Energy Issues ,
 Please see the following articles:

Sac Bee, Wed, 6/6:  Businesses vie for blackout exemptions:=20
The PUC must decide who should be spared, and the applicant list is very lo=
ng

Sac Bee, Wed, 6/6: PG&E, ISO agree to court order on power bills

Sac Bee, Wed, 6/6:  Peter Schrag: Turning up the heat in Houston and=20
Washington  (Editorial)

SD Union, Wed, 6/6:  Is trading an insider's game?

SD Union, Wed, 6/6: Daily energy costs for state fall in past weeks=20

SD Union, Wed, 6/6: Five tiers sought in proposed rate boost

SD Union, Wed, 6/6:  Port budget large, but power bills loom

SD Union, Wed, 6/6: Continuous use urged for planned power plant=20

SD Union, Wed, 6/6: Rising energy prices threaten Poway troupe=20

SD Union, Wed, 6/6: Fair to use generators for midway attractions

LA Times, Wed, 6/6: 'Hi, My Name Isn't Justice, Honey,' and Shame on Lockye=
r =20
(Editorial)

LA Times, Wed, 6/6: U.S. Probes Alleged Pact Not to Build New Plants Power:=
=20
Justice officials focus on Southland operations of two firms, which deny=20
wrongdoing

LA Times, Wed, 6/6: Natural Gas, Power Prices Drop Sharply Energy:=20
More conservation, mild weather are among factors keeping costs down, exper=
ts=20
say

LA Times, Wed, 6/6: The State Utility Averts $1 Billion in Costs Courts:=20
PG&E and Cal-ISO agree to recognize Department of Water Resources as=20
purchaser of the power

SF Chron, Wed, 6/6: Dramatic drop in cost of electricity=20
LOWER BILLS: Cheaper fuel, milder weather credited

SF Chron, Wed, 6/6:  San Jose council gives green light to generating plant=
=20
VOTE REVERSAL: Officials pressured to OK project

SF Chron, Wed, 6/6: Developments in California's energy crisis

SF Chron, Wed, 6/6: California conserves

SF Chron, Wed, 6/6:  L.A. power customers awash in cheap energy

SF Chron, Wed, 6/6:  PG&E doesn't want to pay for energy to avert blackouts

Mercury News, Wed, 6/6: Metcalf plant gets preliminary approval=20

OC Register, Wed, 6/6: Feds probe AES, Williams

Individual.com (PRnewswire), Wed, 6/6:  Calpine Begins Construction of=20
Peaking Energy Center in Gilroy, Calif.=20

Individual.com (PRnewsire), Wed, 6/6: Reliant Urges FERC to Drop or Amend=
=20
California Price
Caps to Avoid Additional Shortages and More Blackouts

Energy Insight, Wed, 6/6:  Farm-fresh biopower
---------------------------------------------------------------------------=
---
---------------------------------------

Businesses vie for blackout exemptions: The PUC must decide who should be=
=20
spared, and the applicant list is very long.
By Carrie Peyton and Dale Kasler
Bee Staff Writers
(Published June 6, 2001)=20
Mixes for milkshakes and frozen coffees could spoil at ice cream parlors,=
=20
sickening customers.=20
Seniors getting their hair done would have to leave their dryers and go hom=
e=20
with wet heads, risking a chill.=20
Mall escalators could come to a sudden halt, endangering shoppers who lose=
=20
their footing.=20
Those are among the health and safety risks cited by more than 10,000=20
businesses and government bodies asking state regulators to exempt them fro=
m=20
rolling blackouts.=20
It is a list that mixes nursing homes and grocery stores, outpatient surgic=
al=20
clinics and beauty salons, dialysis centers and country clubs.=20
"A lot of people are treating this like a lottery," said Subodh Medhekar of=
=20
Exponent Inc., the consulting firm sorting through exemption requests for t=
he=20
state Public Utilities Commission.=20
For many, Medhekar said, the rationale seems to be " 'I'm pretty sure I won=
't=20
get exempted, but what's the down side? Let's put in an application.' "=20
Amid predictions that Californians could face dozens of rolling blackouts=
=20
this summer, state regulators are trying to update a decades-old list of wh=
o=20
should be spared if the lights go out.=20
The Alta Sierra County Club in Grass Valley should be among those whose pow=
er=20
stays on, Sean O'Brien, the club's golf course superintendent, told=20
regulators in a nine-page application.=20
The country club telephones could go out, making it harder to phone for hel=
p=20
if someone has a medical problem while golfing, he said in an interview.=20
And if the golf course's irrigation pumps shut down, it would lose the=20
ability to quell small blazes -- leaving it to rely on a fire station O'Bri=
en=20
said is about one-quarter mile away.=20
Placerville Dialysis wants an exemption, too. As many as a dozen people the=
re=20
can be having their blood pumped through an artificial kidney that cleans i=
t=20
when their own kidneys no longer function properly.=20
"When the power goes out, everything just stops," said manager Shirley=20
Carpenter. "There is a way to manually return the blood by hand before it=
=20
clots in the line. ... It would just be hectic."=20
It takes about five minutes of manual pumping to fully disconnect someone=
=20
from a dialysis machine, Carpenter said. And some patients can help by=20
operating their own pumps.=20
But, she said, "I'm sure it would be kind of frightening to have your blood=
=20
out in the line and the power off, and they're pretty much tied to the=20
machine."=20
Pam Chin, a hairdresser at the Loomis Beauty Salon, said the owner sought a=
n=20
exemption because people could get overheated if the air conditioning went=
=20
out, and older customers getting their hair set could be chilled if the=20
dryers shut off.=20
With about half the state already exempt from rolling blackouts, the questi=
on=20
of who else should stay connected has become a delicate one for utilities,=
=20
regulators and legislators.=20
Carl Wood, the PUC commissioner who has taken the lead on blackout issues,=
=20
estimates that fewer than 1,000 more utility customers can be exempted befo=
re=20
they overload the rolling outage system designed to take stress off the=20
electric grid.=20
While about 6,000 customers are classified as "essential" by the state's tw=
o=20
largest utilities, keeping them out of the blackout rotation also spares=20
about 5 million other customers who are served by the same circuits.=20
That multiplier effect will have to be weighed by the consulting firm, by=
=20
utilities and eventually by PUC commissioners, who are scheduled to vote in=
=20
early August on who should be added to existing standards.=20
The rules will apply to the state's investor-owned utilities, Pacific Gas a=
nd=20
Electric Co., Southern California Edison and San Diego Gas & Electric Co.,=
=20
but not to municipal utilities.=20
The Sacramento Municipal Utility District already rejected pleas for specia=
l=20
exemptions from a medical lab, a veterinary hospital, nursing homes, medica=
l=20
facilities, businesses and residents. SMUD believes they can weather=20
blackouts because they are not critical to public safety.=20
People have counted on having dependable electricity for so long that some=
=20
have widely varying ideas of who can do without it safely, Medhekar said.=
=20
Of the more than 500 Baskin Robbins ice cream parlors that dot California,=
=20
only five are listed on the PUC Web site as applicants for exemptions.=20
The site cautions that its list of 9,239 electronic applicants hasn't been=
=20
checked for duplicates -- or fiction. It includes hundreds of outlets of th=
e=20
same drug store and supermarket chains, dozens of related nursing homes and=
=20
more than 400 dentists. Another 1,200 commercial power users have applied b=
y=20
fax.=20
Among those who have confirmed they want out of outages are the grocery=20
chains operated by West Sacramento-based Raley's, which said it took the=20
action as part of united effort with all California grocers, who are worrie=
d=20
about food spoilage.=20
Others in the mix are Fairfield's Westfield Shoppingtown Solano, formerly t=
he=20
Solano Mall, where officials sought the exemptions out of fear that shopper=
s=20
would get injured if escalators came to a sudden halt.=20
The Yolo County Housing Authority asked for an exemption on behalf of its 7=
00=20
dwellings in the belief that the utilities offer exemptions for low-income=
=20
Californians, Executive Director David Serena said.=20
Serena added that many of the authority's occupants are older or disabled a=
nd=20
could be endangered by a blackout.=20
Chevron Corp. acknowledged it couldn't show that a blackout at its refineri=
es=20
would present "imminent danger to public health or safety," but it asked Go=
v.=20
Gray Davis to support legislation exempting makers and transporters for=20
"critical fuels," saying a refinery shutdown would cut into the state's=20
gasoline supply.=20
Some businesses acknowledged that their applications are a long shot.=20
"It's probably a stretch," said Amanda Leveroni, who owns Bacio Catering Co=
.=20
of Chico, about her request to the PUC. "The public wouldn't be in danger.=
=20
"But we're a catering company -- somebody has planned for a year-plus for a=
=20
wedding or some big event," she added. "I would be in such a huge situation=
.=20
I'd have to send out for pizza."=20

The Bee's Carrie Peyton can be reached at (916) 321-1086 or=20
cpeyton@sacbee.com.


PG&E, ISO agree to court order on power bills
By Claire Cooper
Bee Staff Writers
(Published June 6, 2001)=20
SAN FRANCISCO -- Pacific Gas and Electric Co. and the operator of=20
California's power grid agreed Tuesday to a preliminary court order providi=
ng=20
that the utility will continue to receive -- but not pay -- generators' bil=
ls=20
for the state's purchases of the most expensive wholesale electricity.=20
The tab has been running at about $300 million a month.=20
The order, which U.S. Bankruptcy Judge Dennis Montali said he'll sign, will=
=20
specify that the Independent System Operator will not procure power except=
=20
for a "creditworthy buyer who has agreed to pay the generator."=20
In California, the only such potential buyer is the state Department of Wat=
er=20
Resources. However, the department, which has avoided PG&E Co.'s bankruptcy=
=20
proceedings by claiming sovereign immunity, will not be controlled by the=
=20
agreement. Montali pointed out that the department still could demand=20
reimbursement from PG&E.=20
Under the agreement, the ISO will not press any claims against PG&E on beha=
lf=20
of generators if they are not paid.=20
The proposed preliminary injunction was based on an April order by the=20
Federal Energy Regulatory Commission, which forbade the ISO from purchasing=
=20
power on behalf of any non-creditworthy buyer, such as PG&E.=20
The ISO is appealing the FERC order. If the appeal succeeds, the injunction=
=20
will end.=20



Peter Schrag: Turning up the heat in Houston and Washington


(Published June 6, 2001)=20

Behind all the palaver about the predictable standoff at last week's energy=
=20
"summit" between President Bush and Gov. Gray Davis, one major political=20
development was missed.=20
Put simply, in the past month the focus of the California energy crisis, an=
d=20
maybe the onus as well, has moved east: from the state's (and Davis')=20
handling of the mess to the generating companies, energy marketers and gas=
=20
pipeline companies that have richly profited from it, and thus to FERC, the=
=20
do-next-to-nothing Federal Energy Regulatory Commission, and the Bush=20
administration.=20
That wasn't all Davis' doing -- far from it -- though it's been at the hear=
t=20
of his message about energy industry "pirates" and "profiteers." Bush's=20
misbegotten energy plan and the administration's political clumsiness also=
=20
contributed mightily, not least by inadvertently giving Davis the chance to=
=20
get media exposure he could only have dreamed about.=20
More important, there's the defection of Sen. James Jeffords from the=20
Republican Party and the resulting shift of control in the U.S. Senate, whe=
re=20
the next chair of the Energy Committee will be Sen. Jeff Bingaman of New=20
Mexico, a co-sponsor of Sen. Dianne Feinstein's bill capping wholesale=20
electric rates for the next two years. And chairing the Committee on=20
Governmental Affairs will be Sen. Joseph Lieberman of Connecticut, who's=20
already asked for an audit of energy prices.=20
Those changes will draw a lot more attention to recent studies showing that=
 a=20
handful of big generators -- Duke Power, Reliant, Mirant, Dynegy and the hu=
ge=20
energy-marketing firm Enron -- have gamed the market to drive wholesale=20
prices to levels that, in the year 2000, sometimes reached 40 times the=20
prices of the year before.=20
The findings come not merely from economists at the California Independent=
=20
System Operator, the agency that manages the state's grid, who estimate=20
overcharges resulting from market power at $6.2 billion for last year alone=
.=20
They come also from Severin Borenstein and his colleagues at the University=
=20
of California Energy Institute, who "conservatively" calculate the=20
overcharges at $4.5 billion; from Paul Joskow, a widely respected energy=20
economist at MIT; and from Edward Kahn, an economic analyst in San Francisc=
o.=20
In a recent paper published by the National Bureau of Economic Research,=20
Joskow and Kahn conclude that there's "considerable evidence that the high=
=20
prices experienced in the summer of 2000 reflect the withholding of supplie=
s=20
from the market by suppliers [generators or marketers] exercising market=20
power." That those high prices occurred not merely during peak usage but al=
so=20
at off-hours, when no one had ever seen a price spike before, makes those=
=20
spikes even more curious.=20
There is, in addition, the powerful suspicion that the huge increase in=20
natural gas prices that a subsidiary of El Paso Energy Co., now the largest=
=20
gas company on Earth, was charging on the California side of the=20
California-Arizona border wasn't merely the result of an innocent imbalance=
=20
between supply and demand.=20
None of that may be illegal. If there's no collusion, there are no violatio=
ns=20
of antitrust laws. But it adds plenty of steam to the political argument. I=
n=20
the 2000 election cycle alone, energy companies kicked in some $64 million =
in=20
political contributions, 75 percent of it to Republicans. At a time when=20
those companies, many of them located in the same Houston neighborhood, are=
=20
racking up astronomical profits and when their collective coziness with Bus=
h=20
and the Republican Party is a lot more than rhetoric, their vulnerability t=
o=20
a vigorous Senate investigation ought to be obvious.=20
The clincher is "Blackout," a "Frontline" program that both symbolizes the=
=20
shifting emphasis and reinforces it. (The program is scheduled to be aired =
at=20
8 p.m. Friday on Sacramento cable Channel 7.) It isn't another recital of=
=20
Californians worrying about their electric bills, or about the stupidity of=
=20
the state's deregulation scheme or how Davis dithered in addressing the=20
crisis. It is about those generators and marketers in Houston and North=20
Carolina, men (and a few women) who regard themselves as the heroes of the=
=20
new energy markets.=20
The piece is reported by Lowell Bergman, who in working for both "Frontline=
"=20
and the New York Times has already broken major print stories about Duke=20
Power's secret approach to Davis offering unspecified energy refunds in=20
return for an end to state investigations and lawsuits. Bergman also report=
ed=20
private conversations between Enron chairman Kenneth Lay, a major Bush=20
supporter, and FERC chairman Curt Hebert regarding the influence that Lay=
=20
could exercise with Bush to allow Hebert to keep his chairmanship if Hebert=
's=20
supported certain decisions Enron badly wants.=20
None of these recent events is likely to end Davis' political woes, and the=
y=20
may not produce the wholesale rate caps Feinstein wants and that most=20
economists think necessary -- or maybe any significant reduction in the=20
industry's predatory pricing. But they will surely help turn up the heat,=
=20
both in Houston and Washington. Six months ago FERC found wholesale prices=
=20
were not "fair and reasonable" as federal law requires, but did little abou=
t=20
them. It will now have a lot more questions to answer.=20

Peter Schrag can be reached at Box 15779, Sacramento, CA 95852-0779, or at=
=20
pschrag@sacbee.com.



Is trading an insider's game?=20



Buying, selling of electricity is a growth business, but some say deck is=
=20
stacked against consumers
By Craig D. Rose=20
UNION-TRIBUNE STAFF WRITER=20
June 6, 2001=20
While Californians decry deregulation's failure to deliver a competitive=20
market, electricity wholesalers have quietly developed a vast and rapidly=
=20
growing business of buying and selling power among themselves.=20
The deals take place on high-tech trading floors in Houston and elsewhere=
=20
around the country, as well as on Internet-based trading systems.=20
Some experts say this electricity trading is a key mechanism for raising=20
consumer power prices, yet it's largely unregulated.=20

"Electricity trading is like buying stock -- when you have ability to chang=
e=20
the stock price," said Frank Wolak, a Stanford University economics profess=
or=20
and member of the state grid operator's market surveillance group.=20
Energy companies say the buying and selling of contracts to deliver power=
=20
provides risk management, allowing plant owners to presell their electricit=
y,=20
lock in prices and avoid fluctuations. The rough and tumble of the free=20
market, they add, is the most efficient means of allocating a resource like=
=20
electricity.=20
But industry critics say trading is far from a competitive market paradigm.=
=20
In their view, it's a means of communication -- a way for energy insiders t=
o=20
collude and raise prices under the guise of competition.=20
To be sure, the trading arms of major energy companies have emerged as star=
s=20
in an industry where profit surges of 300 percent or 400 percent are not=20
uncommon.=20
The transactions, shrouded in secrecy, can leave ownership of a critical=20
commodity in unknown hands. Consider the case of power generated by AES=20
Corp.'s California plants.=20
In 1998, AES made a bold move. Immediately after purchasing power plants th=
at=20
gave it control of 10 percent of the state's electric generating capacity,=
=20
the company sold the output from its plants for the next 20 years to Willia=
ms=20
Cos.=20
Williams did not sit on this treasure trove of electrons. The Tulsa, Okla.,=
=20
company soon sold 80 percent of what it bought.=20
It is difficult to say who owns that power now. Some might be owned by Semp=
ra=20
Trading, a sister company of SDG&E. Or some could be owned by Enron Corp.,=
=20
the nation's biggest electricity trader.=20
A spokeswoman for Williams conceded that Williams itself may have repurchas=
ed=20
some of the electricity it sold earlier. But trading companies closely guar=
d=20
their positions.=20
This much can be said with certainty: Electricity that AES sold for less th=
an=20
5 cents per kilowatt-hour to Williams changed hands perhaps 10 times in the=
=20
wholesale market and emerged at times in recent months with a price tag for=
=20
consumers that was 300 percent higher.=20
Williams' trading profits increased by 523 percent in the first quarter thi=
s=20
year.
Advance sales
All this buying and selling creates curious confluences.=20
In their attempt to deflect criticism over high prices, generating companie=
s=20
such as Duke Energy -- operator of the South Bay Power Plant in Chula and=
=20
others in the state -- frequently note that they sell most of their=20
electricity far in advance. But they acknowledge less often that their=20
trading units may also be buying power, which could boost the company's=20
electricity inventory.=20
Duke was the fourth biggest electricity trader last year and cited its=20
trading activity as a prime contributor to its wholesale business profits,=
=20
which soared 324 percent in the first quarter to $348 million.=20
It is a company's power traders who frequently direct plant operators to=20
increase or decrease the generation of power in response to market=20
conditions.=20
Energy companies have little option but to turn to trading for profits. One=
=20
of the better kept secrets of electrical deregulation and its promise of=20
competition is that there is remarkably little competition in the productio=
n=20
side of the business.=20
For one thing, electricity is a commodity; power from one company is=20
indistinguishable from that generated by others.=20
More important, nearly all modern plants generate power from turbines built=
=20
by a handful of manufacturers. The result? Modern plants owned by different=
=20
companies produce power at nearly identical cost.=20
"The cost of power produced by modern plants is all within a mil=20
(one-thousandth of a dollar)," said Michael Peevey, an adviser to Gov. Gray=
=20
Davis and former president of Southern California Edison.=20
So the extraction of profit in the electricity business relies much more on=
=20
trading. Traders' profits rise when prices are volatile -- plunging, or eve=
n=20
better, rising sharply.
Little regulation
But despite the obvious temptation to manipulate the market, the burgeoning=
=20
electricity trading business has remained largely unregulated.=20
The Federal Energy Regulatory Commission does require quarterly filings fro=
m=20
energy traders, but these often provide incomplete information, or at least=
=20
little that has been of concern to FERC.=20
In fact, although the trading of electricity grew more than a hundredfold=
=20
from 1996 to 2000, FERC has taken no major enforcement action against a=20
trader. After the onset of the California crisis last year, FERC has acted=
=20
once. That was against Williams, which agreed to pay $8 million without=20
admitting guilt to resolve an allegation that it withheld supply to pump up=
=20
prices.=20
FERC's record of enforcement in the area of power trading stands in contras=
t=20
to a long list of enforcement actions within other markets taken by the=20
Securities Exchange Commission and the Commodity Futures Trading Commission=
.=20
FERC has recently added staff to its market oversight operations. But Willi=
am=20
Massey, a FERC commissioner, says the agency's effort is still inadequate.=
=20
"Electricity can be flipped, stripped and chopped up," Massey said. "It's a=
n=20
extraordinarily complicated market.=20
"The sophisticated marketers and traders have simply moved past us. We're=
=20
kind of horse and buggy in our approach and they're out there in rocket shi=
ps=20
flying around ... The problem is that sophisticated traders don't necessari=
ly=20
produce reasonable prices. They produce profits."=20
Before deregulation, electricity trading was a low-key affair. Regulated=20
utilities dealt power back and forth on a reciprocal basis to fill=20
electricity shortfalls in their control areas. There was little trading for=
=20
profit until the mid-1990s, after federal legislation and FERC rulings open=
ed=20
the market.=20
Major traders include large energy companies, sister companies of=20
California's major utilities and Wall Street firms.
Market volatility
In many ways, the trading of power is similar to that of other commodities.=
=20
But there are important differences. Because it cannot be stored and its us=
e=20
is so fundamental, the price of electricity is the most volatile of all.=20
When supplies are tight, a single supplier can rapidly raise prices to=20
budget-busting levels, as evidenced by Duke Energy's recent admission that =
it=20
charged California nearly $4,000 for a megawatt-hour of power, a quantity=
=20
that probably sold hours earlier for one-tenth of that sum or less.=20
Wolak, the Stanford economist, and state Sen. Joseph Dunn, D-Garden Grove,=
=20
who is investigating the state power market, say trading allows companies t=
o=20
collude under the guise of competition. Instead of wringing out lowest cost=
s,=20
the wholesale trading market serves to raise prices, they say.=20
"As I trade to you and you trade to me, we communicate to each other what=
=20
price we would like to get," said Wolak. "It's not collusive. It's just=20
communicating price."=20
Mark Palmer, a spokesman for Enron, the nation's biggest power trader, said=
=20
California's problem is not the result of trading.=20
"It's a result of shortages," Palmer said.=20
Underscoring its emphasis on trading, Enron's new headquarters tower in=20
downtown Houston rises from a six-story block of new trading floors,=20
including expanded space for electricity trading.=20
Enron also pioneered trading in cyberspace and its Enron Online site claims=
=20
to be the most active computer-based trading market.=20
The Houston company argues that consumers won't fully benefit from power=20
trading and deregulation until they have greater choice in choosing their=
=20
power supplier. And the company says FERC has not done enough to open acces=
s=20
to transmission lines, which would allow traders to move power around the=
=20
country. To that end, Enron has lobbied hard for President Bush's plan for =
a=20
national electricity grid.=20
Palmer says the notion that the price of electricity rises each time it is=
=20
traded is mistaken.=20
"The market is always looking for the real price of a commodity," Palmer=20
said.=20
Dunn, the California state senator, says his investigation found a differen=
t=20
function for trading. At a time when supply barely meets or falls short of=
=20
demand, he noted, companies with electricity to sell have to worry only abo=
ut=20
how high to set their price.=20
"The trader is a pawn in the generator's game to drive up prices," said Dun=
n.=20
"Trading develops a level of trust. You, my alleged competitor, will bid in=
=20
the same patterns and I will respond not in a competitive pattern but in a=
=20
complimentary pattern."=20
The state senator said his investigation found evidence that on several day=
s,=20
energy companies appeared to test their ability to drive prices up, without=
=20
being undercut by competitors.=20
This ability to drive up prices without competitive consequence is a key te=
st=20
of market power, the technical term for manipulation or price fixing.=20
But Dunn also conceded that antitrust violations can be hard to prove in=20
court. He suggested that even if the trading behavior falls short of=20
antitrust violations, it remains anti-competitive and devastating for the=
=20
California economy.=20
To Harry Trebing, a utility industry expert and professor emeritus at=20
Michigan State University, wholesale electricity trading is reminiscent of=
=20
what took place in the 1920s and early '30s. Back then, utility companies=
=20
created complex networks of holding companies that traded stock among=20
themselves, driving up prices in the process.=20
Undoing that scheme was a focus of President Franklin Roosevelt's=20
administration. Congress ended up barring national power companies and=20
tightening regulation of utilities, in an effort to counteract their tenden=
cy=20
to create markets that work only for insiders.=20
"The broad goals of trading are the same," Trebing said.=20
"The goal is to maximize profits through raising prices."=20






Daily energy costs for state fall in past weeks=20



By Ed Mendel=20
UNION-TRIBUNE STAFF WRITER=20
June 6, 2001=20
SACRAMENTO -- In some of the first good news of the electricity crisis, the=
=20
Davis administration said yesterday that the daily cost of power purchased =
by=20
the state for utility customers has dropped in recent weeks.=20
The price-drop news comes after an announcement that Californians conserved=
=20
more energy than expected last month, 11 percent, and amid Davis=20
administration optimism that the Legislature may finally begin to move on a=
=20
plan to keep Southern California Edison out of bankruptcy.=20
The developments, if they turn out to be a trend and not temporary, could b=
e=20
among the first signs that Gov. Gray Davis' plan to end the electricity=20
crisis is beginning to work. But the administration isn't saying that.=20
"We have had a few good days here lately," said S. David Freeman, a Davis=
=20
power adviser. "I don't think that I want to project."=20
Some power-market watchers began to speculate last month that prices may ha=
ve=20
peaked earlier this year. Platts, an energy information service, said=20
yesterday that spot prices for the natural gas used by power plants are=20
falling this month.=20
The governor's press secretary, Steve Maviglio, told reporters yesterday th=
at=20
the daily amount spent on power is now "well below" $50 million, which was=
=20
the average cost earlier this year.=20
A 12-day gap in the most recent notice to the Legislature that another $500=
=20
million increment will be spent on power suggests that the daily average=20
during the last two weeks may have dropped down around $42 million.=20
Oscar Hidalgo, a spokesman for the state power purchasing agency, said that=
=20
the average cost of power was under $40 million during the first four days =
of=20
this month.=20
Maviglio attributed the lower cost to conservation, the phasing in of cheap=
er=20
long-term power contracts, fewer power plants off-line for maintenance, and=
=20
cooler weather.=20
However, he said, "The average cost is still way over what we paid last=20
year."=20
There was widespread skepticism in late April when the governor's consultan=
ts=20
predicted that the $346 per megawatt-hour average paid by the state for=20
non-contracted power from April through June would drop to an average of $1=
95=20
from July through September.=20
"We are still very comfortable with the projection that Mr. Fichera and=20
company estimated," Maviglio said, referring to Joseph Fichera of Saber=20
Partners in New York.=20
During a briefing on May 21, Fichera told reporters that the amount of powe=
r=20
that the state would obtain under long-term contracts for May was expected =
to=20
be about 43 percent of the total required, the so-called net short.=20
Fichera said contracts already signed were expected to cover 66 percent of=
=20
the net short in June, 48 percent in July, and 42 percent in August. He sai=
d=20
contracts that had been agreed on in principle could increase those amounts=
=20
to 73 percent in June, 67 percent in July, and 60 percent in August.=20
"We are still on target. There are risks," Fichera said yesterday, among th=
em=20
extended hot weather and power plant outages. "No one is popping the=20
champagne corks until Sept. 30."=20
The governor's consultants based their forecast of power demand this summer=
=20
on an estimate that Californians will reduce their electricity use by 7=20
percent.=20
The 11 percent reduction last month, as compared to May of last year, came=
=20
before the sticker shock of rate hikes that begin this month for customers =
of=20
Edison and Pacific Gas and Electric. And a $35 million ad campaign urging=
=20
conservation has not hit full stride.=20
Maviglio said the administration plans to release some detailed information=
=20
on Monday about the roughly $8 billion the state has spent buying power. Th=
e=20
general fund will be repaid by a bond of up to $13.4 billion that ratepayer=
s=20
will pay off over 15 years.=20
Legislative leaders have demanded detailed information about power purchase=
s=20
before proceeding with the Edison plan. Assembly Democrats are working on a=
=20
plan that de-emphasizes state purchase of the Edison transmission system an=
d=20
would put most of the burden for paying off Edison's debt on businesses and=
=20
large users, not residences.






Five tiers sought in proposed rate boost=20



Conservation would be promoted, SDG&E says
By Karen Kucher=20
UNION-TRIBUNE STAFF WRITER=20
June 6, 2001=20
A proposed rate increase for SDG&E customers to cover the high cost of=20
electricity should be imposed in five tiers to encourage conservation, the=
=20
company is advising state utility regulators.=20
The more electricity a customer uses, the higher the rate would be.=20
SDG&E needs to raise its rates to bring in an additional $502 million=20
annually to pay the state for power purchases.=20
The state Public Utilities Commission is expected to rule on San Diego Gas =
&=20
Electric's rate-increase proposal June 28.=20
The rate changes would remove a cap that has shielded most SDG&E customers=
=20
from rising electricity prices for a year. The cap, enacted by state=20
lawmakers in September 2000 and retroactive to June 2000, set rates at 6.5=
=20
cents per kilowatt-hour.=20
Higher rates would mean the average SDG&E residential and small-business=20
customer's electricity bills would go up by 18 percent. Large commercial=20
users' bills would average 29 percent more.=20
Public hearings on the issue will be held next Monday and Tuesday in San=20
Diego, El Cajon, Escondido and San Clemente. These sessions will focus on=
=20
small-business and residential consumers. Hearings on large commercial user=
s=20
were held last month.=20
Earlier this year, the PUC decided to allow the state's two largest=20
utilities, Pacific Gas and Electric and Southern California Edison, to char=
ge=20
customers an extra $5.7 billion annually for electricity.=20
The state Department of Water Resources, which has been buying power for=20
SDG&E customers since February, asked SDG&E to generate a total of $915=20
million annually to cover the cost of electricity purchases.=20
With the proposed rate increases, SDG&E could do that.=20
Large commercial customers would pay about 30 percent of the overall increa=
se=20
and residential and small-business customers would pay about 70 percent, sa=
id=20
Ed Van Herik, a spokesman for the utility company.=20
If the increase can be tiered, as many as 60 percent of residential custome=
rs=20
will see no rate increase if their electricity usage remains the same, Van=
=20
Herik said.=20
But customers who use more than 130 percent of their baseline -- considered=
=20
the minimum amount of electricity needed by a household -- will be billed a=
t=20
increasingly higher rates.=20
Residential and small-business customers who use a lot of electricity could=
=20
pay as much as 17.89 cents per kilowatt hour for some power they consume.=
=20
Consumer advocate Michael Shames said he is concerned the utility's proposa=
l=20
does not spread the increases evenly among different types of users. He als=
o=20
called for more scrutiny of the state's request.=20
People should tell PUC officials "that this increase should not be a carte=
=20
blanche or blank check approval," said Shames, the head of Utility Consumer=
s'=20
Action Network. "The PUC needs to ensure that the rate increase requested b=
y=20
the (state) is reasonable."=20
The public hearings are scheduled for:=20
?Monday, 1 p.m., San Diego Concourse, Copper Room, 200 C St., San Diego.=20
?Monday, 7 p.m., El Cajon Community Center, 195 E. Douglas Ave., El Cajon.=
=20
?Tuesday, 1 p.m., Country Inn Hotel, 35 Via Pico Plaza, San Clemente.=20
?Tuesday, 7 p.m., Center for the Arts, 340 N. Escondido Blvd., Escondido.=
=20







Port budget large, but power bills loom=20



Slowing economy also cause for worry
By Ronald W. Powell=20
UNION-TRIBUNE STAFF WRITER=20
June 6, 2001=20
The "rock" is rolling financially, but there are indications that the blues=
=20
lurk on the horizon.=20
Officials of the San Diego Unified Port District -- headquartered in a=20
block-shaped building some employees call the rock -- are happy with a=20
projected 2001-2002 budget that is 5.1 percent larger than the current one.=
=20
Total revenue is expected to reach $208.7 million, $10.2 million above what=
=20
is expected in the fiscal year that ends June 30.=20
Port commissioners gave preliminary approval to the budget yesterday and ar=
e=20
scheduled to take a final vote July 10.=20
But a slowing economy and surging electric bills are causes for concern.=20
Electricity costs are expected to rise from $5 million to $8.2 million in t=
he=20
coming fiscal year.=20
"As far as trends, we see a continuation of the growth we've experienced ov=
er=20
the past five years," said Bruce Hollingsworth, the port's treasurer. "But=
=20
our percentage of growth will not rise as sharply."=20
Port revenues have grown steadily since the 1997-1998 fiscal year, when $16=
3=20
million was generated.=20
The proposed budget calls for adding 24 employees to the port's 730-member=
=20
work force. New hires will include three Harbor Police officers, 10 employe=
es=20
in the aviation division and four in maritime services.=20
The port operates Lindbergh Field and administers nonmilitary tidelands alo=
ng=20
San Diego Bay. It is landlord to more than 600 waterfront businesses and=20
operates two marine cargo terminals and one cruise ship terminal.=20
The budget calls for growth in each of the port's primary revenue centers:=
=20
aviation, real estate and maritime services.=20
Passenger and cargo activity at Lindbergh Field is expected to generate $90=
.7=20
million, or $5 million more than expected in the current year. Most of that=
=20
increase is expected to come from parking-rate increases at the airport and=
=20
at the port's long-term parking lot on Pacific Highway.=20
Rent from hotels and other businesses that are port tenants are expected to=
=20
total $63.1 million, up $1.8 million from the current budget.=20
Increases in cargo and cruise ship traffic are expected to boost maritime=
=20
income by $2.7 million, to a total of $18.4 million.=20
The port expects to spend $157 million on construction projects. They inclu=
de=20
$8.5 million to relocate the General Services Department from Eighth Avenue=
=20
and Harbor Drive in San Diego to National City and more than $5 million for=
=20
paving and improvements at the 10th Avenue Marine Terminal.=20
Rent revenue could grow substantially in future years. Four hotel projects =
on=20
port property have won approval or are seeking it.=20
Jim Bailey, president of Manchester Resorts, told commissioners yesterday=
=20
that he expects to break ground on a second Hyatt tower of 750 rooms by Jun=
e=20
26. Port officials said revenue from that hotel would bring in an additiona=
l=20
$3.7 million a year. It is scheduled to open in the summer of 2003.=20
Hollingsworth, the treasurer, said that if all four hotels are built the po=
rt=20
could receive as much as $15 million a year in new revenue.=20







Continuous use urged for planned power plant=20



Escondido facility originally proposed for peak demand
By Jonathan Heller=20
UNION-TRIBUNE STAFF WRITER=20
June 6, 2001=20
ESCONDIDO -- A proposed power plant in southwest Escondido that initially w=
as=20
expected to run only during times of peak electricity demand probably will =
be=20
allowed to run full time.=20
A state energy official who recommended approval of the plant yesterday has=
=20
said the plant could operate as often as the state deems necessary.=20
The California Energy Commission was scheduled to vote on the project today=
.=20
CalPeak Power of San Diego has asked the commission to approve a 49-megawat=
t=20
plant on Enterprise Street near Vineyard Avenue. Referred to as a "peaker"=
=20
plant, such facilities typically are designed to supply energy only during=
=20
times of peak demand.=20
The state limits the number of hours some plants can operate to keep=20
pollution at a minimum. A 44-megawatt peaker plant being built on West=20
Mission Avenue in Escondido by Ramco Inc. will be allowed to operate no mor=
e=20
than 16 hours per day.=20
That plant is permitted to emit up to 5 parts per million of nitrogen oxide=
,=20
although its actual emissions are expected to be slightly lower, said Dale=
=20
Mesple, a Ramco consultant. Nitrogen oxide is a component of smog.=20
The CalPeak plant, if approved, would be restricted to 2 parts per million =
of=20
nitrogen oxide.=20
It was generally assumed that the CalPeak plant would operate under similar=
=20
time restrictions as the Ramco plant. The potential for air pollution was=
=20
among the chief concerns of residents who spoke at the City Council hearing=
s=20
on the Ramco project and at the energy commission hearings about the CalPea=
k=20
plant.=20
But under the terms of approval recommended by Energy Commission Chairman=
=20
William Keese, CalPeak's plant would be able to operate "up to 8,760 hours=
=20
per year, typically when the demand for electricity is high." That number=
=20
equals 24 hours a day.=20
The actual number of hours would depend on the requirements of the state's=
=20
Independent System Operator, which manages the energy grid.=20
"We certainly want to have the flexibility to run whenever we're needed,"=
=20
said Mark Lyons, CalPeak's development director. "Exactly how often we will=
=20
run is anybody's guess."=20
Escondido Councilwoman June Rady said she was frustrated by the possibility=
=20
of the plant running full time. In Ramco's case, the city and the county Ai=
r=20
Pollution Control District made it clear how often the plant could operate.=
=20
CalPeak chose to bypass the city's permitting process and went through the=
=20
state Energy Commission, which offers an expedited 21-day approval put in=
=20
place by Gov. Gray Davis as an emergency measure.=20
"I think Escondido has been absolutely ignored and there's a total lack of=
=20
due process," Rady said. "It boils down to an issue of local control."=20
Although city officials objected to the commission pre-empting the city's=
=20
land-use authority, the commission maintained that Davis' order gave it the=
=20
final say on this type of project.=20
If the commission gives final approval today, the only remedy available to=
=20
the city would be in court. At least three council members must vote to=20
initiate legal action.=20
Keese's recommended approval did take into account several city concerns=20
regarding landscaping. The CalPeak plant would be built near the entrance o=
f=20
a planned high-tech business park, and city officials were worried the=20
plant's appearance might hinder the ability to attract high-quality tenants=
=20
to the park.=20
Mayor Lori Holt Pfeiler said she was not surprised by the commission's=20
recommendation.=20
"I expected they would want to approve the project, and that's why it was=
=20
important for the city to weigh in with conditions we have in this=20
community," Pfeiler said.=20






Rising energy prices threaten Poway troupe=20



By Brian E. Clark=20
UNION-TRIBUNE STAFF WRITER=20
June 6, 2001=20
POWAY -- Rising electricity rates may extinguish the stage lights this summ=
er=20
for the Poway Performing Arts Company.=20
"I'm afraid that if SDG&E gets the price increase it's asking for -- from 6=
.5=20
cents per kilowatt-hour to 8.9 cents -- that we'll go under," said Kathy=20
McCafferty, spokeswoman for the nonprofit theater.=20
The volunteer organization produces its plays in a building at a Poway Road=
=20
shopping center. It held three fund-raising performances over the weekend,=
=20
but officials were uncertain yesterday how much money was raised.=20
The group is not affiliated with the Poway Performing Arts Center and has=
=20
been in business for 20 years.=20
McCafferty said the group built up a $2,000 surplus last summer before ener=
gy=20
prices began to surge.=20
"That $2,000 was a big reserve for us," she said. "It seemed like a ton of=
=20
money, but, boy, it went fast. And we're really energy-dependent. Our light=
s=20
use a lot of power. And we're in Poway on the second floor of our building.=
=20
It gets hot here, and we have to use air conditioning."=20
But McCafferty acknowledged that the cost of power isn't the group's only=
=20
problem.=20
In a recent letter to backers, President Nan Katona said the organization=
=20
also needs new blood to keep operating.=20
"The truth is that lack of funding is just a symptom of the deeper problem,=
=20
which is lack of community support," she wrote. "Ironically, audiences and=
=20
reviewers recognize the Poway Performing Arts Company as one of the premier=
=20
community arts theaters in San Diego."=20
Katona said some new volunteers had stepped forward to take leadership role=
s=20
in the theater company since she wrote her letter last month. But she said=
=20
rising electricity prices could still bring the group down.=20
"If our energy bills double or triple, we could be in dire straits," she=20
said. "It could push us over the edge financially."=20
McCafferty said it would be difficult for the theater to cut costs.=20
"We can't run a much leaner operation," she said. "If our power prices go u=
p=20
again, we may still be forced out of business."=20
The theater is at 13250 Poway Road, in the Lively Shopping Center. For more=
=20
information, call (858) 679-8085.=20







Fair to use generators for midway attractions=20



By Michael Burge=20
UNION-TRIBUNE STAFF WRITER=20
June 6, 2001=20
DEL MAR -- The Del Mar Fair will generate its own electricity for thrill=20
rides on the midway this year instead of using energy from SDG&E.=20
"In case there are planned or unplanned outages, we still will be operating=
,"=20
fairgrounds General Manager Timothy J. Fennell said.=20
Fennell decided to put the midway on generators because he didn't want the=
=20
fairgrounds pulling power from the grid while county residents are coping=
=20
with rolling blackouts at home and at work, he said.=20
And the fair does not want to take a chance that a rolling blackout will=20
leave some people stranded in rides high above the grounds, forcing an=20
evacuation.=20
The fairgrounds has been told it is exempt from rolling blackouts, but rath=
er=20
than take such a risk it will rent 13 diesel-fuel generators and produce=20
electricity on the midway. The rest of the fairgrounds will use power from=
=20
San Diego Gas & Electric Co.=20
Fairgrounds operations manager Larry Baumann estimated it would cost the=20
fairgrounds $20,000 more to generate its own electricity than to buy it fro=
m=20
SDG&E.=20
Midway manager Donna Ruhm said it will be worth it.=20
"Rides that require evacuation have to have backup power and they do," Ruhm=
=20
said. "Now our service won't be interrupted."=20
It is not unusual for carnivals to generate their own power, and the=20
fairgrounds has done so in the past. Fair officials removed the generators =
10=20
to 15 years ago to reduce noise on the midway.=20
The fair opens June 15 and ends July 4.=20
While the rest of the fairgrounds is on the SDG&E grid, Baumann said backup=
=20
generators can kick in during a typical 60-or 90-minute blackout, allowing=
=20
the fair to operate without serious difficulty. Those generators are not=20
linked to the midway.=20
All the generators are licensed by the state and meet emission standards,=
=20
fair officials said, so they do not expect the noise and odor to be=20
excessive.=20
The fairgrounds is taking the precaution of providing its own power despite=
=20
the fact that it probably will not go dark during a rolling blackout.=20
"SDG&E has assured me that .?.?. the fairgrounds and the racetrack will not=
=20
be on the curtailment (blackout) list during the fair and the races," said=
=20
Del Mar Fire Chief Jack Gosney.=20
The Del Mar Thoroughbred racing season begins July 18 and ends Sept. 5.=20
Gosney said SDG&E told him earlier this year that the fairgrounds was not=
=20
subject to a forced outage because it shared a circuit with the Del Mar Fir=
e=20
Station, which is a 911 dispatch center and exempt from a blackout. But he=
=20
said recent research showed that the fairgrounds is on a separate circuit.=
=20
Nonetheless, Gosney said, SDG&E is exempting the fairgrounds and racetrack=
=20
during the busy summer season.=20
The fairgrounds paid $137,152.95 for its electricity usage from March 12 to=
=20
April 10. It paid $51,845.39 for electricity during the same period last ye=
ar.
?=20






Wednesday, June 6, 2001=20
'Hi, My Name Isn't Justice, Honey,' and Shame on Lockyer=20
By TOM G. PALMER


?????Here's what California Atty. Gen. Bill Lockyer said at a press=20
conference about Enron Corp. Chairman Kenneth Lay: "I would love to=20
personally escort Lay to an 8-by-10 cell that he could share with a tattooe=
d=20
dude who says, 'Hi, my name is Spike, honey."'=20
?????Here's why Lockyer should be removed from his office of public trust:=
=20
First, because as the chief law enforcement officer of the largest state in=
=20
the nation, he not only has admitted that rape is a regular feature of the=
=20
state's prison system, but also that he considers rape a part of the=20
punishment he can inflict on others.=20
?????Second, because he has publicly stated that he would like to personall=
y=20
arrange the rape of a Texas businessman who has not even been charged with=
=20
any illegal behavior.=20
?????Lockyer's remarks reveal him to be an authoritarian thug, someone whol=
ly=20
unsuited to holding an office of public trust.=20
?????But his remarks do have one positive merit: They tell us what criminal=
=20
penalties really entail.=20
?????Contrary to some depictions of prisons as country clubs, they are=20
violent and terrible places. More and more politicians propose criminal=20
sanctions for more and more alleged misdeeds, and as a result ever more kin=
ds=20
of behavior are sanctioned by criminal penalties, perhaps now even selling=
=20
electricity. Those found guilty of such crimes are put into cages, where th=
ey=20
are deprived of their liberty and dignity and, as Lockyer so clearly=20
acknowledged, raped and brutalized. What's worse, Lockyer has indicated tha=
t=20
he believes that rape is an appropriate part of the system of punishments h=
e=20
administers.=20
?????Should it matter that Lay is a businessman? Imagine the outcry if the=
=20
head of Enron were female. What would Lockyer's fellow Democrats have said =
to=20
that?=20
?????Should it matter that Lay is chairman of an electricity generator? Doe=
s=20
the nature of his business justify threats to escort him to his own rape?=
=20
Lockyer told the Los Angeles Times that he had singled out Enron's chairman=
=20
because the Houston-based company is the world's largest energy trader.=20
?????So apparently singling out a man for a heinous threat is OK because he=
's=20
the chairman of the world's largest energy trading company. That's accordin=
g=20
to the man who, as a state senator, sponsored California's 1984 hate-crimes=
=20
law. Evidently the crusader against intimidation on the basis of race,=20
religion and sexual orientation feels no hesitation at all about intimidati=
ng=20
someone and threatening him with the brutal use of physical force simply=20
because he heads the world's largest energy trading company.=20
?????Lockyer and Gov. Gray Davis seem to think that the best way to keep th=
e=20
lights on is to threaten electricity producers with brute force, rather tha=
n=20
to offer to pay competitive rates in competitive markets. Are energy=20
producers to blame for California's energy problems? No. Bad policies,=20
including rigid controls on retail prices of electricity, are the cause of=
=20
the problem, not the people who generate energy. Scapegoating producers and=
=20
threatening them with violence is an old ploy of authoritarians. California=
ns=20
should not stand for it.=20
?????An Enron spokesman said that Lockyer's chilling stated desire to arran=
ge=20
the rape of Lay does not merit a response. The spokesman is wrong. Lockyer'=
s=20
remarks merit public disgrace and removal from office. After all, rape is n=
ot=20
a form of legal justice in America--is it?=20
- - -

Tom G. Palmer Is a Senior Fellow at the Cato Institute in Washington. E-mai=
l:=20
Palmert@cato.org

Copyright 2001 Los Angeles Times=20






California ; Metro Desk=20
U.S. Probes Alleged Pact Not to Build New Plants Power: Justice officials=
=20
focus on Southland operations of two firms, which deny wrongdoing.
MYRON LEVIN; NANCY RIVERA BROOKS
?=20
06/06/2001=20
Los Angeles Times=20
Home Edition=20
Page B-1=20
Copyright 2001 / The Times Mirror Company=20
The U.S. Department of Justice has launched an investigation into whether t=
wo=20
companies that control a large swath of Southern California 's electricity=
=20
supply agreed to limit power plant construction, potentially hindering=20
crucial energy production, according to federal records and interviews.=20
The civil antitrust probe of Williams Energy Services and AES Southland=20
represents the Justice Department's first foray into the activities of ener=
gy=20
suppliers who have reaped huge profits in California 's price-shocked marke=
t.=20
AES disclosed the investigation, which began last month, in a filing with t=
he=20
Securities and Exchange Commission on Tuesday. In its papers, AES said the=
=20
Justice Department is focusing on whether its agreement with Williams could=
=20
constrain future power plant construction in Southern California .=20
The investigation comes at a time when the state is scrambling to get new=
=20
generators built and running to avoid blackouts and economic problems.=20
The government alleges that AES and Williams agreed to limit the expansion =
or=20
construction of new power plants near three facilities purchased by AES in=
=20
1998 from Southern California Edison under the state's new deregulation pla=
n.=20
The plants--in Long Beach, Huntington Beach and Redondo Beach--are owned by=
=20
AES, but the electricity is sold by Williams. Under a 3-year-old deal, know=
n=20
as a tolling agreement, Williams essentially rents out the capacity of the=
=20
plants for annual payments to AES. Williams supplies natural gas to fire th=
e=20
plants and sells the electricity under long-term contracts and in the costl=
y=20
spot market.=20
Williams and AES have similar tolling agreements at plants in Pennsylvania=
=20
and New Jersey. However, AES spokesman Aaron Thomas said the Justice=20
Department's investigative requests have focused only on agreements between=
=20
Williams and AES in Southern California .=20
Thomas would say only that the agreement at the center of the investigation=
=20
is simply a delineation of "how expansion or repowerings are done at the=20
facilities."=20
The three plants have a combined capacity of more than 3,900 megawatts,=20
enough to supply about 3 million homes. This summer, AES is bringing anothe=
r=20
450 megawatts on line by reactivating two mothballed generators in Huntingt=
on=20
Beach.=20
Paula Hall-Collins, a spokeswoman for Tulsa-based Williams Cos., said she=
=20
believes that the investigation is unrelated to a recent inquiry by the=20
Federal Energy Regulatory Commission into whether AES and Williams=20
unnecessarily shut down plants to jack up prices. A portion of that=20
investigation was settled in April, when Williams, without admitting any=20
wrongdoing, agreed to pay about $8 million.=20
"We've always maintained that we've operated within the law, and we're=20
certain the investigation by the DOJ will find we are operating legally,"=
=20
Hall-Collins said.=20
Williams and AES are among the power plant owners and marketers that have=
=20
been lambasted by Gov. Gray Davis because of gold-plated electricity prices=
=20
that have pushed the state's biggest utilities to the edge of ruin and are=
=20
steadily draining the state's budget surplus.=20
State officials are asking FERC to revoke the rights of AES and Williams to=
=20
sell electricity at whatever price the market will bear. That right was=20
granted for three years, beginning in 1998 by federal regulators when=20
California 's $28-billion electricity market was opened to competition.=20
Under that plan, the rights of AES and Williams to sell into the market are=
=20
the first to come up for renewal.=20
AES Southland and Williams Energy Services are both arms of large energy=20
companies--AES Corp. of Arlington, Va., and Williams Cos. of Tulsa, Okla.






California ; Metro Desk=20
Natural Gas, Power Prices Drop Sharply Energy: More conservation, mild=20
weather are among factors keeping costs down, experts say.
RICARDO ALONSO-ZALDIVAR; NANCY VOGEL
?=20
06/06/2001=20
Los Angeles Times=20
Home Edition=20
Page B-1=20
Copyright 2001 / The Times Mirror Company=20
WASHINGTON -- The wholesale prices of electricity and natural gas in=20
California have fallen sharply in recent weeks, and experts said Tuesday th=
at=20
the relief could be the harbinger of an energy turnaround.=20
Or it may be just a blip.=20
In the last couple of weeks, California power prices have plunged to the=20
lowest levels since April 2000, traders say, with electricity selling on so=
me=20
days for less than $100 per megawatt-hour.=20
At night, when demand slackens, power sometimes sells for less than $20 per=
=20
megawatt-hour. That is reminiscent of the days before prices went haywire=
=20
last summer.=20
It is a drastically different scenario than the $500 to $800 the state paid=
=20
during a spate of hot weather last month.=20
Meanwhile, wholesale natural gas prices at a bellwether pipeline junction o=
n=20
the Southern California -Arizona border dipped last week to their lowest=20
levels since November, according to a publication that tracks the industry.=
=20
Separately, Southern California Gas Co. and Pacific Gas & Electric Co.=20
reported June rate cuts for their residential gas customers of 16% and 38%,=
=20
respectively.=20
Experts credited a combination of conservation, mild weather, a burst of=20
increased hydroelectric generation and lower natural gas prices for the dro=
p=20
in electricity costs.=20
"Conservation is starting to worry the generators, which is nice to see,"=
=20
said Severin Borenstein, director of the University of California Energy=20
Institute in Berkeley. Californians used 11% less energy last month than in=
=20
May 2000, according to the state Energy Commission.=20
"I'm worried that if we don't push harder on conservation, [prices] won't=
=20
stay down," Borenstein added.=20
On the natural gas side, experts said the price decline is due to replenish=
ed=20
storage within California , a nationwide drop in the cost of the fuel and=
=20
easing demand from power plants.=20
The number of shippers competing to get natural gas to the state has also=
=20
increased, with the expiration of a controversial contract on the El Paso=
=20
pipeline system last week.=20
But economists were reluctant to make sweeping predictions based on the=20
latest indicators.=20
"It's hard to draw specific conclusions," said Bruce Henning, who tracks th=
e=20
natural gas markets for Energy and Environmental Analysis Inc., an Arlingto=
n,=20
Va., consulting firm.=20
How the summer turns out depends on the weather in the state, Henning said,=
=20
adding, "The weather represents the balance in the Southern California=20
market."=20
Natural gas fuels most California power plants. With wholesale prices=20
recently averaging three to four times the rates charged elsewhere in the=
=20
country, state and federal officials have despaired of chances for=20
controlling electricity costs.=20
Last Friday, however, the daily price for immediate delivery of natural gas=
=20
in Topock, Ariz., a pipeline junction near the California border, dipped to=
=20
$7.85 per million British thermal units.=20
According to Natural Gas Week, it was the first time since mid-November tha=
t=20
the price at that location had fallen below $8 per million BTUs. One millio=
n=20
BTUs is what a typical Southern California home uses in five or six days.=
=20
Considered a bellwether for other pipeline systems serving California , the=
=20
Topock price reached a record $56.54 per million BTUs on Dec. 8. It stood a=
t=20
$9.36 per million BTUs at the close of business Tuesday, still below recent=
=20
weekly averages.=20
Other industry publications have also picked up signals of price declines.=
=20
Platts, the energy information division of McGraw-Hill Cos., reported Tuesd=
ay=20
that the price for monthly gas delivery contracts to California fell 22% in=
=20
June, following a nationwide trend.=20
But Henning said the drop in California prices is attributable to both lowe=
r=20
prices around the country and a decline in the high markups for shipping ga=
s=20
to California . Those markups, which far exceed the cost of transporting ga=
s,=20
have drawn the attention of state and federal investigators.=20
Henning said the markups are declining as depleted storage levels in=20
California are replenished. "Storage levels have been filling very rapidly,=
=20
and that fact is reflected in prices coming down," he said.=20
The link between natural gas and electricity prices is a hotly debated=20
subject. Some experts say high-priced natural gas is driving up the cost of=
=20
electricity . Others believe that record prices for power are raising the=
=20
prices that generators are willing to pay for their fuel.=20
Electricity prices that range from $20 to $200 per megawatt-hour--instead o=
f=20
the $150 to $500 per megawatt-hour paid in recent months--are great news fo=
r=20
Gov. Gray Davis.=20
Average daily power prices in California for transactions through the=20
Automated Power Exchange have dropped from $149 per megawatt-hour last Frid=
ay=20
to $110 per megawatt-hour Tuesday. The exchange is a private company that=
=20
brings together electricity buyers and sellers and accounts for less than 1=
0%=20
of the state's market.=20
Davis spokesman Steve Maviglio said Tuesday that average daily power=20
purchases by the state have recently dipped below $50 million.=20
The state has sometimes had to pay more than $100 million a day since it=20
started buying power in January through the Department of Water Resources.=
=20
The state stepped in because California 's two biggest utilities became too=
=20
financially crippled to withstand the prices being charged by generators.=
=20
Davis' plan to pay for past and future energy purchases with a $12.4-billio=
n=20
bond issue hinges on an assumption that power prices will be driven down th=
is=20
summer through long-term contracts, conservation and the construction of ne=
w=20
power plants.=20
UC Berkeley's Borenstein said conservation efforts have not gone far enough=
.=20
"You walk into most buildings and you still need a sweater," he said. "That=
=20
ain't the way to hit the target."=20
If Californians conserved an additional 10% off their peak usage on hot=20
afternoons, he said, "we could really break the backs of the generators, we=
=20
could really collapse the price."=20
Prices tend to skyrocket in California 's electricity market on hot=20
afternoons, when demand soars and grid operators must scramble to purchase=
=20
enough electricity . Cool weather, which reduces demand for air conditionin=
g,=20
and conservation help keep the state from reaching such crisis situations.=
=20
Borenstein said he believes generators are also asking less money for their=
=20
electricity in part because of a federal order that took effect last month.=
=20
The order limits the price power plant owners can charge when California 's=
=20
supplies are strained.=20
Power sellers say there are more fundamental forces at work.=20
"There's more supply relative to demand, which is softening prices," said=
=20
Gary Ackerman, executive director of the Western Power Trading Forum. "The=
=20
market is working, and it's providing cheaper wholesale power more quickly=
=20
than any regulatory scheme could ever do."=20
*=20
Times staff writer Dan Morain in Sacramento contributed to this story.=20
RELATED STORY=20
PG&E wins: The utility averted a $1-billion bill for power buys. B6=20
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)=20
A Blip or a Trend?=20
Daily natural gas prices at the California border with Arizona--considered =
a=20
bellwether of the state's costs--have been declining in the last two weeks.=
=20
*=20
Natural gas price per 1 million Btu=20
$9.36=20
Source: Natural Gas Week







California ; Metro Desk=20
The State Utility Averts $1 Billion in Costs Courts: PG&E and Cal-ISO agree=
=20
to recognize Department of Water Resources as purchaser of the power.
TIM REITERMAN
?=20
06/06/2001=20
Los Angeles Times=20
Home Edition=20
Page B-6=20
Copyright 2001 / The Times Mirror Company=20
SAN FRANCISCO -- Pacific Gas & Electric Co. and the state's power grid=20
operator reached an agreement Tuesday that insulated PG&E at least=20
temporarily from more than $1 billion in power purchases the state made for=
=20
its customers.=20
The California Independent System Operator sent $1.26 billion in invoices t=
o=20
the utility for power purchases by the state Department of Water Resources=
=20
for PG&E customers from January through March.=20
But the utility contended in Bankruptcy Court proceedings that it was not=
=20
liable for such purchases and that continued purchases would cause annual=
=20
losses of $4 billion.=20
After arguments before Judge Dennis Montali, PG&E and Cal-ISO agreed that t=
he=20
Department of Water Resources, not PG&E, purchased the power. Cal-ISO had=
=20
argued that it was making the purchases on PG&E's behalf.=20
"PG&E wants to be a utility and have obligations to serve customers, but th=
ey=20
don't want to pay for it," Cal-ISO general counsel Charles Robinson said=20
later.=20
If PG&E refuses to pay the invoices, Robinson said, Cal-ISO will send the=
=20
bills to the Department of Water Resources, and officials there can decide=
=20
whether to pursue claims in Bankruptcy Court. A spokesman for department,=
=20
which has authorization to sell $13 billion in bonds for power purchases,=
=20
said the agency will have no comment until the matter can be studied.=20
State agencies have stayed out of the bankruptcy proceedings, hoping to=20
preserve their immunity from suits in federal court.=20
The agreement will be submitted for Montali's approval Monday, but the judg=
e=20
said it would not be binding on the department because no one represented t=
he=20
agency in court.=20
PG&E's own production and contracts provide the majority of the power for i=
ts=20
customers. But state legislation adopted this year allows the department to=
=20
secure power contracts to serve customers of ailing utilities. When a=20
shortage threatens the power grid, the department purchases additional powe=
r=20
through Cal-ISO on the spot electricity market.=20
PG&E filed for Chapter 11 protection from creditors on April 6, saying it w=
as=20
$9 billion in debt.=20





Dramatic drop in cost of electricity=20
LOWER BILLS: Cheaper fuel, milder weather credited=20
David Lazarus, Chronicle Staff Writer
Wednesday, June 6, 2001=20
,2001 San Francisco Chronicle=20
URL: http://www.sfgate.com/cgi-bin/article.cgi?f=3D/c/a/2001/06/06/MN199202=
.DTL=20

California electricity prices have plunged unexpectedly to their lowest lev=
el=20
in more than a year, partly as the result of a simultaneous drop in prices=
=20
for natural gas, which fuels most power plants.=20
Make no mistake: Gas and electricity prices could surge upward again in=20
months ahead.=20
But for the first time since California's energy markets went haywire last=
=20
summer, industry experts are beginning to ask whether the state finally may=
=20
have turned a corner in its battle with runaway power costs.=20
"California is not yet out of the woods," said Kelley Doolan, who tracks=20
natural gas prices for energy market researcher Platts. "But this is a very=
=20
significant decrease in costs."=20
Along with lower gas prices, the decline in electricity costs was attribute=
d=20
by state and industry officials to milder weather, which reduces demand for=
=20
power. They also credited recent conservation efforts by consumers and=20
better-than-expected runoff at dams for hydroelectric plants.=20
Gary Ackerman, executive director of the Western Power Trading Forum, an=20
energy-industry association, said these factors came together to produce th=
e=20
lowest wholesale electricity prices since April 2000.=20
Electricity on the spot market could have been purchased yesterday for as=
=20
little as $50 per megawatt hour, he noted, compared with more than $500=20
earlier this year.=20
"If the weather stays this way, we could have reasonable prices all summer,=
 "=20
Ackerman said. "We may also have fewer blackouts."=20
It is tempting for Californians to be suspicious of virtually any swing in=
=20
energy prices. If power companies manipulated prices on the way up, as=20
critics have alleged, might they not be up to some trick as prices head in=
=20
the opposite direction?=20
Nettie Hoge, executive director of The Utility Reform Network in San=20
Francisco, speculated that generators are allowing electricity prices to fa=
ll=20
so they can discourage federal regulators from taking a more active role in=
=20
the dysfunctional California market.=20
"They're trying to take the heat off," she said.=20
Others cautioned that the lower prices may be nothing more than a statistic=
al=20
blip.=20
"This was just one month's decline," said Michael Shames, executive directo=
r=20
of the Utility Consumers' Action Network in San Diego. "We really have to s=
ee=20
how this plays out in the future."=20
Steve Maviglio, a spokesman for Gov. Gray Davis, said the governor was very=
=20
encouraged by the lower energy prices. Davis announced Sunday that=20
California's power use was down 11 percent last month from a year before.=
=20
"We're not there yet," Maviglio said of whether an end to the state's power=
=20
woes is in sight. "But the trend is pointing in the right direction."=20
WHITE ELEPHANT
Yet this sudden drop in energy prices does have a dark side: California cou=
ld=20
end up with a huge white elephant after spending about $40 billion in publi=
c=20
funds on long-term power contracts.=20
The logic behind the contracts, which are at an average price of $69 per=20
megawatt hour over 10 years, is that the state expected to pay below-market=
=20
rates for electricity for a number of years before prices came down and=20
California found itself paying above-market rates.=20
If current trends continue, though, California will find itself paying=20
consistently above-market rates much sooner than expected, making the long-=
=20
term contracts a sweet deal for the same power companies that profited so=
=20
handsomely during the state's darkest hours.=20
"The contracts look really ugly right now," said Shames at the Utility=20
Consumers' Action Network. "They may be way overpriced."=20
Maviglio, the governor's spokesman, said it is too early to conclude that t=
he=20
state did poorly negotiating dozens of long-term power contracts.=20
"No one has a crystal ball on this," he said.=20
CUSTOMERS' BILLS TO DROP
In any case, Pacific Gas and Electric Co. said yesterday that customers'=20
average gas bills will drop 26 percent this month to $26 and should stay ne=
ar=20
that level all summer.=20
Platts, which monitors average monthly spot prices, found that the wholesal=
e=20
price of gas at the California-Oregon border has tumbled nearly 42 percent=
=20
since the beginning of May -- from $9.98 per million British thermal units =
to=20
$5.81.=20
The wholesale gas price at the California-Arizona border fell 45 percent,=
=20
from $11.91 to $6.50. This compares with a 25 percent monthly decline in=20
average natural gas prices nationwide.=20
However, California gas prices are still about 50 percent higher than they=
=20
were a year ago, whereas national prices are now below year-ago levels for=
=20
the first time since last spring.=20
While cooler weather nationwide helped push gas prices down overall, Doolan=
=20
attributed the especially steep drop in California to a commensurate surge =
in=20
prices last month related to fears of a long, hot summer of rolling=20
blackouts.=20
"You had state officials all but promising rolling blackouts this summer," =
he=20
said. "That created enormous demand for electricity generation.=20
"What has changed is that we've had weeks of mild weather," Doolan observed=
.=20
"The electricity generators have not come out of the woodwork buying up all=
=20
the gas."=20
This allowed utilities like PG&E to beef up gas inventories, which eased=20
demand and resulted in substantially lower prices, he said.=20
'BACK ON TRACK'=20
"We're back on track to be completely full for winter," said Staci Homrig, =
a=20
PG&E spokeswoman. "That's a very good thing."=20
Gas prices historically dip in the spring and summer and then rise again in=
=20
the winter. PG&E is forecasting that customers' average gas bills could ris=
e=20
to as high as $75 in December if current trends continue.=20
However, the precipitous drop in gas prices in recent weeks suggests that=
=20
California's unusually high costs at last may be abating.=20
Individual power companies so far are reluctant to speculate on whether the=
=20
drop in gas prices will have a lasting effect on electricity costs.=20
E-mail David Lazarus at dlazarus@sfchronicle.com.=20
,2001 San Francisco Chronicle ? Page?A - 1=20




San Jose council gives green light to generating plant=20
VOTE REVERSAL: Officials pressured to OK project=20
Marshall Wilson, Chronicle Staff Writer
Wednesday, June 6, 2001=20
,2001 San Francisco Chronicle=20
URL: http://www.sfgate.com/cgi-bin/article.cgi?f=3D/c/a/2001/06/06/MN167180=
.DTL=20

In a clear sign that the political landscape has shifted because of the=20
state's power crisis, the San Jose City Council gave a green light yesterda=
y=20
for construction of a generating plant it had unanimously opposed in=20
November.=20
Yesterday's 10-to-1 vote came after months of mounting pressure for the cit=
y=20
to reverse course and approve the controversial 600-megawatt Calpine plant =
at=20
Coyote Valley.=20
That pressure -- increased by the occasional rolling blackout -- has come=
=20
from nearly every corner of the state, from elected officials to high-tech=
=20
businesses and labor unions worried the power crisis will drain away jobs,=
=20
ruin the economy and lead to voter backlash over skyrocketing energy bills.=
=20
Even the local branch of the NAACP and environmentalists pushed the council=
=20
to approve the Calpine proposal -- despite overwhelming opposition from the=
=20
plant's neighbors.=20
Council members did not hide their disdain yesterday for being forced to=20
reconsider their opposition to the so-called Metcalf Energy Center.=20
"I'm holding my nose to vote for this thing," said Councilwoman Linda=20
LeZotte.=20
"I'm just as unhappy as everybody else," Vice Mayor George Shirakawa said. =
"I=20
feel like no matter what happens, we can't win."=20
GOVERNOR OFFERED HIS SUPPORT
After the council's solid opposition in November, Calpine appealed to the=
=20
California Energy Commission, which has the final say. The controversial=20
plant then received a huge boost in April when Gov. Gray Davis threw his=20
support behind it.=20
San Jose officials conceded yesterday that the energy commission was likely=
=20
to override their opposition and grant approval within a few weeks. They sa=
id=20
the commission's likely approval was stripping them of their power to decid=
e=20
local land-use issues.=20
"What I think has happened . . . is the governor and the Legislature at the=
=20
state level have taken this out of our hands," said Councilwoman Pat Dando.=
=20
"I don't think there's any chance at all the California Energy Commission i=
s=20
going to turn down the Metcalf Energy Center," Councilman Chuck Reed said.=
=20
CONSTRUCTION MAY BEGIN SOON
If given the go-ahead by the state, Calpine could begin construction as ear=
ly=20
as next month. The natural-gas fired plant would generate electricity by=20
mid-2003, company spokesman Kenneth Arbeu said.=20
At the urging of Mayor Ron Gonzales, the council yesterday approved a new=
=20
"cooperation agreement" with Calpine. The vote, with Councilman Forrest=20
Williams casting the lone nay, is preliminary while a final vote that is=20
scheduled for June 26.=20
Gonzales argued that the agreement did not amount to a flip-flop because it=
=20
differs from what Calpine proposed in November.=20
The agreement approved by the council calls for increased monitoring of air=
=20
pollution, the use of treated wastewater to cool the plant, which will redu=
ce=20
discharges into San Francisco Bay, and a $6.5 million "community benefits"=
=20
package, with the bulk going toward parkland acquisition, Gonzales said.=20
"This council has not changed its decision," he said. "What we've done is=
=20
change the facility."=20
Critics, incensed that the city was buckling to outside pressure, vowed to=
=20
change the council at the next election.=20
CONCERNS OVER HEALTH RISKS
They raised concerns that boiled wastewater steam wafting over their homes=
=20
from Calpine's plant could pose health risks. Jona Denz-Hamilton said more=
=20
controls are needed to ensure the safety of neighbors like herself and her=
=20
family and argued that new, cleaner-burning technologies should be installe=
d=20
at the plant.=20
"It's too great of a risk," she said.=20
Other critics said the state's energy woes will be solved and largely=20
forgotten by the time the plant opens in two years, while the Santa Teresa=
=20
neighborhood will be stuck with pollution for decades.=20
Approval seemed a given at the start of the more than three-hour hearing.=
=20
Much of the afternoon's debate focused around plans to extend a pipeline fo=
r=20
treated wastewater to the new plant.=20
Critics said Calpine was receiving a sweet deal by paying only $10 million =
of=20
the $50 million cost of extending the pipeline. Several council members ask=
ed=20
for a more detailed report into the financing plan before the final vote is=
=20
taken June 26.=20
Chronicle staff writer Bill Workman contributed to this report.=20
E-mail Marshall Wilson at marshallwilson@sfchronicle.com.=20
,2001 San Francisco Chronicle ? Page?A - 1=20



Developments in California's energy crisis=20

Wednesday, June 6, 2001=20
,2001 Associated Press=20
URL:=20
http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/06/06/s=
tate1
053EDT0177.DTL=20
(06-06) 07:53 PDT (AP) --=20
Developments in California's energy crisis:=20
WEDNESDAY:
* No power alerts Wednesday as reserves stay above 7 percent.=20
TUESDAY:
* Gov. Gray Davis' administration says the state's electricity costs are=20
dropping substantially, even as it asks state legislators for another=20
half-billion dollars for power purchases. That brings to $8.2 billion the=
=20
amount the state is paying for electricity on behalf of three financially=
=20
strapped utilities.=20
Spokesman Steve Maviglio says the cost to the state treasury has dropped in=
=20
the last few weeks well below the $50 million dollars the state had been=20
paying on a typical day. He credits cooler weather, conservation, more powe=
r=20
plants online and more long-term contracts with helping drive down the cost=
.=20
* A state Senate committee agrees to issue subpoenas to eight out-of-state=
=20
electricity generators demanding they hand over documents on bidding, prici=
ng=20
and other aspects of power sales in the state. The subpoenas would help a=
=20
special Senate committee's investigation into whether the companies are=20
illegally profiteering from California's power crisis. The committee's=20
chairman says he expects the companies to resist, setting the stage for a=
=20
court battle.=20
* Oil giant Chevron threatens to cut gasoline production in California unle=
ss=20
it is exempted from rolling blackouts. The San Francisco Chronicle says it=
=20
has a copy of a letter sent Friday from Chevron chairman David O'Reilly to=
=20
Davis. In the letter, O'Reilly says the company will scale back gasoline=20
production at its Richmond and El Segundo plants, operating those refinerie=
s=20
only with power produced by generators at the sites.=20
* New U.S. Senate Majority Leader Tom Daschle, D-S.D., supports Federal=20
Energy Regulatory Commission price caps. "FERC must meet its obligation und=
er=20
current law to ensure 'just and reasonable' prices for wholesale electricit=
y=20
in the state of California. FERC has failed to meet this responsibility...,=
"=20
Daschle says in a letter to Davis. "Unless FERC acts soon, Senator (Dianne)=
=20
Feinstein's legislation should be taken up and passed to direct FERC to tak=
e=20
action. I will support all necessary efforts to meet that goal."=20
* House Subcommittee on Energy Policy, Natural Resources and Regulatory=20
Affairs Chairman Doug Ose, R-Sacramento, cites Electric Utility Week figure=
s=20
that FERC's limited price caps helped cut California's power rates from $30=
0=20
to $108.47 per megawatt hour within an hour after taking effect last week.=
=20
While he says more information is needed, Ose uses the figures to tout his=
=20
pending bill to impose the price caps around the clock and to all Western=
=20
states.=20
* Pacific Gas & Electric Co. asks U.S. Bankruptcy Judge Dennis Montali to=
=20
stop the manager of the state's power grid from buying electricity for=20
utility or charging it for any electricity bought after the utility filed f=
or=20
bankruptcy on April 6. Separately, the utility's creditors support its=20
request to the bankruptcy court to pay out $17.5 million in bonuses to the=
=20
management team that guided the utility into bankruptcy.=20
* California Department of Water Resources reveals it is negotiating with=
=20
municipal utilities to buy their surplus power. Department spokesman Oscar=
=20
Hidalgo says talks began last week but no agreements are imminent.=20
* State lawmakers criticize a $3 million lobbying campaign by Southern=20
California Edison. The utility is telephoning shareholders to describe the=
=20
dire consequences if the utility goes bankrupt. The call is then transferre=
d=20
to the state Capitol so shareholders can implore lawmakers to support a=20
controversial plan to help the utility. Legislators and their staffers say=
=20
the shareholders often are confused and scared their investments will be=20
degraded or wiped out.=20
* State Treasurer Phil Angelides joins an advocacy group for the poor in=20
urging the state's huge pension funds to use their economic power to levera=
ge=20
power companies. The Pacific Institute for Community Organization says the=
=20
two pension funds own at least $1.2 billion in stocks and bonds in most of=
=20
the firms that sell electricity to California.=20
* The Assembly, by a 69-0 vote, approves a bill to spend $10 million on=20
environmental studies needed before Path 15, the inadequate transmission-li=
ne=20
group between Northern and Southern California, can be expanded. The bill=
=20
moves to the Senate.=20
* Pacific Gas and Electric announces a decrease in natural gas prices, down=
=20
38 percent from May's rates and 66 percent lower than January's rates. The=
=20
decline will bring the average residential gas bill to $26 when it goes int=
o=20
effect June 7. Market analysts predict the rates will remain stable until=
=20
December when demand is expected to increase with winter heating loads.=20
* No power alerts Tuesday as electricity reserves stay above 7 percent.=20
* Shares of Edison International closed at $10.05, down 53 cents. PG&E Corp=
.=20
closed at $11.25, down 15 cents. Sempra Energy, the parent company of San=
=20
Diego Gas & Electric, closes at $26.91, down 43 cents.=20
WHAT'S NEXT:
* Davis' representatives continue negotiating with Sempra, the parent compa=
ny=20
of San Diego Gas and Electric Co., to buy the utility's transmission lines.=
=20
THE PROBLEM:
High demand, high wholesale energy costs, transmission glitches and a tight=
=20
supply worsened by scarce hydroelectric power in the Northwest and=20
maintenance at aging California power plants are all factors in California'=
s=20
electricity crisis.=20
Edison and PG&E say they've lost nearly $14 billion since June to high=20
wholesale prices the state's electricity deregulation law bars them from=20
passing on to consumers. PG&E, saying it hasn't received the help it needs=
=20
from regulators or state lawmakers, filed for federal bankruptcy protection=
=20
April 6.=20
Electricity and natural gas suppliers, scared off by the two companies' poo=
r=20
credit ratings, are refusing to sell to them, leading the state in January =
to=20
start buying power for the utilities' nearly 9 million residential and=20
business customers. The state is also buying power for a third investor-own=
ed=20
utility, San Diego Gas & Electric, which is in better financial shape than=
=20
much larger Edison and PG&E but also struggling with high wholesale power=
=20
costs.=20
The Public Utilities Commission has approved average rate increases of 37=
=20
percent for the heaviest residential customers and 38 percent for commercia=
l=20
customers, and hikes of up to 49 percent for industrial customers and 15=20
percent or 20 percent for agricultural customers to help finance the state'=
s=20
multibillion-dollar power buys.=20
,2001 Associated Press ?=20



California conserves=20

Wednesday, June 6, 2001=20
,2001 San Francisco Chronicle=20
URL:=20
http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/06=
/06/E
D86597.DTL=20
WHEN RAIN fails to fall from the sky, Californians know why there is a=20
drought. But when rolling blackouts suddenly appeared in the dead of winter=
,=20
many of us wondered who was responsible for and who has profited from what=
=20
now seems like an artificially created power shortage in the state.=20
Our skepticism proved to be right. Windfall profits were reaped by=20
electricity generators while natural gas importers extracted prices far abo=
ve=20
the national average.=20
Timid federal overseers exact only wrist-slap penalties on the offending=20
energy firms. The White House scoffs at temporary controls for a=20
malfunctioning market. California's state government has ended up as the bi=
ll=20
payer for the sickly utilities, forking over $8 billion to generators. This=
=20
number may hit $40 billion by year-end.=20
It's an infuriating tangle. All the more remarkable, then, that skeptical=
=20
Californians have managed, within two months, to reduce their use of=20
electricity by 11 percent. The public's response to the governor's appeal f=
or=20
energy conservation has exceeded expectations. Although many businesses hav=
e=20
suffered enormous losses, ordinary people have made relatively painless=20
sacrifices. People turned off their lights, purchased energy-efficient=20
lightbulbs, used air conditioning less and shut off their computers when no=
t=20
in use.=20
Despite this remarkable civic compliance, we still face an unconscionable=
=20
lack of leadership. President Bush seems perfectly willing to allow Texas=
=20
power companies to pummel the once-powerful California economy. He repeats =
a=20
mantra about creating more supply -- which California is doing with 15 powe=
r=20
plants under construction -- while ignoring the outsized sums paid to a=20
handful of energy generators.=20
At the same time, Gov. Gray Davis, who has given new meaning to the word=20
dithering, has failed to make the tough and transparent decisions. He delay=
ed=20
an inevitable rise in power rates. Davis also dragged his feet in openly=20
announcing new power contracts that commit California to billions in spendi=
ng=20
over the next decade.=20
To Davis' credit, he has urged California to conserve by laying out an $800=
=20
million plan to cut power use and invest in energy-saving programs. The=20
message is getting out as higher rates take effect this month.=20
Despite a woefully unbalanced market and shortsighted leadership, the peopl=
e=20
of California have demonstrated that if there is a will, there is a way.=20
Now it is time for our leaders to follow the wisdom of their constituents.=
=20
,2001 San Francisco Chronicle ? Page?A - 20=20



L.A. power customers awash in cheap energy=20
John Wildermuth, Chronicle Staff Writer
Wednesday, June 6, 2001=20
,2001 San Francisco Chronicle=20
URL:=20
http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/06=
/06/M
N133438.DTL=20
Los Angeles -- These are flush times for the city's Department of Water and=
=20
Power and the energy executives are loving every minute of it.=20
As are their customers.=20
Private power companies throughout California have been raising rates and=
=20
warning customers about a long, hot summer filled with blackouts, but the=
=20
city- owned DWP has been keeping prices stable and the lights on for 1.2=20
million Los Angeles customers.=20
"Our customers are being really nice to us," said Angelina Galiteva, the=20
utility's strategic planning director. "They love the DWP."=20
Although Gov. Gray Davis' administration announced that the state had reduc=
ed=20
its energy consumption 11 percent from a year ago, those in Los Angeles had=
=20
cut back less than half that -- and polls show they view the energy situati=
on=20
less seriously than other Californians.=20
Public utilities such as Los Angeles water and power have seen their revenu=
es=20
increase during the energy crunch because they can sell their excess power =
at=20
higher prices than ever before in a market tilted toward sellers.=20
The rest of the state doesn't always feel that same warm glow. Davis has=20
accused the DWP and other California public utilities of putting exorbitant=
=20
price tags on the excess electricity they sell to the rest of the energy-=
=20
starved state.=20
It's a charge Los Angeles utility executives deny, arguing that their exces=
s=20
power is sold at cost plus 15 percent, which they say is a fair return for=
=20
their customers.=20
"Without our support, a million more homes (elsewhere in California) would=
=20
have suffered rolling blackouts, which is a powerful message," Galiteva sai=
d.=20
It wasn't supposed to be this way. When the power industry was deregulated =
in=20
the late '90s, energy giants like Pacific Gas and Electric Co. and Southern=
=20
California Edison were expected to be the big winners. Now, PG&E is in=20
bankruptcy and Edison is a short step away.=20
"When deregulation came, the experts said that the investor-owned utilities=
=20
would become lean, mean machines that would be better able to operate in th=
e=20
new environment," Galiteva said. "But now public power has shown it can ser=
ve=20
customers more efficiently at lower rates."=20
While much of the state worries about electrical supply, Los Angeles=20
residents have been saved many of those concerns.=20
In a survey done last month by the Public Policy Institute of California, 4=
8=20
percent of the people in the Bay Area thought that electricity cost and=20
availability were the most important issues facing the state. In Los Angele=
s,=20
however, only 33 percent put the energy crunch on top. When questioned abou=
t=20
the size of the power problem and the effect it would have on the state's=
=20
economy, Los Angeles residents were consistently less concerned than people=
=20
elsewhere in California.=20
People in Los Angeles have been "somewhat isolated" from the energy crisis,=
=20
concluded Mark Baldassare, who conducted the survey.=20
That doesn't mean the state's energy problems haven't had an effect. The DW=
P=20
has seen a 3 percent to 5 percent reduction in some uses, which officials=
=20
have dubbed "sympathy conservation." The utility also is offering its bigge=
st=20
customers financial incentives to cut back on their power use.=20
"Our average annual load growth is about 80 megawatts," Galiteva said. "By=
=20
this summer, we expect to have saved 40 megawatts through conservation. By=
=20
December, we expect 60 megawatts in savings."=20
The utility also is making a major attempt to create a conservation ethic=
=20
among its customers. DWP's comfortable situation has made it possible to=20
offer them the carrot without the need to show them the stick.=20
"Conservation no longer means doing without," Galiteva said. "Beer can be=
=20
just as cold with a superefficient refrigerator. Rooms can be just as brigh=
t=20
with superefficient light bulbs."=20
A "Green Power" program also is promoting the use of renewable energy=20
resources such as solar, wind and hydroelectric power. About 75,000 custome=
rs=20
are paying an extra $3 per month to increase DWP's use of renewable power=
=20
sources.=20
"We're trying to give our customers a choice and a voice in determining the=
=20
mix of power they use," Galiteva said. "They know they can do (conservation=
)=20
now or see it being mandated later."=20
Los Angeles power officials -- and their customers -- know the DWP isn't=20
always going to continue as an island of tranquility in a sea of energy=20
turmoil. The utility's aging gas-fired plants have been affected by the=20
rising price of natural gas. Demand for energy continues to rise. In a deba=
te=20
last month, both candidates for mayor of Los Angeles agreed that increases =
in=20
local power bills are inevitable.=20
But the DWP has been supplying power to Los Angeles since 1916, and its=20
executives believe that the state's deregulation disaster has shown the=20
advantages of the city-owned utility.=20
"It's nice to be the lean, mean, green efficient machine that no one ever=
=20
expected us to become," Galiteva said.=20
E-mail John Wildermuth at jwildermuth@sfchronicle.com.=20
,2001 San Francisco Chronicle ? Page?A - 13=20




PG&E doesn't want to pay for energy to avert blackouts=20
DAVID KRAVETS, Associated Press Writer
Wednesday, June 6, 2001=20
,2001 Associated Press=20
URL:=20
http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/06/06/s=
tate0
306EDT0102.DTL=20
(06-06) 00:06 PDT SAN FRANCISCO (AP) --=20
Pacific Gas & Electric Co. has told a bankruptcy judge it should not have t=
o=20
pay for what could amount to billions of dollars in spot-market energy cost=
s=20
to avert blackouts.=20
The company's position was one of two developments that emerged Tuesday as=
=20
the bankrupt utility tries to cope with fallout from California's power=20
crisis. The other development saw a group of creditors that PG&E owes=20
billions endorse $17.5 million in bonuses for top managers at the utility.=
=20
San Francisco-based PG&E filed for bankruptcy protection in April after=20
racking up an $8.9 billion debt which under state law it could not recoup=
=20
from customers.=20
Tuesday's court dispute centered on who pays for energy bought at the last=
=20
minute to avoid blackouts.=20
PG&E said an April federal regulatory decision requires that electricity ca=
n=20
only be sold to those with the ability to pay electricity generators. The=
=20
state is the only player with such ability, said PG&E attorney Jerome Faulk=
,=20
who argued that the utility shouldn't have to pay the $330 million in month=
ly=20
spot-market energy bills.=20
Judge Dennis Montali said he may craft such an order. But he said the order=
=20
would not preclude the state from suing PG&E to recover the cost.=20
In a separate but related development, a committee charged with devising a=
=20
payment plan for those creditors owed billions by PG&E said it will sign of=
f=20
on the utility's plan to pay $17.5 million in bonuses to PG&E's management=
=20
team.=20
Attorney Allan Marks, who represents the committee, said such payments are=
=20
normal during large bankruptcy cases. Under the agreement, which Montali wi=
ll=20
consider at a June 18 hearing, the company must quickly produce a debt=20
payment plan that passes judicial muster.=20
The utility said it needs the bonuses for a "management retention program."=
=20
Marks agreed. While the $17.5 million leaves less for creditors, without a=
=20
financial incentive PG&E's key top brass may not be willing to cooperate wi=
th=20
a payment plan, Marks said.=20
"The main goal for the creditors' support here is to move the bankruptcy as=
=20
quickly and smoothly as possible," Marks said.=20
The Utility Reform Network, a consumer watchdog group, says PG&E is simply=
=20
rewarding managers of a failed business effort.=20
"They're just showering money on the same people who got them in this mess,=
"=20
said TURN's Mike Florio.=20
The proposed bonuses would come on top of $50 million in bonuses and raises=
=20
PG&E awarded just before the April 6 bankruptcy filing.=20
The case is In Re Pacific Gas & Electric Co., 01-30923 DM.=20
,2001 Associated Press ?=20







Metcalf plant gets preliminary approval=20
Posted at 12:21 a.m. PDT Wednesday, June 6, 2001=20
BY MIKE ZAPLER=20

Mercury News=20


As the San Jose City Council approached its 10-1 vote Tuesday to give an=20
initial nod to Calpine's big power plant in South San Jose, Councilwoman=20
Linda LeZotte perhaps captured the body's mood best.=20
``I'm holding my nose to vote for this thing,'' she said. ``Without faultin=
g=20
the mayor or his staff, quite frankly I think this deal stinks.''=20
Caught in what some members called a bind beyond their control, the council=
=20
gave preliminary approval to an agreement negotiated by Mayor Ron Gonzales=
=20
and Calpine on the company's proposed 600-megawatt Metcalf Energy Center.=
=20
Councilman Forrest Williams, who represents the Santa Teresa neighborhood=
=20
near the site, cast the lone vote against the deal.=20
The agreement is scheduled to come back before the council for a final vote=
=20
on June 26, but Tuesday's vote effectively shifts the battle to the courts,=
=20
where residents are expected to lodge a lawsuit in one final attempt to blo=
ck=20
the plant.=20
Still, Councilwoman Pat Dando and some of her colleagues raised questions=
=20
about the deal they said they want answered before the final vote. Their=20
issues could be incorporated into the final deal.=20
Many of the concerns focused on a $50 million recycled water pipeline=20
Gonzales agreed to have the city build to accommodate the project, $10=20
million of which would be reimbursed by Calpine over 30 years.=20
Pipeline possibility=20
Dando said that a private company, Great Oaks Water, may be willing to buil=
d=20
the pipeline extension itself, saving the city the $50 million expense.=20
Officials at Great Oaks were unavailable Tuesday.=20
Council members peppered staff with other questions. Many were alarmed by=
=20
claims of the Silicon Valley Toxics Coalition, which said that using treate=
d=20
sewage water to cool the power plant could allow dangerous chemicals to see=
p=20
into drinking water aquifers. An environmental services director said the=
=20
recycled water meets federal specifications, but that there is no protocol=
=20
for testing other chemicals not included in those standards.=20
Councilman Ken Yeager asked why Calpine should be allowed to spread a $3.9=
=20
million water connection fee over 10 years -- an arrangement that would=20
mandate an amendment to city law.=20
LeZotte, meanwhile, said she wants to hold Calpine accountable to install=
=20
ammonia-free technology at the plant. Ammonia is highly hazardous, and=20
residents say the use of the chemical to clean the plant is among their chi=
ef=20
concerns.=20
The agreement requires the company to install technology to reduce or=20
eliminate the use ammonia when it becomes ``technologically and economicall=
y=20
feasible.'' LeZotte said she wants a clear definition of ``feasible''=20
included in the deal.=20
Tuesday's vote marked a stark departure from the council's November vote to=
=20
deny Metcalf. At the time, council members said a power plant was=20
inappropriate for the area, and many members said Tuesday that they still=
=20
believe that.=20
Bowing to pressure=20
But with Gov. Gray Davis endorsing Metcalf in April and the California Ener=
gy=20
Commission widely expected to override the city's denial this month, counci=
l=20
members said they had no choice but to cut the best deal it could and allow=
=20
the project to proceed.=20
That explanation, however, didn't sit well with residents of the Santa Tere=
sa=20
neighborhood adjacent to the Metcalf site, one of whom accused Gonzales and=
=20
the council of ``switching sides when the opposing team gets too close to t=
he=20
goal line.''=20


Contact Mike Zapler at mzapler@sjmercury.com or at (408) 275-0140.=20















Feds probe AES, Williams=20
Antitrust investigation looks into allegations of manipulated energy prices=
=20
through reduced power-plant construction.=20
June 6, 2001=20
By JAMES ROWLEY
Bloomberg News=20
WASHINGTON - The U.S. Justice Department opened an antitrust investigation=
=20
into California's electricity shortage by probing allegations that AES Corp=
.=20
and Williams Energy Services Co. are limiting power-plant expansion to driv=
e=20
up prices.=20
AES Corp., the biggest U.S. power-plant developer, disclosed the=20
investigation in a filing with the U.S. Securities and Exchange Commission.=
=20
The Justice Department is looking into a supply-and-marketing agreement=20
between AES' California power-plant unit and a Williams unit that supplies=
=20
natural gas.=20
Williams, owner of the second-largest U.S. natural-gas pipeline system, als=
o=20
markets the power produced by AES' three electricity plants in the state.=
=20
The department alleges the agreement limits expansion of generating capacit=
y=20
near some AES plants.=20
AES said it was cooperating with the Justice Department investigation, whic=
h=20
began last month, into possible violations of Section 1 of the Sherman=20
Antitrust Act.=20
That provision outlaws any restraint of trade that stifles competition.=20
A shortage of generating capacity in California has led to soaring wholesal=
e=20
prices and rolling blackouts and prompted Pacific Gas & Electric, the state=
's=20
largest utility, to seek bankruptcy protection in April.=20
Aaron Thomas, a spokesman for AES, based in Arlington, Va., said the U.S.=
=20
investigation started "no more than a couple of weeks ago."=20
Williams spokeswoman Paula Hall-Collins said the Tulsa, Okla.-based company=
=20
is cooperating.=20
Gina Talamona, Justice Department spokeswoman, said the agency had no=20
immediate comment.=20
The investigation was opened several weeks after the Federal Energy=20
Regulatory Commission investigated AES plants in Long Beach and Huntington=
=20
Beach, designated "must run" under the Federal Power Act, did not produce=
=20
electricity for 10 days in April and May 2000. Williams agreed to pay the=
=20
operator of California's electric grid $8 million to settle allegations tha=
t=20
it overcharged for power.=20
FERC charged in March that the companies had a financial incentive to keep=
=20
the units out of service to force the California Independent System Operato=
r=20
to buy power from AES' plant in Redondo Beach at prices close to the=20
FERC-imposed cap of $750 per megawatt-hour.=20
AES said it was complying with a Justice Department demand for documents=20
about the agreement between its AES Southland LLC unit and Williams Energy=
=20
Services Co. AES Southland, which operates the three power plants, was also=
=20
asked to respond to interrogatories, the company said.=20
The Williams unit supplies the natural gas to fuel the AES plants and marke=
ts=20
the power they produce.=20
AES and Williams jointly produce and sell about 4,000 megawatts in Californ=
ia=20
-- 6 to 8 percent of the state's power -- enough electricity to light about=
 3=20
million typical California homes.=20
AES shares dropped $2.05, to $42.54. Williams Cos. shares dropped $1, to=20
$38.20.








Calpine Begins Construction of Peaking Energy Center in Gilroy, Calif.=20







June 6, 2001=20







SAN JOSE, Calif., June 5 /PRNewswire/ via NewsEdge Corporation -=20
Calpine Corporation (NYSE: CPN), the San Jose, Calif.-based independent pow=
er=20
company, today announced that initial construction of 135 megawatts (mw) of=
=20
peaking generation capacity will begin during this week adjacent to its=20
existing Gilroy Power Plant in Gilroy, Calif. Through an Application for=20
Certification (AFC) filed with the California Energy Commission (CEC) on=20
April 25, 2001, Calpine proposed to add three 45-mw simple-cycle gas turbin=
e=20
peaking units in the first of a two-phase process. The California Energy=20
Commission approved the project on May 21, 2001.=20
"Because the required natural gas, water and transmission infrastructure=20
exists at our Gilroy plant, it is an ideal site for the addition of peaking=
=20
generation, allowing for rapid installation of needed capacity. The first=
=20
three units are expected to begin generating electricity this September,"=
=20
commented Bryan Bertacchi, Calpine Vice President - Western Region.=20
Upon completion the two-phase build out, the Gilroy Energy Center will be a=
=20
270-mw, natural gas-fired, simple-cycle peaking generation facility located=
=20
on approximately 9.5 acres at 1400 Pacheco Pass Highway in Gilroy. Commerci=
al=20
operation of Phase One is scheduled for September 2001. An additional three=
=20
45-mw gas turbine generators will be installed in Phase Two with full=20
build-out estimated for May 2002. Phase Two requires the filing of an=20
additional application with the CEC and is subject to a four-month review=
=20
process.=20
Initial construction will begin this week with site and civil engineering=
=20
activities occurring for approximately six weeks at which time the site wil=
l=20
be cleared and leveled. Foundation work and the installation of generation=
=20
equipment will follow shortly thereafter, and commissioning and testing wil=
l=20
take place for a two to three week period prior to commercial operation in=
=20
September 2001.=20
The Gilroy Energy Center web site has been created to host all information=
=20
and updates related to this project. For additional information, please vis=
it=20
www.gilroypower.com.=20
Calpine Corporation, based in San Jose, Calif., is dedicated to providing=
=20
customers with reliable and competitively priced electricity. Calpine is=20
focused on clean, efficient, natural gas-fired generation and is the world'=
s=20
largest producer of renewable geothermal energy. Calpine has launched the=
=20
largest power development program in North America. To date, the company ha=
s=20
approximately 32,200 megawatts of base load capacity and 7,200 megawatts of=
=20
peaking capacity in operation, under construction, pending acquisitions and=
=20
in announced development in 29 states and Canada. The company was founded i=
n=20
1984 and is publicly traded on the New York Stock Exchange under the symbol=
=20
CPN. For more information about Calpine, visit its Website at=20
www.calpine.com.=20
This news release discusses certain matters that may be considered=20
"forward-looking" statements within the meaning of Section 27A of the=20
Securities Act of 1933, as amended, and Section 21E of the Securities=20
Exchange Act of 1934, as amended, including statements regarding the intent=
,=20
belief or current expectations of Calpine Corporation ("the Company") and i=
ts=20
management. Prospective investors are cautioned that any such forward-looki=
ng=20
statements are not guarantees of future performance and involve a number of=
=20
risks and uncertainties that could materially affect actual results such as=
,=20
but not limited to, (i) changes in government regulations, including pendin=
g=20
changes in California, and anticipated deregulation of the electric energy=
=20
industry, (ii) commercial operations of new plants that may be delayed or=
=20
prevented because of various development and construction risks, such as a=
=20
failure to obtain financing and the necessary permits to operate or the=20
failure of third-party contractors to perform their contractual obligations=
,=20
(iii) cost estimates are preliminary and actual cost may be higher than=20
estimated, (iv) the assurance that the Company will develop additional=20
plants, (v) a competitor's development of a lower-cost generating gas-fired=
=20
power plant, and (vi) the risks associated with marketing and selling power=
=20
from power plants in the newly competitive energy market. Prospective=20
investors are also cautioned that the California energy environment remains=
=20
uncertain. The Company's management is working closely with a number of=20
parties to resolve the current uncertainty, while protecting the Company's=
=20
interests. Management believes that a final resolution will not have a=20
material adverse impact on the Company. Prospective investors are also=20
referred to the other risks identified from time to time in the Company's=
=20
reports and registration statements filed with the Securities and Exchange=
=20
Commission.=20
MAKE YOUR OPINION COUNT - Click Here=20
http://tbutton.prnewswire.com/prn/11690X10523723=20
SOURCE Calpine Corporation=20
CONTACT: media, Lisa Poelle, ext. 1285, or investors, Rick Barraza, ext.=20
1125, both of Calpine Corporation, 408-995-5115=20
Web site: http://www.gilroypower.com=20
Web site: http://www.calpine.com (CPN)=20








Reliant Urges FERC to Drop or Amend California Price Caps to Avoid Addition=
al=20
Shortages and More Blackouts=20







June 6, 2001=20







HOUSTON, June 5 /PRNewswire/ via NewsEdge Corporation -=20
Reliant Energy (NYSE: REI) filed an emergency motion with the Federal Energ=
y=20
Regulatory Commission (FERC) on Monday urging the agency to drop the=20
California price caps first applied May 29, or at a minimum, amend them to=
=20
reflect the true costs they are attempting to control. The current price=20
caps, which send inaccurate market signals, are actually decreasing supply=
=20
and increasing demand thus worsening an already dire situation.=20
"FERC has been publicly dedicated to an open market from the beginning of t=
he=20
California power crisis. We encourage FERC to reexamine these price caps an=
d=20
continue that dedication," said Joe Bob Perkins, president and chief=20
operating officer, Reliant Energy Wholesale Group. "Reliant is committed to=
=20
helping keep the lights on in California this summer and wants to ensure th=
at=20
if caps must remain part of the picture, they actually help increase supply=
=20
and fix the problem."=20
Although the price caps were first imposed less than a week ago, they have=
=20
already begun to damage the market by decreasing supply. The price caps are=
=20
creating a myriad of problems:=20
-- Creates Misleading Signals - The price cap methodology is misleading=20
the public on the actual cost of power. Reported "dispatch" costs in=20
Southern California during emergencies is far below what the actual=20
financial settlements will be under the FERC's final market mitigation=20
order. This confusion results from the "proxy" price used for=20
dispatch utilizing an extremely distorted blended fuel cost index.=20
This index averages gas costs in northern and southern parts of the=20
state, an impossibility in the actual market. This authorizes the=20
California Independent System Operator (ISO) to require that=20
generators dispatch power at reported market clearing prices well=20
below actual cost when back-up generation capacity begins to dip below=20
7.5 percent.=20
-- Depletes Power from Peaking Plants - The price caps distort dispatch=20
signals on peaking plants, which in some cases may be run only a few=20
days of the year because of emission regulations. The current FERC=20
price controls encourage the ISO to purchase power from emergency=20
peaking plants before it is really needed, even in the absence of a=20
stage three emergency. This depletes supplies that will, by law, run=20
out when blackout season intensifies later this summer. This power=20
from peaking units should only be purchased when blackouts are=20
imminent -- not in stage one or two emergencies.=20
-- Eliminates Price Signals for Retail Customers - Price caps remove=20
price signals for retail customers. Customers, particularly=20
industrial companies, which should be encouraged to curtail during=20
shortages, are not encouraged to conserve power when dispatched price=20
caps keep prices below the actual cost to produce electricity.=20
-- Discourages Supply from Out-of-State - Suppliers outside of=20
California, who are under no legal obligation to dispatch power during=20
an emergency in the state, are not encouraged to increase available=20
production when reported market clearing prices are below their cost=20
to produce. During times of emergencies, utilities across the Western=20
region are not likely to take on additional risks and costs if they=20
don't believe they will be fully compensated - a situation the current=20
price caps create.=20
MAKE YOUR OPINION COUNT - Click Here=20
http://tbutton.prnewswire.com/prn/11690X43182157=20
SOURCE Reliant Energy=20
CONTACT: Maxine Enciso of Ketchum Public Relations, Los Angeles,=20
310-444-1303, for Reliant Energy; or media, Richard Wheatley of Reliant=20
Energy, 713-207-5881=20
Photo: NewsCom: http://www.newscom.com/cgi-bin/prnh/20000309/DATH030 AP=20
Archive: http://photoarchive.ap.org PRN Photo Desk, 888-776-6555 or=20
212-782-2840=20
Company News On-Call: http://www.prnewswire.com/comp/419090.html or fax,=20
800-758-5804, ext. 419090=20
Web site: http://www.reliantenergy.com (REI)=20












By Kathleen McFall
kmcfall@ftenergy.com
President George W. Bush's energy package encourages the use of biomass fue=
ls=20
for both transportation purposes and electricity generation. "They can=20
provide a reliable source of energy at a stable price, and they can also=20
generate income for farmers, landowners and others who harness them," his=
=20
administration's report said.=20

Despite this warm and fuzzy language, however, the administration offered n=
o=20
tangible funding for the fledgling biofuels industry=01*other than an exten=
sion=20
of an existing ethanol tax credit that was not due to expire until 2007=01*=
a=20
significant disappointment, and surprise, to advocates of renewable=20
transportation fuels.

The report did recommend expanding tax credits for biomass energy projects =
to=20
include forest-related and agriculture fuel sources and threw its weighty=
=20
support at a new credit for electricity produced from biomass co-fired with=
=20
coal. These recommendations are already included in the president's 2002=20
budget.=20

"We are pleased that the administration included expansion of the biomass t=
ax=20
credit and hope that, with congressional leadership, we will see this=20
expanded provision signed into law this year," said Katherine Hamilton,=20
co-director of the American Bioenergy Association (ABA).=20

Unlike other portions of the recommended energy policy, biomass energy=20
probably will not suffer under the recent change in Senate composition, giv=
en=20
Senate Majority Leader Tom Daschle's (D-S.D.) agricultural constituency and=
=20
his previous support of the biofuels industry.=20

According to the National Energy Policy Development report, biomass account=
s=20
for about 76% of non-hydropower renewable electricity generation,=20
representing a total of about 1.6% of total U.S. electricity supply.=20

Biopower advocates, however, envision an even greater market penetration in=
=20
the coming decades and point to its environmental and ancillary advantages.=
=20
For example, given that biomass combustion can be carbon dioxide-neutral (i=
f=20
the growth and use cycle is managed sustainably), environmental groups=20
support an expanded role. Farmers with marginal lands that could grow bioma=
ss=20
fuel could enjoy economic benefits. With large amounts of wood residue, the=
=20
forest industry also stands to benefit from wider use of wood as a power=20
source.=20


Renewable energy offers a particular advantage to the lumber and paper=20
industry, and many analysts project that the industry may soon become a net=
=20
seller of electricity.=20

"In the lumber and paper industries, wood scraps are sometimes directly fed=
=20
into boilers to produce steam for their manufacturing processes or to heat=
=20
their buildings. For that reason, renewable energy offers a particular=20
advantage to the lumber and paper industry, and many analysts project that=
=20
the industry may soon become a net seller of electricity," said the energy=
=20
policy report.=20

Co-firing with coal
Biomass=01*usually wood or wood residue=01*has traditionally been burned di=
rectly=20
in the industrial sector for heat or on-site electricity generation.=20
According to the U.S. Department of Energy (DOE), the existing 10 GW of=20
installed capacity are based on this direct-combustion technology.=20

For utilities and power-generating companies with coal-fired capacity,=20
however, biomass co-firing may represent one of the least-cost renewable=20
energy options, said the DOE. The process involves blending different=20
materials in varying amounts with coal.=20

Not only does mixing biomass with coal reduce emissions, it is likely to be=
=20
cost-effective. Southern Co. estimates that a biomass plant alone could=20
generate power, depending on its location, at 4 to 11 cents/kWh. Given that=
=20
the lower range of this corresponds to coal generation costs, there are=20
clearly circumstances where biomass-coal co-firing would be economically=20
attractive today. Plus, the environmental public relations benefit for=20
utilities with coal-fired capacity would be valuable.=20


Domestic biomass generation capacity could reach 20-30 GW by the year 2020 =
by=20
co-firing at existing U.S. coal-fired power plants.=20

According to a recent report prepared by five National Laboratories, domest=
ic=20
biomass generation capacity could reach 20-30 GW by the year 2020 by=20
co-firing at existing U.S. coal-fired power plants.=20

A recent report by the United Nations Intergovernmental Panel for Climate=
=20
Change (IPCC) also cites the potential of coal co-firing with biomass. The=
=20
IPCC report concludes that co-firing in coal boilers results in the lowest=
=20
cost and least technical risk of the examined approaches for biomass=20
conversion to electricity.=20

Working out the technical kinks
Already, said the DOE, six power plants in the U.S. are currently co-firing=
=20
coal and wood residue products on a regular basis. Another 10 plants have=
=20
successfully tested co-firing over the last decade, and at least six more=
=20
plants are now conducting or planning tests.=20

For example, Southern Co. is working with DOE, the Southern Research=20
Institute and the Electric Power Research Institute to study ways to grow a=
nd=20
harvest switchgrass to blend with coal as a fuel for power generation.=20
Ideally suited for the southeastern U.S., switchgrass is a rugged grass tha=
t=20
can be grown on marginal agricultural land. Reaching heights of up to 12=20
feet, it requires little fertilization and herbicide and can be harvested=
=20
twice a year.=20

Harvesting methods, co-milling of switchgrass and pulverized coal,=20
pilot-scale co-firing tests, and a full-scale demonstration of co-firing at=
=20
Alabama Power Co.'s Plant Gadsden are part of Southern Co.'s collaborative=
=20
project.=20

The U.S. Agriculture Department is also taking a role in exploring the=20
potential of biomass and coal co-firing as a means to give farmers new=20
markets, especially for currently idle land. The agency recently authorized=
=20
funding for three co-firing demonstration projects.=20

In Iowa, the Chariton Valley Biomass Project is a cooperative effort to=20
develop warm and cool season grasses (such as switchgrass) to co-fire with=
=20
coal at Alliant Energy's Ottumwa Generating Station. The project is designe=
d=20
to generate a sustained supply of 35 MW of biomass energy. Eventually, the=
=20
grass could substitute for as much as 5% of the coal currently burned at th=
e=20
plant.=20


In addition to reducing coal emissions, the Chariton Valley Biomass Project=
=20
will support the local farm economy.=20

In addition to reducing coal emissions, the project will support the local=
=20
farm economy because the grass and trees will come from acreage taken out o=
f=20
production under the Agriculture Department's Conservation Reserve Program=
=20
(CRP). CRP land is generally marginal land that the government subsidizes=
=20
farmers to leave idle to both prevent erosion and protect commodity prices=
=20
from product surpluses.=20

The Pennsylvania Switchgrass Energy and Conservation Project will produce=
=20
switchgrass on CRP land for sale to a local cooperative's coal-fired=20
fluid-bed combustors.=20

In New York, the Agriculture Department project will fund willow biomass=20
crops and switchgrass on CRP acreage in the central and western part of the=
=20
state. The primary markets for the willow biomass are two coal-burning powe=
r=20
plants and a small university central heating facility.=20

Land conflicts, transportation may be obstacles
As these pilot projects illustrate, biomass conversion efforts may have the=
=20
most significant potential in rural areas. "Since biomass is widely=20
distributed it has good potential to provide rural areas with a renewable=
=20
source of energy. The challenge is to provide =01( conversion and delivery =
of=20
bioenergy to the marketplace in the form of modern and competitive energy=
=20
sources," said the IPCC report.=20

A potential drawback to co-firing is transportation. Transportation of=20
wood-based energy products is more costly, per unit of energy, than coal, f=
or=20
example, and most analysts believe it will prove most economical to site=20
generation plants near biomass sources.=20

"The generating plant or biorefinery must be located near to the resource t=
o=20
minimize transport costs of the low-energy-density biomass as well as to=20
minimize impacts on air and water use," the IPCC report said. However, note=
s=20
the report's authors, economies of scale may be significant enough to offse=
t=20
the transport costs involved.=20

A potential drawback over the long term, however, for biomass conversion is=
=20
land use conflicts. The IPCC report notes that by 2100, the global land=20
requirement to feed the growing world population will increase substantiall=
y.=20
"Up until this time there may well be sufficient land to supply all demands=
=20
for food, fibre and energy, but at some stage after that, land-use conflict=
s=20
could arise and before that, competition for water and irrigation may be a=
=20
constraint."=20
ann.schmidt@enron.com, bryan.seyfried@enron.com, elizabeth.linnell@enron.com, 