----- Forwarded by Jeff Dasovich/NA/Enron on 02/15/2001 08:15 AM -----

	Joseph Alamo
	02/14/2001 11:50 AM
		 
		 To: Paul Kaufman/PDX/ECT@ECT, Susan J Mara/NA/Enron, Sandra 
McCubbin/NA/Enron, Jeff Dasovich/NA/Enron
		 cc: Lysa Akin/PDX/ECT@ECT
		 Subject: Sac Bee, Tues 2/13 Editorial: "Lawmakers failed to respond to 
energy alarm"


---------------------- Forwarded by Joseph Alamo/NA/Enron on 02/14/2001 09:48 
AM ---------------------------


	Joseph Alamo
	02/13/2001 04:57 PM
	
To: Miyung Buster/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
cc:  

Subject: Sac Bee, Tues 2/13 Editorial: "Lawmakers failed to respond to energy 
alarm"


Lawmakers failed to respond to energy alarm


(Published Feb. 13, 2001) 

Now that state lawmakers have begun an inquiry to determine what caused 
California's energy crisis, they might want to take a look in the mirror. 
Not at the infamous 1996 vote that triggered the partial deregulation of the 
electricity industry. The remains of that law have been picked over enough. 
Besides, most of the people who voted for it have already left the 
Legislature, thanks to term limits. 
But there was another vote last June, far less heralded and still little 
known. It came just as warning bells were starting to signal the onset of 
what has since become a crippling crisis. The Legislature not only ignored 
those alarms, it stood in the way of the people who were trying to respond. 
Why it did so remains something of a mystery. How it did so says a lot about 
the way the Legislature works. 
At issue was the now-defunct California Power Exchange. This was a 
state-mandated auction, until recently the only place that utilities were 
allowed to shop for the electricity that lights our homes and businesses. By 
last June there were ominous signs that the power exchange, known as the PX, 
wasn't working right. Prices were higher than anyone expected. The supply of 
energy seemed thinner than was reasonable. There were enormous overhead 
costs. 
The power exchange was a bit like having a single automobile auction where 
everyone who wanted to buy or sell a car had to do business. In times of 
surplus this might work, because the sellers would underbid each other to 
unload their cars to reluctant buyers. But in a shortage, the opposite would 
be true. Buyers, with no place else to go, would pay ever-higher prices to 
get what they needed. That's what was happening with electricity. 
A majority of the Public Utilities Commission decided to do something about 
it. The PUC voted 3-2 to allow privately formed exchanges to compete with the 
state-sanctioned auction. At least two private exchanges were promising to 
deliver more power at lower prices with fewer administrative costs. The 
commission wanted to let them give it a try. 
But before the PUC could even implement the change, the Legislature 
intervened. Acting with unusual speed, lawmakers overturned the commission's 
decision. 
Assembly Bill 2866 was a classic legislative bill, in the worst sense. A 
cobbled-together collection of 28 unrelated items, it was drafted in a hurry 
as a companion to the new state budget. One of the bill's many parts was a 
provision to subsidize California's film industry. That got a lot of 
attention. The paragraph overturning the PUC's attempt to head off the energy 
crisis got next to none. The bill was amended in the Senate on June 15 and 
approved later that day. The Assembly passed it the next day, and Gov. Gray 
Davis signed it. 
The analysis of the bill that members saw in the Assembly was cryptic and 
misleading. It said the bill would authorize the PUC to study the idea of 
allowing competition for the state-mandated exchange. That was true as far as 
it went. But the analysis omitted the fact that the bill's real intent was 
just the opposite: to reverse a PUC decision and prohibit competing exchanges 
for at least a year. 
"California had made a big investment in the power exchange," said Sen. Jim 
Brulte, R-Rancho Cucamonga, who was one of probably just a handful of 
legislators who knew about the provision before it became law. "The PUC 
decision would have put that investment at risk." Which is another way of 
saying that the power exchange wasn't working and had to be protected from 
competition. 
Richard Bilas, the PUC commissioner who was pushing the hardest for the 
reform the Legislature overturned, said he never liked the idea of mandating 
a single exchange in which the utilities would have to buy all their power. 
Bilas wasn't a member of the commission when the PUC restructured 
California's electricity industry. But he said the result reminded him of the 
former Soviet Union, where leaders declared that they were going to move to a 
market economy and then appointed a group of central planners to figure out 
how those markets should function. 
"Markets are not based on fictitious or created exchanges," he said. "Markets 
are based on buyers and sellers coming face to face to negotiate a deal. You 
don't establish beforehand something that may not be necessary." 
It's still not clear whether opening up the markets would have prevented the 
price spikes that have since nearly bankrupted the utilities, forcing the 
state to step in and buy electricity to keep the lights on. It might be a 
stretch to suggest that any single policy change could have prevented the 
crisis. But we will never know. 
The Legislature, acting in haste and with little information, kept us from 
finding out. The California Power Exchange, which the Legislature was so 
eager to protect from competition, collapsed of its own weight anyway, and is 
now out of business. 
The law preventing other exchanges from entering the market was quietly 
repealed two weeks ago, seven very long months after it was adopted.