinois' 11 nuclear power
plants--more than any other state.
?????Only recently the ultimate utility albatross, nuclear reactors are
gaining some favor in the Bush administration. Operated by ComEd, which is
still working hard to burnish its image after the 1999 blackouts, every
reactor in Illinois is not only up and running but at record output,
according to David Helwig, ComEd vice president for operations.
?????In a brilliant public relations move, ComEd also printed maps of the
best sites for new generators and handed them out to competitors. With less
stringent environmental laws than in California, which hasn't built a major
plant in a decade, Illinois has continued to build.
?????More than 3,000 megawatts went online last year--about 10% of the
state's total load--and 10,000 more are planned for this year. "If we have a
problem in the Midwest, it's not going to be with generation, it's going to
be with the transmission grid," said Terry Harvill of the Illinois Commerce
Commission.
?????When the Eau Claire-Arpin line in Wisconsin overloaded at the same time
as a transformer in southeastern Ohio in June 1998, the Midwest became all
but isolated from the rest of the Eastern grid. And the incident demonstrated
dramatically another problem of deregulation that could still haunt the
system this summer. As operators scrambled to stave off blackouts, prices on
the spot market skyrocketed from $25 per megawatt hour to $7,500 per megawatt
hour.
?????Tom Overbye, an electrical and computer engineer at the University of
Illinois at Urbana-Champaign, wrote about the incident in a paper on
deregulation's effect on the power grid. "Imagine your consternation," he
wrote in American Scientist, "if one day you pulled into a gas station and
discovered the price had increased three-hundredfold, from $1.50 per gallon
to $450 per gallon."
?????The South, with its massive coal reserves, slow population growth and,
for the most part, a go-slow approach to deregulation, is likely to weather
its typical summer swelter, with one possible exception: Florida.
?????With a fast-growing population and a huge predicted shortfall of 11,000
megawatts over the next eight years, Florida had been a key target of
merchant operators looking to build. "Everyone saw Florida as the place to
go," said Rick Rhodes of Duke Energy, a major private supplier.
?????But when Duke prepared to build a 514-megawatt plant in New Smyrna, the
state's three investor-owned utilities filed suit under a nearly 3-decade-old
law restricting the entry of power wholesalers into the state. The Florida
Supreme Court ruled for the utilities, and Duke and other merchants planning
to build certain types of plants have, for the time, shelved their plans.
?????When it comes to transmission, Florida has another problem. Out-of-state
power can come from but one direction: north.
?????Supporters of deregulation are swift to point out that tinkering with a
$218-billion industry is bound to be painful at first and that while
California's debacle will take years to solve, other states will learn from
its experience.
?????As spring settles in, the Great Lakes thaw and half a dozen legislatures
begin tinkering anew with deregulation plans, a less optimistic school of
thought appears to be developing. "The California situation is so bad that it
confuses people," said Harvard University energy economist William H. Hogan.
"It scares people. It paralyzes people. . . . They learn the wrong lessons
and do the wrong things to fix it."

Copyright 2001 Los Angeles Times
------------------------------------------------------------------------------
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State, Edison Discussed Pact to Pay Off Firm's Huge Debt
Proposed deal would commit customers to aiding utility even if that meant
another rate hike. Davis spokesman says memo has been changed significantly.

By DAN MORAIN, Times Staff Writer

?????SACRAMENTO--A draft agreement between the Davis administration and
Southern California Edison would seek to return the utility to financial
stability by committing ratepayers to help pay off its multibillion-dollar
debt in future years even if the state's proposed purchase of Edison's
transmission system falls through. ?????The proposal, which could translate
into yet another electricity rate hike on top of the record increase approved
last week, contains provisions that would assure investors and creditors of
Edison's ability to dodge bankruptcy. Yet those elements appear certain, if
they remain in the final version, to anger some consumer advocates and
lawmakers.
?????As negotiations continue between Edison and the administration, a
spokesman for the governor cautioned that the draft, dated last Tuesday and
obtained by The Times, has been updated and changed significantly.
?????Nevertheless, the 40-page memorandum of understanding lays out the most
detailed framework yet of the administration's attempt to avert the utility's
bankruptcy. Gov. Gray Davis has made a state rescue of debt-ridden Edison and
Pacific Gas & Electric Co. a key part of efforts to tame California's energy
crisis. Negotiations with PG&E have lagged, but officials believe a deal with
Edison could set the stage for similar agreements with the other utilities.
?????"This draft is ancient history," Davis spokesman Steve Maviglio said
Sunday of the document dated six days ago. "We have moved beyond that, and
continue to make progress and hope to be able to make an announcement
shortly."
?????Executives of Rosemead-based Edison could not be reached for comment.
?????There is at least one more recent draft, officials said. But the
document from Tuesday reflects the direction of negotiations. Internal memos
dating back weeks describe similar elements in the discussions.
?????The talks have been going on behind closed doors for almost two months.
Even legislative leaders, including Davis' fellow Democrats, have learned
little about details of the talks--to their dismay.
?????"I have no idea what's in the memorandum of understanding," Senate
President Pro Tem John Burton (D-San Francisco) said Sunday. "But the
Legislature is going to hold very comprehensive public hearings, so we know
what we're getting into. . . . Whatever the deals are, we're going to have
very full and open hearings: What is it we're getting? What is it we're
giving? And what is the price?"
?????The draft shows, as previously announced, that Davis is offering to buy
Edison's portion of the 32,000-mile-long statewide system of high-voltage
transmission lines for $2.76 billion, or 2.3 times its listed book value. For
the transaction to work, Davis hopes as well to buy the portions of the grid
owned by PG&E and San Diego Gas & Electric Co., for a total price of about $7
billion.
?????The document says the state would buy the transmission grid "as is,
where is, and with all faults" and would contract with Edison to operate its
portion at a price to be negotiated. If the state decides to sell the grid at
some later date, Edison, like other businesses, would have the right to bid
to buy it back.
?????Edison would use cash from the purchase to help pay off its massive
debt--the gap between skyrocketing wholesale electricity prices and what the
utility was allowed to charge ratepayers. In federal filings, Edison has
estimated that debt at $5.5 billion; barring regulatory or legislative
relief, the utility's parent company said in its most recent filing, it may
take a $2.7-billion charge against earnings for the fourth quarter of 2000.
?????But the state takeover could fail for a variety of reasons; the Federal
Energy Regulatory Commission could, for example, block the state effort.
?????The document gives no specifics about a backup plan for the state to
acquire other assets if it fails in its efforts to take over the entire
transmission system. However, the draft does contain provisions that would
allow Edison to again become financially viable.
?????In particular, the draft agreement says consumers could be obligated to
pay a so-called dedicated rate component to help the utility restructure its
debt, even if the grid sale is not completed. The memorandum further states
that the charge would not appear in rates for two years, and that the debt
would be repaid over 12 years.
?????The charge, at an amount not specified in the draft agreement,
presumably would be on top of electricity rate hikes approved last week that
could be as high as 46% for some users. As such, the charge would face
certain opposition from Republican lawmakers, who have criticized the rate
hikes, and from some Democratic legislators, who are increasingly skeptical
about Davis' handling of the crisis.
?????Consumer advocate Mike Florio of the Utility Reform Network explained
the provision by saying it may simply authorize Edison to begin restructuring
its debt, pending final approval of the highly complex transmission grid
sale, which could take a year or more to consummate.
?????"This is a huge transaction," Florio said. "They can't wait until the
deal is signed, sealed and delivered."
?????But V. John White, of the Center for Energy Efficiency and Renewable
Technology, among the first lobbyists to float the idea of a state takeover
of the utilities' transmission systems, said some terms outlined in the
tentative agreement are causing him to rethink his position.
?????"I don't see where the public benefits are," White said of the overall
deal. "The price of the transmission sale is a complete capitulation to
Edison."
?????The tentative agreement contemplates that the California Public
Utilities Commission, which has the responsibility to regulate the state's
investor-owned utilities, would lose the ability to make at least some
decisions.
?????The agreement says, for example, that Edison's credit-worthiness and
ability to finance improvements to its remaining holdings would require
"greater certainty in respect of [Edison's] ability to earn a fair return on
invested capital."
?????Toward that end, the tentative agreement would limit the PUC's ability
to pare back the utility's current 11.6% authorized rate of return on
investment, the document says.
?????"Nothing like this has ever been done anywhere in the country," White
said. "This would be a regulatory jailbreak."
?????Among other provisions, the memorandum says Edison would drop its
lawsuit against the PUC seeking the right to pass on its wholesale
electricity costs to consumers.
?????The draft is dated the same day that the PUC approved a rate hike of
about 40% to cover the state's costs of buying electricity from independent
power producers. The state started buying electricity, at an average daily
cost of more than $50 million, after Edison and PG&E fell so deeply into debt
that they no longer were credit-worthy.
?????Executives at PG&E, the state's largest electric utility, have agreed to
consider parting with its portion of the transmission grid. But details
remain to be decided. PG&E spokesman John Nelson said Sunday that talks
between Davis and his company await the outcome of the Edison deal.
?????"It's not because there is any breakdown," Nelson said. "It is just that
they've concentrated their efforts on Edison."

Copyright 2001 Los Angeles Times
------------------------------------------------------------------------------
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Vegas Lights Undimmed

Despite soaring prices for electricity, the big hotel-casinos don't plan to
reduce their dazzling wattage outside. But they are cutting energy use
indoors.

By TOM GORMAN, Times Staff Writer

?????LAS VEGAS--The newspaper stories about California's electricity woes can
be read easily at night on the Strip, bathed in the brilliance of miles of
neon and a gazillion lightbulbs.
?????And Nevada utility officials expect it to stay that way through the
summer--when air conditioners work day and night to make the desert heat
tolerable--avoiding the power problems that have brought California to its
knees.
?????But that confidence is coming at a price: increased electricity rates,
to the consternation of the Strip's monster hotel-casinos. Between September
and April, rates will have increased by about 46%, driven by forces that are
pushing up energy costs nationwide.
?????The typical Strip hotel-casino uses about the same amount of electricity
as 10,000 homes, according to utility estimates. Like anxious homeowners,
hotel-casino operators are scouring their properties, looking for ways to
conserve electricity and--more important perhaps to Wall Street--save money.
?????At the MGM Grand, maintenance crews are working their way through the
5,005 rooms, changing lightbulbs to dimmer ones, reducing each room's
consumption to 500 watts from 750.
?????At the MGM and other hotels, incandescent bulbs are being changed for
more efficient fluorescent lights in many cases. Thermostats are being
installed to reduce air conditioning in unused convention rooms, and motion
sensors are being installed to keep the lights off in empty offices.
?????Even slot machines are part of the trend: The newest models consume
about 160 watts of electricity, 25% less than older models, said a spokesman
for the world's largest slots maker, International Game Technology.
?????But one thing won't change: blazing signs and extensive use of exterior
lighting to illuminate the resorts.
?????"Las Vegas has an image and a certain cachet it has to live up to, and
that includes the exterior lighting and the neon and the marquees," said John
Marz, a vice president of Mandalay Resort Group, which owns four big Strip
casino-hotels and operates a fifth.
?????"It's what people come here to see," he said. "And reducing those would
be the last thing we do."
?????Even as casinos look for places to cut corners, they're also fighting a
bigger battle in the state capital of Carson City to reverse the state Public
Utilities Commission's approval of a single, whopping 25% rate hike for
casinos, which took effect March 1. At the same time, residential rates
increased by nearly 15%.
?????The rate increases were sought by Nevada Power Co., which serves Las
Vegas and surrounding areas, and its sister utility in northern Nevada,
Sierra Pacific Power Co., to pay for electricity they already have contracted
to buy this summer. That one-time increase is in addition to rate hikes
approved earlier that are raising rates more than 1% a month, starting last
September and continuing until September 2003.
?????By the end of that three-year period, residential electricity rates will
have increased about 75%, and the rates charged casinos will have increased
by about 65%, said utility spokesman Karl Walquist.
?????The issue is simple, Nevada Power says: Customers must pay more for
electricity so the utility can remain solvent and buy power on the open
market. Otherwise, Walquist said, the state's two utilities will face the
same dire consequences that are playing out in California.
?????Through its own four power plants, Nevada Power generates about 2,000
megawatts. It buys another 300 megawatts from small, private generators in
Nevada, and another 230 from the federal hydroelectric plant at Hoover Dam.
?????Though the dam was built to create the Lake Mead reservoir, it was also
equipped to generate 2,000 megawatts of hydroelectric power, for sale to
agencies in California, Arizona and Nevada. However, it operates at only
about 30% capacity, based on the amount of water released through the
turbines for purchase by various California and Arizona agencies downstream.
?????Come summer, southern Nevada will need about 4,600 megawatts, nearly
double its winter demand. To meet the 2,100-megawatt shortfall, Nevada Power
has contracted for electricity generated in Utah, Arizona and Colorado.
?????The most jarring rate increase, yielding $311 million statewide in
higher revenue to pay for those advance purchases, was approved by the
state's PUC in February without public hearings.
?????That decision triggered an angry response from the state attorney
general's consumer advocate, as well as from the gambling and mining
industries.
?????They complained that the utilities had failed to publicly prove the need
for more money, and that the rate increase violated agreements between the
utilities and the PUC--with the casino industry's blessing--calling for the
small, measured rate increases every month.
?????A PUC hearing officer on March 23 heard testimony from the utilities and
a consumer group on the need for rate increases, and a PUC decision is
pending.
?????Nevada legislators and Gov. Kenny Guinn are immersed in the electricity
issue. The state began moving toward deregulation four years ago, but
reversed itself after watching California's problems unfold. Deregulation is
no longer on the state's radar screen.
?????Legislators also are attempting to block plans by the state's utilities
to sell their power plants so they can focus on transmission and
distribution. The lawmakers fear that if the utilities lose control of power
generators, Nevada will be even more at the mercy of private power companies.
?????In the meantime, the Strip's lights continue to shine brightly, and
utility officials say skeptics should not look too critically at them as
power hogs.
?????"They're very efficient, especially in terms of cooling as many people
as they do," said Mike Smart, vice president of resource management for both
Nevada Power and Sierra Pacific.

Copyright 2001 Los Angeles Times
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Power Crisis Batters Budget
Stock slide, rate increases erode state's revenue
Greg Lucas, Sacramento Bureau Chief
Monday, April 2, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/04/02/M
N218239.DTL
Sacramento -- Billions of dollars in electricity purchases, rate increases
that will drain money from the economy and a crumbled stock market are
shriveling California's state budget.
Even the modest estimates of revenue growth on which Gov. Gray Davis' budget
was based are being erased by the power crisis and the stock slide.
"The assumption we had in January is no longer a prudent assumption," said
Ted Gibson, chief economist at Davis' Department of Finance.
Although the flat economy is already pinching the state's cash intake, the
biggest hit will come at tax time 2002 -- 10 months into the budget Davis and
lawmakers are trying to put together before the new fiscal year starts on
July 1.
Next April there won't be the bonanza of capital gains and cashed-out stock
options the state has reveled in over the past two years.
Hard times in the dot-com world mean hard decisions for the Democratic
governor and lawmakers as they put together a spending plan.
On the Senate floor last week, President Pro Tem John Burton, D-San
Francisco, warned his colleagues not to expect too much from the budget
because the state was tapped out.
Everything from pork barrel projects to public schools could feel the pain.
A raft of one-time spending items are at risk: $250 million in aid to cities
and counties, $100 million to clean up beaches, $100 million to replace
higher-polluting diesel engines, $40 million in library improvements at state
universities.
The Senate has already cut $1.9 billion from the $102 billion spending plan
sent to them by Davis.
Davis' January budget expected the fiscal year to end with $5.8 billion in
reserve. Some $3.7 billion in electricity purchases have cut that reserve to
$2.1 billion with another $1 billion in energy buys authorized just for this
month.
That has led the legislative analyst to recommend that lawmakers take no
action on $2.3 billion in one-time spending proposed by the Democratic
governor.
"We're being very cautious because of the number of uncertainties," said Brad
Williams, chief economist at the legislative analyst's office.
There are several reasons for the worsening cash drain, which will hit
hardest next year but is already taking a toll on revenue collections.
One-fifth of the state's general fund revenue comes from capital gains and
stock options.
That won't be happening next April.
In January, Davis predicted state taxes paid on capital gains and stock
option income would be 10 percent less next year. And projections now are
that it will be even less.
As more companies use stock options as compensation for employees, the more
tightly the state budget is chained to the whims of Wall Street.
Last year, the state estimated that $84 billion in stock option income was
generated in California. Of that, just seven high-tech companies created half
of the income. Cisco Systems alone represented nearly 10 percent of the $84
billion.
Since November, the Nasdaq has lost 45.5 percent of its value, a huge hit for
California, the center of the dot-com high-tech universe.
For example, Cisco has fallen from roughly $55 a share to $16 a share, making
it unlikely any holders of stock options will cash out unless they have to.
Similar drops have occurred in other big technology companies like Sun
Microsystems, Intel and Oracle.
"The phase we saw the last several years will not return," said Tom Lieser
senior economist at UCLA's Anderson Business Forecast. "The days of the dot-
com millionaires are over."
"The technology sector will come back, but this year is going to be a tough
one, and next year may be transitional," Lieser said.
Income from investors realizing capital gains was originally expected to
reach nearly $94 billion this year and fall to $84.5 billion next year, but
budget analysts now say that next year's projections may be too optimistic.
If the stock market soars over the next eight months, the budget picture
could brighten.
Another budget plus could be the taxes collected this month. Stronger than
expected revenue would stanch some of next year's losses.
The economy's fade is already being felt. A slow holiday spending season last
year has led to less-than-expected sales tax collections for the state.
Sales tax revenue for February came in $165 million under estimates.
And withholding taxes, which are carved out of an employee's paycheck and
sent to the state, are expected to continue to grow, but not nearly at the
brisk rate as last year.
Then there's the energy crisis.
The state is tearing through $50 million a day to buy power for the cash-
poor utilities, with authorization for $4.7 billion in purchases.
"Even Bill Gates would feel that after a while," said Lieser.
So far, the agencies that decide California's credit rating aren't worried
because Davis and lawmakers plan to make the state whole by issuing bonds in
May or June.
That was one reason for the Public Utilities Commission's average 40 percent
electricity rate increase: to create a big enough revenue stream to make
investors more comfortable about buying the bonds.
The rate increase is going to take $4.8 billion from businesses and
consumers, money that might otherwise be spent in other parts of the economy.
Although total income in California last year was nearly $1.2 trillion, $4. 8
billion is still a chunk of change.
"It will be a factor depressing growth somewhat over the next year," said
Williams.
The economic effect of the energy mess is longer-term. How much will
blackouts hurt productivity? Will businesses expand in California or
somewhere else with a more reliable supply of energy?
Gibson says businesses are going to give the state 18 months to sort out its
energy problems which Gibson thinks the state will do.
"The silver lining is that the 2-by-4 has been applied to the donkey's head,
" Gibson said. "We've learned we have a problem with energy supply, and three
or four years down the road this will settle out, and we may even have a
surplus."
Grumbles Lieser: "The thing about this is it should have been foreseen.
People were warning us."
E-mail Greg Lucas at glucas@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?A - 1
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Davis Blames Crisis On State Republicans
But Democratic controller points at governor
Carla Marinucci, John Wildermuth, Chronicle Political Writers
Sunday, April 1, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/04/01/M
N154353.DTL
Anaheim -- The politics of energy dominated the state Democratic convention
yesterday, as anxious delegates gave a lukewarm reception to embattled Gov.
Gray Davis, who clashed bitterly with party rival, Controller Kathleen
Connell.
Speaking at the Anaheim convention center, where dimmed lights were a
constant reminder of yesterday's Stage 2 alert, Davis blamed California's
energy woes on former Gov. Pete Wilson, Republican lawmakers and the Federal
Energy Regulatory Commission, which, he charged, has failed to regulate
greedy energy firms selling power at "out of control prices."
He insisted that he was not sure rate increases were necessary, refusing to
say whether he would support huge hikes backed by the Public Utilities
Commission last week. He suggested, however, that he favors a system of
tiered electricity pricing.
"These Republicans -- who were so enamored with deregulation just five years
ago -- have become even more enamored with criticizing me as I try to clean
up their mess," the governor said to tepid applause from the 1,900 delegates.
"This deregulation disaster was authored by a Republican legislator,
passed by a Republican Assembly, signed into law by a Republican governor and
implemented with undue haste by a Republican PUC."
But the governor's Republican-bashing was overshadowed politically by an
attack by state Controller Connell, a candidate for Los Angeles mayor -- who
rejected what she called Davis' "finger-pointing" and assailed his handling
of the crisis. The dramatic development demonstrated both deepening rifts
within California's ruling party and the high political stakes of the energy
crisis.
"There will be no excuses for Democrats in this state, because we dominate
state government," Connell said in a convention speech in which she also
outlined proposals to require "power hogs," such as malls, to install their
own microgenerators.
"I spent the past eight years making sure the state had a surplus, and now
I'm seeing it eaten away every day by energy costs. . . . Whatever solution
(the governor) provides must come fast and be shared openly with the people
of California," she said in a dig at Davis, who has been criticized for
moving too cautiously and for resisting disclosure of energy contracts to the
public.
Warning of the costs of "a delay and an incremental approach to an indefinite
problem," she said, "I won't stand by and allow the consumers to pick up the
tab."
DAVIS DEFENDS POLICIES
Asked to respond to Connell's critique, Davis told reporters, "I believe
we've moved at warp speed to address this problem. . . . We've kept the light
on most days."
The governor, who endorsed Connell's opponent, former Assembly Speaker
Antonio Villaraigosa for mayor, then added, "It might be if she's not happy
with that, she can run for governor next time."
Garry South, the governor's senior political adviser, was even more caustic,
lambasting Connell as a party infidel. "This is why Kathleen Connell doesn't
have a friend in all Los Angeles," he said. "She's been picking on the
governor since day one."
"It's all air," he said of her talk. "Not only hot air but a foul wind."
In an interview while campaigning later in the day, Connell toughened her
rhetoric, saying, "The emperor has no more clothes here in California."
"We are well into the fifth month (of the energy crisis) and we have yet to
find any answers from the administration," said Connell, who promised to
release her own detailed solutions to the crisis next week.
Unlike many Democrats at the convention, festooned with "Wilson Did It"
signs, she rejected as "irrelevant" the suggestion by Davis that Republicans
were to blame for California's energy woes.
"Californians are wearying of this finger-pointing and closed-door
negotiations and extended debate," she told The Chronicle. "The public is no
longer going to be patient with us. They're going to hold the governor
accountable when they get the bill."
CONNELL LAGGING IN POLL
Connell, who is forced by term limits to give up her post as controller next
year, has lagged in her campaign to become mayor of Los Angeles. With 10 days
to the election, a recent poll showed her running fourth behind City Attorney
James Hahn, Villaraigosa and businessman Steve Soboroff.
Despite Davis' words and speculation among delegates, Connell denied she was
eyeing the governor's seat for the future. "I'm not looking two or three
years down the line," she said. "But I hope the governor is looking toward an
immediate solution to this problem."
The governor's speech was his first since the PUC announced rate increases of
as much as 46 percent. Davis refused to say whether he would support the
immediate rate increase approved by the PUC but suggested that he would back
a tiered billing system.
"If a rate increase becomes absolutely necessary to keep our lights on and
our economy strong, you can be sure of one thing from this governor," Davis
said. "I'll fight to protect those least able to pay, reward those who
conserve the most and 'motivate' those who are the biggest guzzlers to cut
back."
He later dodged reporters' questions about specifics, repeatedly saying that
within the next two weeks he would release a statement detailing "what, if
any" increases were needed.
"Many advisers from Wall Street are running numbers, and they appear to be
different from the PUC's," he said.
Davis also said he has already done a lot to address the crisis and had "kick
started" construction of new power plants and successfully promoted
conservation programs.
Some of Davis' backers at the convention, watching the squabbling, expressed
concern about some of the governor's tactics.
"People want a leader to lead," said Susan Leal, San Francisco's city
treasurer. "They're looking for someone to come out and take command,
regardless of who started this."
But, she said, Davis is a tough and smart politician, and "people are still
going to be forgiving if (the governor) does something to attack the
problem."
OTHER DEMOCRATS BLAME GOP
Other Democratic Party leaders were also quick to defend Davis and to blame
Republicans.
Terry McAuliffe, chairman of the Democratic National Committee, suggested
that President Bush has ignored California's energy problems because "he's
worried to death about Davis running for president."
California is the world's sixth-biggest economy, McAuliffe noted in an
interview, and Bush "has basically written it off, saying, 'Good luck to you.
You're not getting any help.' "
Art Torres, chairman of the state Democratic Party, said Davis "is attacked
every day by the backbench Republican yahoos in the Legislature" and
predicted that public concern over energy would ebb by next year's election.
"We're looking at issues that are going to transcend the energy issues we see
now," Torres said, such as crime and violence in the schools, economics, the
environment and abortion.
But political analyst Sherry Bebich Jeffee said Connell's criticism was
evidence of a party split and perhaps "the opening salvo in 2002," when Davis
is up for re-election.
Davis's entire party, she said, could be in trouble if voters get fed up with
higher energy bills.
"Do the math," said Jeffee, noting that Democrats hold all but one state
office and control of the both houses of the Legislature. "If you're going to
throw the bums out, the bums in this state are mostly Democrats."
E-mail Carla Marinucci at cmarinucci@sfchronicle.com and John Wildermuth at
jwildermuth@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?A - 1

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NEWS ANALYSIS
Rate Increases May Be Just Beginning
Unanswered questions now may mean higher bills soon
David Lazarus, Chronicle Staff Writer
Sunday, April 1, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/04/01/M
N162185.DTL
When regulators passed an average 40 percent electricity rate increase last
week, they insisted this was the last time the state would be reaching into
consumers' pockets to pay for California's energy mess.
Don't bet on it.
Numerous questions remain about the costly bailout of the state's two largest
utilities and the billions of dollars in taxpayer money being spent to keep
California's juice flowing.
And a growing consensus has emerged: Rates almost certainly will go up again
before the worst is over.
"Based on what the state and utilities have been paying for electricity, 40
percent doesn't come close to covering it," said Linda Sherry, a spokeswoman
for Consumer Action in San Francisco. "It's going to be a nightmare this
summer."
Indeed, Gov. Gray Davis admitted last week that there are "a lot of moving
parts" to California's energy equation, and that it is too soon to say
whether additional rate hikes will be required.
More tellingly, the governor, after doing his best to distance himself from
the latest rate increase, opened the door to supporting future increases that
are "absolutely necessary for the good of the state."
MIXED MESSAGES
State leaders have yet to get their story straight. Earlier in the week,
Loretta Lynch, president of the Public Utilities Commission and a Davis
appointee, told The Chronicle that there probably would be no more rate hikes
this year.
"We think this will cover everything," she said of the PUC's decision to
approve a new 30 percent rate increase and make permanent an average 10
percent "temporary" increase adopted in January.
The move will allow utilities to raise an extra $4.8 billion a year from
customers -- although it remains up in the air where the bulk of the money
will go.
Consumer advocates say state officials are kidding themselves if they think
California has solved its energy troubles.
"This summer is when the energy companies will make the most mischief and
drive energy prices through the roof," said Harvey Rosenfield, head of the
Foundation for Taxpayer and Consumer Rights in Santa Monica.
Based on his group's calculations, and the fact that the state is burning
through about $50 million a day buying power on behalf of cash-poor
utilities, he said it is not out of the question to believe power bills will
go as much as 100 percent higher.
"There is no end in sight," Rosenfield said. "We are at the mercy of economic
terrorists, and you can't bargain with terrorists."
State Controller Kathleen Connell estimated the state faces a $7.4 billion
shortfall if it keeps spending money hand over fist on the volatile
electricity "spot" market.
She predicted that the state will shell out nearly $27 billion over the next
18 months to keep the lights on -- more than twice the amount in bonds that
California is authorized to sell to cover its payments.
Connell said she was "troubled by the fact that consumers already are being
rocked by a substantial rate increase, and I don't want them assuming that's
the total exposure."
For example, state officials have yet to address the roughly $14 billion in
debt hanging over Pacific Gas and Electric Co. and Southern California
Edison. Last week's rate increase will not be applied to that thorny problem.
Moreover, despite a PUC ruling that the utilities must repay the state
Department of Water Resources for more than $4 billion in recent power
purchases, that too remains a question mark.
Still to be determined: How will the limited revenues collected from
ratepayers be disbursed among the state, the utilities and smaller power
companies that have had to shut down recently because they are owed millions
of dollars.
"The state is at the front of the line," insisted Steve Maviglio, a spokesman
for the governor.
If so, this could leave the utilities and alternative energy providers with
nothing to cover their own expenses. The threat of bankruptcy, which has
hovered in the background for weeks, suddenly has become a more serious
concern.
NO GUARANTEE OF RELIEF
PG&E's chief executive, Gordon Smith, warned that even with higher rates, the
PUC's decisions to force payments to the state and change how the utility's
debt will be tabulated could exacerbate the situation.
"The actions do not offer a comprehensive solution, fail to resolve the
uncertainty of the crisis and may even create more instability," he said.
On Friday, PG&E's parent company, PG&E Corp., said it may have to write off
more than $4 billion in debt because of the changes. The company also said it
would delay release of its annual report, which was due to be unveiled
tomorrow.
"Every day, we calculate how this picture looks in Chapter 11 and out of
Chapter 11," PG&E's chief financial officer, Peter Darbee, told financial
analysts in a subsequent conference call. "Thus far, we have concluded that
shareholders are better off out of Chapter 11."
That "thus far" rang out loud and clear among listeners. Without more cash,
many came away thinking, the likelihood of PG&E declaring bankruptcy is now
substantially higher.
"The chance of further rate increases is certainly within the realm of
possibility," said Herbert Hart, research director at Redwood Securities
Group in San Francisco. "Somewhere down the line, the PUC will have to act
again."
E-mail David Lazarus at dlazarus@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?A - 3

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Energy Department Rethinking Clinton Appliance Efficiency Rules
New York Times
Sunday, April 1, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/04/01/M
N178838.DTL
Washington -- The Energy Department is reviewing efficiency standards, issued
in the last weeks of the Clinton administration, that would require new
clothes washers, water heaters and central air-conditioners to use less
electricity and natural gas.
A spokesman for the department, Joseph H. Davis, confirmed that the new
standards were under review, as part of an effort ordered by the White House
to look at all regulations published in the last 60 days of the Clinton
administration.
People involved in the review said the standard under closest scrutiny was
the one governing air-conditioners. The rule requires that beginning in 2006,
new central air-conditioners run on 30 percent less electricity than under
current minimum standards of efficiency.
The new standards were adopted to meet the requirements of a federal law.
That legislation was adopted by Congress 14 years ago, but, as the Energy
Department sat down to work out the details in the mid-1990s, Congress
blocked the proposals.
,2001 San Francisco Chronicle ? Page?A - 3
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Hydrogen Powers Energy Hopes
Experts say it may be the fuel of the future
Carl T. Hall, Chronicle Science Writer
Monday, April 2, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/04/02/M
N107106.DTL

Hydrogen, the simplest atom, is everywhere. So perhaps it's not surprising
that the most abundant element in the universe would worm its way into the
midst of California's deepening energy crisis.
Rolling blackouts and skyrocketing utility rates are focusing new attention
on the risks of relying solely on the public power grid for electricity.
"The California situation is enlightening a lot of businesses and individuals
about the need for an alternative energy source for backup or primary power,"
said Jim Kirsch, a vice president and head of a power generation unit at
Ballard Power Systems in Vancouver, British Columbia.
Many energy experts have long championed hydrogen's potential as a power
source - the key ingredient in hydrogen fuel cells that offer a
pollution-free alternative to batteries.
There's an emerging consensus that "hydrogen will be the fuel of the future,
" said Robert Stempel, the former chief executive of General Motors, now
chairman of Energy Conversion Devices Inc. in Troy, Mich.
New Respect for New Ideas
His company, a pioneer in portable electricity storage, formed a joint
venture with Texaco to develop solid-state, metal-hydride hydrogen storage
systems for powering clean-running vehicles. There are other methods, too,
but the real take-home lesson from the joint venture, according to Texaco CEO
Peter I. Bijur, is that oil companies now are embracing technologies "that
just 20 years ago we brushed off as a weak threat to our industry."
Ultimately, the idea is to move away from fossil fuels and other traditional
energy sources toward what's known as a "hydrogen economy," in which
renewable solar and wind generators might be used to produce pure hydrogen
fuel out of water.
If a practical hydrogen storage system can be perfected, and if fuel cells
can ever be mass-produced cheaply enough, today's utility customers would
have electricity in a stable, portable form capable of being used whenever
needed.
Imagine city streets full of fuel-cell powered vehicles, neighborhood-size
power plants using hydrogen, and homes and businesses with stacks of fuel
cells in the back yard or basement. These could augment and sometimes
supplant electricity supplied through the public grid and might even be wired
into a computer-guided "distributed generation" scheme via links to the
Internet.
No Quick Fix
All of that is clearly a distant vision. Fuel cells are not quite ready for
prime time. They are still expensive to make and the flammable hydrogen fuel
is difficult to handle.
But while nobody expects fuel cells to be California's power savior right
away, a few pieces of the "hydrogen economy" are already starting to take
shape.
The most widely touted fuel-cell technology to have emerged from the
laboratory stage so far uses what's known as a PEM - for proton or polymer
exchange membrane - situated between two electrodes, each coated with a
catalyst such as platinum or palladium.
When sandwiched together in this way, hydrogen fuel can be made to separate
at one electrode into its constituent free electrons and positively charged
hydrogen ions, also called protons.
The electrons can then be siphoned off as usable direct current electricity,
or converted to alternating current. The protons drift through the PEM,
combining with oxygen at the second electrode to produce ordinary water and
heat.
The individual fuel cells can be arranged in "stacks" of virtually any size.
There's no pollution, and no moving parts to wear out or break down.
Clean Chemistry
"It's very clean and elegant chemistry," said Bill Smith, vice president of
business development at Proton Energy Systems in Connecticut.
The process is basically electrolysis in reverse. Similarly, hydrogen to
supply the fuel cells can be produced with electricity by cracking water
molecules in a device known as an electrolyzer.
"Hydrogen represents stored energy," said chemist Peter Lehman, director of
the Schatz Energy Research Center at Humboldt State University. "Energy
storage is not easy and it's not cheap."
Regular batteries are good for short-term storage, but they require too much
lead to manufacture and generate far too much pollution when discarded to be
practical for large-scale use. Other strategies - pumping water uphill, for
example, to run a turbine at a hydro station - work well only if
circumstances are ideal.
By contrast, the portable hydrogen fuel cell seems to represent the ideal
energy "carrier" in a natural cycle, Lehman said.
"It's completely sustainable. If the input is solar energy, you end up with a
clean and dispatchable energy source," he said.
Driven partly by government clean-air standards and the need to reduce
hydrocarbon emissions, corporate America has embarked on a crash program to
turn fuel cells into practical products.
"We don't consider it a fringe technology at all," said William M. Wicker,
senior vice president for global businesses at Texaco. "Although the
traditional oil and gas business is not going away any time soon, hydrogen is
going to be a part of our energy future."
A hydrogen-based commercial backup power system is due out this year from
Ballard Power, ranked among the leaders in the nascent fuel-cell industry.
The new system is billed as a clean, noiseless alternative to portable diesel
generators. Rather than using water to produce hydrogen fuel, however, the
system produces its own hydrogen by breaking down an ordinary hydrocarbon
fuel, such as propane or natural gas, which the user has to supply.
Big Step Forward
It's clearly not the ideal hydrogen technology, and price and other details,
which have not been revealed, could put it out of reach of average consumers.
But Kirsch said the new portable backup system should still rank as an
important commercial breakthrough.
"As far as we know, this will be the first hydrogen energy product a consumer
can walk in and purchase off the shelf," he said.
For many businesses, the disruptions in the California energy supply system
are only the latest reasons to embrace the idea of energy self-reliance. Many
are talking not in terms of the usual 99.9 percent reliability standard, but
rather a new "six-nines standard" of 99.9999 percent.
That's more than most utilities can deliver even in best of times. Hydrogen
advocates claim they have at least part of the answer, particularly when the
need to reduce energy pollution is taken into the equation.
"The troubles in California really have shined a bright light on the hydrogen
story. People are looking for alternatives, and now they are going to be
seeing just how close we are to this technology," Kirsch said.
Just how close is arguable beyond a few niche markets.
"The cost of manufacturing the fuel cell itself and the cost of fuel
processing are the two big problems we have to solve," Wicker said. "They
aren't insurmountable problems at all but the solutions are pretty far in the
future."
Pure hydrogen has some ideal characteristics as an energy container, but
those same characteristics make it difficult to handle.
"Hydrogen definitely has hazards," said Jeff Rinker, general manager of
hydrogen at BP, the international oil company, and chairman of the National
Hydrogen Association, a trade group. "It would be good if someone came up
with an elegant method of storing hydrogen."
Even staunch wind and solar proponents say there's little practical need to
worry about fancy storage methods for intermittent supplies, because the
public grid has plenty of room for more electrons - even when the sun is
shining and the wind is blowing.
"There is a great potential for hydrogen storage in the future, but today the
grid itself is capable of effectively being used as storage," said Alan
Nogee, director of clean energy programs at the Union of Concerned Scientists
in Washington, D.C.
"Not until we start getting at least 15 percent of our energy from
intermittent sources is there any concern about reliability. Some regions in
Europe are getting over 20 percent and are still doing fine."
Hawaii in the Vanguard
Hydrogen's first large-scale commercial use is expected to be not in
California but rather in such locations as Iceland and Hawaii, where
renewables are much higher on the political radar.
Hawaii state Rep. Hermina Morita, a Democrat who chairs a legislative energy
committee, is leading the push to reduce her state's need for imported oil,
partly by encouraging alternatives and hydrogen fuel cells.
She described it as a "market-based approach" that includes demonstration
projects and economic incentives for utility investment. Eventually, she
added,
California could be part of the picture.
Rather than importing energy, she said, "ultimately what we want in Hawaii is
to be capable of producing more hydrogen than we need, so we can send the
excess to California."
E-mail Carl T. Hall at carlhall@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?A - 6

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

Consumers bemoan formula for power-rate hikes
Posted at 9:53 p.m. PDT Sunday, April 1, 2001
BY JOHN WOOLFOLK
AMD STEVE JOHNSON

Mercury News

As state regulators prepare to decide in coming weeks who will bear the
burden of a massive new electricity-rate hike, a long line is beginning to
form of residents, business operators and others seeking a break.
The tiered plan proposed by Public Utilities Commission President Loretta
Lynch exempts those who use no more than 130 percent of their ``baseline''
allotment. But other residents could see increases up to 36 percent, while
commercial customers could pay even more.
Homeowners say there's no way they can save that much. Advocates for the poor
and elderly are crying foul. Businesses say they're already unfairly
burdened.
Residents now poring over their bills and baselines -- which are supposed to
represent average usage -- are puzzled and frustrated. While regulators say
almost half of households use no more than 130 percent of their baseline,
many energy misers wonder just who those people could be.
``This just blows me away,'' said Ellen Finch of San Jose. ``I'm out of ways
to save, short of turning everything off. How on earth does an average
household function on the baseline rates? How many people does an average
household have -- zero?''
The 45-year-old technical writer has cut down dishwashing to once a week and
laundry to twice a week. She's pushed the thermostat down to 67 and put
blankets on every chair.
She's turned off lights and limited her computer, TV and stereo. Still, Finch
says she's using up to twice her baseline amount and expects her bill to go
up at least 9 percent, or about $12.
Utilities haven't yet calculated just how many residents would fall within
the 130 percent. Estimates range from 30 to nearly 50 percent.
Many residents still are trying to figure how their baselines work. Studying
past bills, they see different figures.
That's because the baselines are daily figures, and the number of days in
monthly billing cycles varies. In addition, the baselines change in May and
November to account for differences in summer and winter use.
``It's very difficult for me to understand what this means to me
financially,'' said Bruce Capron, 69, of Cupertino.
Baselines were established in the early 1980s to promote conservation by
allowing utilities to charge higher rates for above-average consumption. It's
based on 50 percent to 60 percent of average usage within each of 19 climatic
``territories'' in the state.
Baselines take into account the various energy needs caused by regional and
seasonal climatic differences. Also considered are whether a home has all
electric appliances or some powered by gas, as well as whether it is an
apartment or detached house. Customers with medical needs can apply for
additional baseline credits.
But baselines don't take into account the size of the home or number of
occupants. Some argue that unfairly punishes the poor, who often have to
share housing with large numbers of family and friends to make rent.
``One of the things we do see as an issue is that a lot of low-income
families tend to have multiple families in a unit or larger families,'' said
Julia Macias, project director for energy issues at the Latino Issues Forum.
``They tend to go over the baseline, not just because they are `energy hogs,'
as Lynch calls them, but just because they have more people in the units,''
Macias said.
Because of language differences, many Latinos aren't aware of the exemptions
and other programs for low-income residents and don't apply for them, Macias
said. In addition, they tend to live in older and less efficient housing. And
for economic reasons, they're already doing what they can to save.
``Low-income families tend to conserve as it is and so further conservation
tends to be really hard,'' Macias said. ``We would like to see something done
to make exceptions for people in those situations.''
Others have similar worries about the elderly, who tend to live on fixed
incomes in older and less-efficient housing, and face greater health risks
from extreme temperatures.
``Seniors are going to be disproportionately affected by this,'' said Hoyt
Minkoff, program director with the Consumer Federation of California and
consultant to the Congress of California Seniors. ``Seniors typically are
going to be more vulnerable to the elements, and the hot weather is going to
affect them more than others. So they're going to need to run their air
conditioning and their fans more than others.''
Some argue the baseline system should take into account all the new
electronic gizmos, from computers to DVD players, that have become
commonplace in many modern homes.
But Pacific Gas & Electric Co. spokesman John Nelson says that's accounted
for because the baselines are recalculated regularly. Because it's based on
average usage within an area, if most people use more power, the baseline
will go up.
In fact, the baseline for the zone that includes Silicon Valley increased
slightly in the last 10 years, while the neighboring zone including San
Francisco hasn't changed, he said.
Commercial customers, who pay lower rates but would see a proportionately
greater increase, also are crying foul.
Grocers are upset because they had cut energy consumption 10 percent at the
request of Gov. Gray Davis last year, which means it will be that much harder
for them to further lower their electricity bills.
``We had hoped it would be spread out more evenly, not so much focused on the
real heavy users,'' said Dave Heylen, spokesman for the California Grocers
Association. ``Unfortunately, it takes a lot of electricity to ensure a safe
food supply. The bulk of our energy use is geared toward cooler cases,
freezer cases, those types of things.''
Nursing homes argue they cannot afford the higher rates.
``When they raise the electricity rates, we don't have any way of absorbing
the costs'' immediately, said Nancy Armentrout of the California Association
of Health Facilities. ``The government hasn't given us any money to
compensate for the increased cost of energy.''
But some consumer advocates argue that exempting various groups will only
cripple efforts to reward conservation.
``It's a crude and blunt tool,'' said Nettie Hoge of The Utility Reform
Network.

Contact John Woolfolk at jwoolfolk@sjmercury.com or (408) 278-3410
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High energy prices place firms higher in Fortune 500 ranks
Published Monday, April 2, 2001, in the San Jose Mercury News
BY MATT MOORE

Associated Press

NEW YORK -- Surging U.S. energy prices gave oil, gas and power companies new
fuel in their climb through the ranks of the annual Fortune 500 list of the
largest public corporations, released Sunday.
Oil giant Exxon Mobil Corp. posted its highest-ever revenue of $210 billion
in 2000, boosting it to No. 1 on the list from its 1999 ranking as No. 3.
Automaker General Motors Corp. had revenue of $184.6 billion and fell from
No. 1 to No. 3.
Other energy companies also fared well in 2000, with Enron Corp. rising to
No. 7 from No. 18. Duke Energy Corp. shot up to No. 17 from 69, and Reliant
Energy Inc. made it up to No. 55 from 114.
The list of the largest public companies, ranked by fiscal year revenues, has
been compiled annually since 1955 by the editors of Fortune. GM, which had
held the top spot on the list for 15 years, now trails No. 2 Wal-Mart Stores
Inc.
Energy companies benefited from a surge in revenue brought about by falling
supplies, utility deregulation, soaring natural gas prices and OPEC's
maneuvering to keep oil prices high.
Other energy firms advancing included Texaco Inc., which went from No. 28 to
No. 16; San Francisco-based Chevron Corp., which was ranked No. 20, up from
No. 35; and Dynegy Inc., which rose to No. 54 from No. 112.
The Internet slowdown and uncertainty about the economy hurt a number of
companies, particularly telecommunications firms. AT&T Corp. fell from No. 8
to No. 9.
America Online Inc., which became the first purely Internet company to break
into the list last year at No. 337, rose to No. 271. Since then, it has
become AOL Time Warner Inc. with its acquisition of Time Warner. The combined
company's revenue of $36.2 billion would have made it No. 39 on the year 2000
list, but the deal didn't close until early this year.
Computer companies were led by International Business Machines Corp., which
stayed in the top 10 but fell from sixth last year to No. 8.
Microsoft Corp. rose to 79 from 84, and San Jose-based Cisco Systems Inc.
advanced to 107 from 146, despite the dot-com crash.
Total profits for the 500 corporations grew 8.4 percent for the year, down
from 1999's level of 28.7 percent, to $444 billion. Revenue grew by more than
13 percent to a combined $7.2 trillion for 2000. They employed more than 24
million workers.
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---------------------------------------------

As energy policy lurches, is Gov. Davis in charge?
Published Monday, April 2, 2001, in the San Jose Mercury News
BY PHIL YOST
OH SURE, there's progress in Sacramento on the electricity mess, says one
senator. ``There's less denial than there has been.''
This ends the ``Indisputably Good News'' portion of our column. The rest is
like an electrical circuit: Every positive is connected to a negative.
Three months after Gov. Gray Davis convened an extraordinary session of the
Legislature to jump on the energy crisis, the Capitol is full of trepidation
about the summer. Only the governor's office keeps pumping out optimism.
In January electricity was running short, prices fluctuated wildly on the
spot market, and the utilities were faced with bankruptcy unless consumers
started getting huge bills. Davis and the Legislature set out to find more
electricity, stabilize the market, establish the lowest possible prices, and
put the utilities back on their feet.
Some progress has been made on all those fronts. But in terms of what's
needed for this summer, things are not going all that well.
On finding more electricity, Davis has been trying to get peaker plants in
place for the summer. He thinks he'll have enough; hardly anyone else does.
Other events are conspiring against him. The forecasts for hydro power are
grim and grimmer.
Demand reduction, or conservation, is the flip side of supply. The behavior
of consumers this summer is a huge unknown. The behavior of the Legislature,
alas, is known. Only now is a bill to fund programs such as rebates for
energy efficient appliances nearing passage. It's a month late.
To rescue the utilities, stabilize the market and try to lower prices, the
state took over the utilities' job of buying electricity. How much it has
spent is Davis's big, dark secret. About a third of the state's electricity
must be bought on the open market. Davis's aides say the state has covered 75
percent of this need for the next 10 years. But for this summer, they've
found less than half of it.
Buying the transmission system from Pacific Gas & Electric and Southern
California Edison is the heart of the plan to put them back on their feet.
The utilities would get money; the state, an asset.
The main backer, John Burton, the Democratic president pro tem of the Senate,
wanted to do the deal ``willing buyer, willing seller.'' He's the most
willing buyer. Other key players, Davis included, are reluctant buyers. PG&E
is a grudging seller. The deal is amazingly complicated. It could fall apart.
On rates to consumers, Davis has been a pillar of jelly. Last week, the
Public Utilities Commission stepped up, as they say every 30 seconds on
sports broadcasts, and took rates to the next level.
While justified, the PUC decision left the impression that energy policy is
lurching in no particular direction. After weeks of hearing Davis reject rate
hikes, consumers learned of a potential increase on Monday -- if they were
attentive to the news -- and saw it enacted on Tuesday.
What is most critically lacking, after three months, is a sense that the
crisis is being managed from a central command post, with a coherent
strategy. Davis has not been the general the battle requires.
Some of his ideas have been off-point, like making businesses cut outside
lighting late at night.
Some of the successes are quickly reversed. He held a press conference to
announce an agreement on alternative power generators, some of which have not
been producing because they haven't been paid. The bill stalled the next day.
He seems oddly absent at times. When the PUC's intention to raise rates hit
the news Monday, Davis's press office issued a short release, in which he
said he hoped they wouldn't. After the PUC followed through, Davis, after
delaying all day, issued a brief statement wishing they hadn't.
Davis keeps asserting, against all evidence, that rate hikes might not be
necessary.
He said he couldn't determine whether the rate hikes were justified because
he didn't have enough data. Granted, the potential power supply and consumer
behavior, which will affect electricity prices, are uncertain. But
rate-setting involves assumptions about weather and conservation, among other
variables. Wrong rates can be adjusted later.
When the governor says that he doesn't know how much customers should be
charged for electricity, he's admitting he doesn't know where we are on the
path to getting through the summer.
Maybe Davis can pull a rabbit out of the hat before summer starts. If so,
give him credit for mastering the magician's technique of heightening the
suspense. Because right now, it's sure looking like all hat and no rabbit.

Phil Yost is chief editorial writer of the Mercury News.
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--------------------------------------------

Businesses battle the blackouts
Monday, April 2, 2001
To suggest workable and market-oriented solutions to the California
electricity crisis
Local businesses are suffering badly from the electricity crisis - and expect
even worse in the months ahead. That was the message the Register editorial
board received from a Thursday meeting with local business executives who
represent some of Orange County's larger electricity users.
It became apparent from our conversation that there is little if nothing
happening in the way of coordinated planning among state, utility and
business representatives as the summer fast approaches.
This could be extremely harmful to the California business climate. A truism
about business, so dependent on timely fulfillment of obligations to
customers, meeting tight manufacturing times, keeping equipment and inventory
at optimum use, is that business hates uncertainty.
And the likelihood of shortages and blackouts for summer portends nothing
but. On the other hand, businesses are good at crisis management and recovery
planning, if given the chance. In the case of the power crisis, however,
where so much is out of control, they can't plan without collaboration from
the state and the utilities.
Here's how alarming the situation is shaping up for business owners, two of
whom told us they are building their plans around the potential for as many
as 30 blackouts in months ahead - a guess, they admit, but planning has to
start somewhere.
"Last year we spent $800,000 on electricity and expect to spend another
$490,000 this year," for a combined cost of $1.29 million, Richard J. Collins
told us; he's president and CEO of Astech Inc. in Santa Ana, which
manufactures exhaust systems for Boeing and Airbus aircraft. The higher cost
stems from the March 27 announcement by the California Public Utilities
Commission that rates will rise as much as 46 percent across the state.
The increase will consume "a quarter of my total operating profit" for the
year, Mr. Collins lamented. "We have long-term agreements and no flexibility
to raise prices."
Blackouts will wreak the worst harm, given that they come without warning and
prompt immediate hard shutdown of equipment, in Mr. Collins' case, furnaces
used in a 30-hour manufacturing process. "If there's a blackout, there's
damage to the furnace," he said.
Furthermore, because he doesn't know when the blackouts come, "I don't know
when to bring my people into work. There's no basis to plan my business."
The problem will become most acute this summer when rolling blackouts are
expected to be severe across the state. Astech is conserving power as best it
can. It participates in the interruptible power program with Edison, by which
businesses agree to do cut power to an agreed-upon level during peak periods
in exchange for lower rates.
And, the company is "investing $250,000 in generating equipment" to produce
some of its own power, especially during blackouts. He has no plans to leave
Orange County. "It's ideal being where we are. We like where we are," he
maintained.
We asked what might happen if the price doubled. "But there comes a point
where we'll have to go somewhere else," he said.
"You need reliability and you need predictability," Andrew De Cicco, vice
president and general counsel for ITT Cannon in Santa Ana, told us. His
company spent about $2 million on electricity last year but will spend about
$3.2 million this year because of the PUC price increase. His company has
acquired a diesel generator on a one-year lease - and is even weighing the
idea of building a power plant.
"Cannon has a long history in California, dating back to 1915," he said, and
plans to continue here. "The question is the future, the appropriate level of
investment. For that you do need reliability and predictability in the
business climate."
Government officials, regulators and electricity industry executives need to
understand that, although these and other business are tenacious about
staying in California and expanding operations here, their resources are not
unlimited. In addition to the obvious - building more generating plants -
three major policy changes and one clarification of policy are needed to keep
businesses producing and creating jobs:
* Give companies an hour's notice before any blackout to give them some time
to power down computers and machines in an orderly way. We understand there
are concerns about security - preventing hoodlums from using the blackout
notification time to loot homes with shut-down security systems - but there
are successful ways to give advance notice. Something needs to be done, such
as rotating blackout groups.
* Plan ahead. Businesses are expressing a willingness to voluntarily shut
down operations for a given period, say, a specified week or two during the
summer, if they can be guaranteed uninterrupted power during the remainder of
the worst months. "We can organize around that," Mr. Collins said. "Somebody
could organize that to shed load" from the statewide system. "Sign people
like us up for a two-week period."
* Extend the maximum period companies can use small generators to 1,000 hours
from 200 hours a year. The AQMD limit of 200 exists because portable
generators, usually diesel, cause more pollution. But this summer power needs
clearly will be at emergency levels.
* Make clearer permit conditions from the Air Resources Board regarding use
of alternate power sources, such as diesel generators. Anything that can be
done to allow alternate sources of energy to go on line and stay on line
would help restore some reliability and predictability to business planning.
California industry is going to have major electricity problems no matter
what. But these changes could make the difference between success and
failure, not only for these companies but for our state's economy.
--------------------------------------------------------------------------
California ISO Declares Stage Two Electrical Emergency; Continued
Conservation Urged as Power Supplies Remain Limited

FOLSOM, Calif.--(BUSINESS WIRE)--March 30, 1001 via NewsEdge Corporation  -
At 9:00 a.m.
today, Friday, March 30, 2001 the California Independent System
Operator (California ISO) called a Stage Two Emergency as operating
reserves dipped below five percent. This emergency status is
attributable to the loss of more than 700 megawatts of wind generation
that was helping to keep the Electrical Grid balanced while supply
limitations continued throughout the state:

--  A total of 11,500 megawatts worth of generation remains

unavailable today with power plants off-line because of

preventative repairs and plant malfunctions

--  An additional 3,000 megawatts of generation from the state's

qualifying facilities (QFs) remain unavailable due to

continuing financial concerns

With operating reserves hovering at critical levels, the
California ISO requests that customers voluntarily reduce their use of
electricity to prevent more severe curtailment measures. Peak demand
on the transmission system is expected to reach 28,661 megawatts
around 6:00 p.m. today. Today's Stage Two declaration, expected to be
in effect until midnight, enables the California ISO to access
emergency resources to help maintain operating reserves.

If an operating reserve shortfall of less than one-and-a-half
percent is unavoidable, Stage Three is initiated. Involuntary
curtailments of service to customers including "rotating blackouts"
are possible during this emergency declaration. The California ISO's
Electrical Emergency Plan (EEP) is part of the state's enhanced
reliability standards enacted by landmark legislation Assembly Bill
1890 that led to the restructuring of California's electricity
industry.

The California ISO is charged with managing the flow of
electricity along the long-distance, high-voltage power lines that
make up the bulk of California's transmission system. The
not-for-profit public-benefit corporation assumed the responsibility
in March, 1998, when California opened its energy markets to
competition and the state's investor-owned utilities turned their
private transmission power lines over to the California ISO to manage.
The mission of the California ISO is to safeguard the reliable
delivery of electricity, facilitate markets and ensure equal access to
a 25,526 circuit mile "electron highway."

Continuously updated information about the California ISO control
area's electricity supply and the current demand on the power grid is
available on the web at www.caiso.com.
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[B] PG&E says it will take $4.1 bln charge on uncollected power costs (Wrap)

By Christine Cordner

San Francisco, March 30 (BridgeNews) - Pacific Gas & Electric said Friday
that it will take a $4.1 billion after tax charge in the fourth quarter of
2000, tied to uncollected power costs, without a regulatory or legislative
solution that provides for the full recovery of such costs.

On Tuesday, the California Public Utilities Commission approved a rate
increase that would provide the state's near-bankrupt utilities with much
needed extra revenue.

However, PG&E said they would not be able to use revenues from the rate
hike to pay off existing debt and do not have the authority to recover

power purchase costs incurred above revenue from retail rates. Gains generated
from the hike are to be used only for the costs incurred after March 27.
PG&E
estimated that, as of Feb. 28, it had undercollected for wholesale power
purchases by $8.9 billion.

PG&E Corp., the parent company of California's largest utility, said it
would not file its annual report as expected on April 2 due to Tuesday's
ruling
from the California PUC. It now expects to file the earnings report by April
17, after taking the new ruling into account.

The utility's cash reserves are only $2.6 billion, while it expects to add
an additional $1.5 billion in obligations due and payable through April 30 on
top of the $4.4 billion in debt it currently has on its books. The new debt
includes $550 million payable to the California Independent System Operator
(CAISO), $340 million to small power producers and $470 million to natural gas
suppliers.

PG&E said that the $8.9 billion undercollection reflects estimated charges
from the Independent Systems Operator for power purchased through February
2001
to meet the amount of its net open position not met through the state
Department of Water Resource's purchases.

The utilities have lost billions of dollars because the retail rates
they're allowed to charge customers have been frozen at 1996 levels and the
wholesale prices they must pay for power have jumped as much as 60-fold.

The higher wholesale prices have sent PG&E to the brink of bankruptcy.

Shares of its parent PG&E Corp. fell 6% to $11.84 on Friday.  End
[slug: PG&E-Q4-CHARGE]

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