SF Chron Article: "Electricity Crisis Puts PG&E in A Cash Bind ,
 ---------------------- Forwarded by Joseph Alamo/NA/Enron on 12/12/2000 09:41 
AM ---------------------------


Joseph Alamo
12/12/2000 09:39 AM
To: Richard Shapiro/NA/Enron@ENRON@EES, James D Steffes/NA/Enron@Enron, 
Steven J Kean/NA/Enron@Enron, Karen Denne/Corp/Enron@ENRON, Mark 
Palmer/Corp/Enron@ENRON, Joe Hartsoe/Corp/Enron@ENRON, Sarah 
Novosel/Corp/Enron@ENRON, Paul Kaufman/PDX/ECT@ECT, Mary Hain/HOU/ECT@ECT, 
dbenevid@enron.com, Christopher F Calger/PDX/ECT@ECT, Tim Belden/HOU/ECT@ECT, 
Robert Badeer/HOU/ECT@ECT, Roger Yang/SFO/EES@EES
cc:  

Subject: SF Chron Article: "Electricity Crisis Puts PG&E in A Cash Bind
Utility is borrowing $1million per hour"

Electricity Crisis Puts PG&E in A Cash Bind
Utility is borrowing $1million per hour 
David Lazarus and Christian Berthelsen, Chronicle Staff Writers
Tuesday,?December 12, 2000 
,2000 San Francisco Chronicle 
As California struggled yesterday with an unusual winter power crisis, 
Pacific Gas and Electric Co. warned that it soon could run out of money to 
buy electricity for its 4.5 million customers. 
"The credit situation is getting much tighter," said Greg Pruett, a spokesman 
for the San Francisco utility. "There will come a time when we won't be able 
to buy power for people. This is going to happen more sooner than later." 
The danger for PG&E is that financial institutions will stop lending the 
utility money to cover its expenses. Northern California's power undoubtedly 
would continue to flow, but it is unclear who would pay for it or how. 
Meanwhile, the state's energy shortage eased slightly as PG&E's Diablo Canyon 
nuclear power plant, which had been closed for repairs, returned to operation 
ahead of schedule. 
The, which oversees the power grid, declared a Stage 2 emergency alert late 
yesterday afternoon when reserves fell below 5 percent of total capacity. 
Power subsequently was cut to some industrial customers on a voluntary basis. 
State officials had warned last week that a Stage 3 alert might be called if 
as much as a third of California's generating capacity remained down for 
repairs. A Stage 3 emergency allows utilities to initiate "rolling blackouts" 
to relieve pressure on the system. 
Milder-than-expected weather and the return to service of Diablo Canyon 
prevented the situation from getting out of control, officials said. 
But for PG&E, there is no relief in sight for what the company characterizes 
as a financial disaster in the making. 
UTILITY $4.6 BILLION IN DEBT 
As of the end of November, Pruett said, PG&E had racked up about $4.6 billion 
in charges buying power on the wholesale market -- charges that the utility 
was unable to pass along to customers because of a rate freeze. 
"Every hour that goes by means we're in debt a million dollars more," Pruett 
said. 
Although this may be the case, PG&E's gloom-and-doom stance can be seen as an 
attempt to prod California regulators into lifting the current rate freeze 
and allowing the utility to hit customers with billions in unforeseen costs. 
Last week, the state Public Utilities Commission ruled that PG&E had not met 
requirements for lifting the freeze and must continue swallowing extra costs 
incurred in the volatile wholesale power market. 
PG&E'S STOCK PRICE FALLS 
This is playing havoc with PG&E's finances. The company's stock fell 7 
percent to $21.94 yesterday after several leading brokerages issued 
pessimistic outlooks for PG&E's profitability. 
The utility predicts that it could be as much as $6 billion in the hole by 
the end of the month. 
"This situation cannot go on indefinitely," Pruett said. "The price of retail 
electricity needs to rise." 
Consumer activists expressed sympathy with PG&E's plight but insisted that 
the utility remains responsible for all expenses incurred as California 
proceeds with deregulation of the state's power market. 
"Consumers should not bail them out for the rate freeze," said Nettie Hoge, 
executive director of The Utility Reform Network in San Francisco. 
"But going forward," she added, "we need to get wholesale prices under 
control. Otherwise this is a perilous concern for everyone." 
Hoge said she hopes PG&E's implicit threat of potential bankruptcy will get 
the attention of federal regulators. 
She said federal regulators will have to impose limits on California's 
wholesale power rates to prevent the sort of price increases that resulted in 
higher bills for some over the summer. 
Wholesale electricity prices are now 16 times higher on average than in the 
spring. Prices surged over the summer as the supply of available juice was 
unable to keep pace with demand. They have remained high ever since. 
Wholesale prices jumped yesterday after the ISO lifted a $250-per-megawatt 
rate limit late Friday to discourage power companies from selling electricity 
elsewhere. 
But the move appeared to have some immediate unintended consequences. 
$600 PER MEGAWATT WHOLESALE 
The wholesale price of a megawatt hour of electricity on Monday was anywhere 
between $600 and $800, and an official at the ISO acknowledged the agency did 
not foresee prices reaching that level. 
"We didn't think it would go that high," said Patrick Dorinson, a spokesman 
for the agency. 
In addition, while lifting the cap did encourage more generators to put bids 
on the market, most of them were in the south. Because the distribution 
system cannot handle a large volume of electricity moving south to north, 
where demand is highest, the bids were of limited benefit. 
Asked whether the bids managed to drive up the cost of electricity without 
meaningfully augmenting supply, Dorinson declined to comment. 
DAVIS' PREDICTION COMES TRUE
Gov. Gray Davis protested the ISO's decision to the Federal Energy Regulatory 
Commission on Friday night, saying an end to the rate limit would do more 
harm than good. 
"I suspect that, sadly, his prediction has come true," said Steve Maviglio, a 
spokesman for the governor. 
Last night, the California Power Exchange, which coordinates the state's 
wholesale power market, asked the federal commissioners to overturn the ISO's 
decision. 
Ending the rate limit, exchange officials said, "threatens to bring dire, 
irreparable and unintended consequences to the California markets." 
About a quarter of California's generating capacity was offline as plants 
throughout the state remained down for both scheduled and unscheduled 
maintenance. 
The Public Utilities Commission is expected to issue its findings this week 
after a series of surprise inspections of idled plants last week. 
Loretta Lynch, the president of the PUC, said the inspections were merely a 
form of "information gathering," but she stressed that it was unacceptable 
for so many plants to be down at the same time. She called for a system to be 
developed to better schedule maintenance. 
Federal regulators are expected to draw up a blueprint for overhauling 
California's energy market this week. 
E-mail David Lazarus at dlazarus@sfchronicle.com and Christian Berthelsen at 
cberthelsen@sfchronicle.com. 
,2000 San Francisco Chronicle ?
susan.mara@enron.com, sandra.mccubbin@enron.com, mona.petrochko@enron.com, 