Energy Issues ,
 Please see the following articles:

Sac Bee, Wed, 6/20:  Weather an early test for fee caps:=20
Any severe jump in prices will likely be curbed, experts say

Sac Bee, Wed, 6/20: State to borrow up to $5 billion to buy energy

Sac Bee, Wed, 6/20: Dan Walters: Once burned, lawmakers are very
wary of Davis-Edison agreement

SD Union, Wed, 6/20:  Senate Democrats lay back to see if FERC action=20
provides rate relief=20

SD Union, Wed, 6/20: House panel erases Bush energy cuts

LA Times, Wed, 6/20: Davis, Regulators Face Off at Hearing

LA Times, Wed, 6/20: Energy on Agenda, but Issue Is Blame

LA Times, Wed, 6/20: Blackout Forecasts' Dark Side

LA Times, Wed, 6/20: FERC Move Short-Circuits for Hard Price Caps

LA Times, Wed, 6/20: Plan Won't Raise Rates, Davis Says

LA Times, Wed, 6/20: State to Pay Electric Bill With Loan, Not Taxes

LA Times, Wed, 6/20: Edison Unveils Blackout Warning Plan

LA Times, Wed, 6/20: State Joins Challenge to Bush on Air-Conditioner=20
Standards

LA Times, Wed, 6/20: New Price Caps Not a Deterrent, Power Firms Say

LA Times, Wed, 6/20: The FERC's Action Is Good, Bad, Ugly   (Commentary)

SF Chron, Wed, 6/20: Davis OKs stopgap loan=20
CRISIS POWERS: Action sidesteps Legislature

SF Chron, Wed, 6/20:  Experts say state must seize the day=20
ANALYSIS: Price caps set stage for future

SF Chron, Wed, 6/20: California's energy crisis hits Northwest like a tidal=
=20
wave

SF Chron, Wed, 6/20: Davis demands nearly $9 billion for electricity=20
overcharges

SF Chron, Wed, 6/20:  Fed price caps placate Demos=20
But Feinstein's bill to regulate energy producers was more strict

SF Chron, Wed, 6/20: Potrero Hill power plant hit by 2 lawsuits=20
Neighbors, city ask court to cut back hours of operation

SF Chron, Wed, 6/20: Washington wakes up

Mercury News, Wed, 6/20: Feinstein halts electricity price caps bill=20

Mercury News, 6/20: FERC's fixes have fallen short     (Commentary)

OC Register, Wed, 6/20: Easing the crunch on costs of power  (Commentary)

Individual.com (Bridgenews), Wed, 6/20: [B] POWER UPDATE/ US Senate panel
to hold off vote on Calif. cap bill=20

Individual.com (Bridgenews), Wed, 6/20: [B] FERC order seen having little=
=20
effect
on US generator profits

Individual.com (PRnewswire), Wed, 6/20: SCE Unveils Rotating Blackout Web S=
ite
and Public Notification Plan=20

Individual.com (AP), Wed, 6/20: Edison CEO/ Ruling Hasn't Helped

NY Times, Wed, 6/20: At Last, Action on California  (Editorial)

NY Times, Wed, 6/20: Regulators' Order Could Bring Broad California Power=
=20
Accord

Wash. Post, Wed, 6/20: Davis Finds Hope in Calif. Power Crunch

NY Times, Wed, 6/20: The Lesson of When to Give Aid to Free Markets

---------------------------------------------------------------------------=
---
-------------------------------

Weather an early test for fee caps: Any severe jump in prices will likely b=
e=20
curbed, experts say.
By Dale Kasler
Bee Staff Writer
(Published June 20, 2001)=20
California electricity prices have shot back up recently, potentially posin=
g=20
an early test of a new federal price-control plan that takes effect today.=
=20
Warm weather has sent wholesale prices doubling this week, partially=20
reversing a dramatic slide that had some state officials believing they'd=
=20
tamed the wildly unpredictable California electricity market.=20
The rebound in prices "would be expected," said Arthur O'Donnell, editor of=
=20
the California Energy Markets newsletter. "It's 110 degrees in Phoenix, and=
=20
it's 100 degrees (in Sacramento) and points in between."=20
Prices this week moved back above $100 a megawatt hour, about double what=
=20
they were last week -- although well below the roughly $300 suppliers were=
=20
charging California in mid-May. Prices showed signs of stabilizing Tuesday,=
=20
analysts said.=20
Experts said the Federal Energy Regulatory Commission's new price-mitigatio=
n=20
plan is likely to curb the most severe price spikes. "This will eliminate t=
he=20
astronomical prices," said Severin Borenstein, director of the University o=
f=20
California Energy Institute.=20
But the plan probably won't bring California a cascade of cheap power,=20
either.=20
Prices likely will bump up constantly against FERC's new price caps, which=
=20
will fluctuate from time to time, and they're not likely to go much below t=
he=20
caps unless there's a significant glut of energy, said Peter Stiffler of th=
e=20
energy consulting firm Economic Insight Inc.=20
"Traders will always trade in at the price ceiling," Stiffler said. "They'r=
e=20
going to offer power at the highest price they can."=20
The fluctuating FERC caps are tied to the production costs of the=20
least-efficient, most-expensive generating plant operating in California wh=
en=20
supplies are tight and an official "power alert" is declared by the state's=
=20
Independent System Operator, which runs most of the power grid. When there=
=20
isn't a power alert, prices can't exceed 85 percent of the price establishe=
d=20
during the most recent alert.=20
FERC said the system would begin today with a cap of $108.49 a megawatt hou=
r=20
but would rise to $127.64 if a power alert is declared.=20
But the cap can fluctuate significantly. Under the old FERC plan, the price=
=20
cap in May was set at $267 a megawatt hour. The old plan was similar to the=
=20
new system but applied only to California and only kicked in during power=
=20
alerts.=20
With the caps flexible, generators could have incentives to withhold power =
at=20
some plants in order to raise the caps, said Stanford University economist=
=20
Frank Wolak.=20
The FERC plan "still doesn't solve the problem of withholding," said Wolak,=
=20
chairman of the ISO's market surveillance committee.=20
Wolak also said he's afraid FERC will let power generators exaggerate their=
=20
costs in order to bump up the caps.=20
"The good news is, they seem to be more serious," Wolak said of the=20
oft-criticized commissioners. "But given how many times we've been taken in=
,=20
I'm wary."=20
In addition, generators will be allowed to exceed the price caps if they ca=
n=20
justify it to FERC officials. Borenstein said FERC in the past has allowed=
=20
generators to justify just about every price level imaginable, and he's=20
suspicious that the commission will let generators do the same in order to=
=20
evade the new price controls.=20
State officials, while cautiously optimistic about the plan, were upset tha=
t=20
FERC will allow a 10 percent price premium on electricity because of the ri=
sk=20
of selling to the California market.=20
"We recognize that the risk of nonpayment in California continues to be=20
greater" than in other states, the commission said in its written opinion,=
=20
released late Tuesday.=20
Gov. Gray Davis' spokesman, Steve Maviglio, called the premium ludicrous=20
because the state Department of Water Resources has been buying electricity=
=20
ever since the state's troubled utilities exhausted their credit in=20
mid-January.=20
"The state is as creditworthy a buyer as you can get," Maviglio said.=20
Experts said the plan also won't correct the state's energy imbalance.=20
"None of this is going to have much effect on blackouts," Borenstein said.=
=20
"This is solving part of the problem; I'm worried people will think=20
everything has been solved.=20
"The emphasis now has to be on getting California to conserve," he added.=
=20
A spokesman for power generators, Gary Ackerman, said the price controls=20
could worsen shortages this summer and will discourage generating firms fro=
m=20
investing in the new power plants the West desperately needs.=20
Builders "are going to sit on the fence and think about this," said Ackerma=
n,=20
head of the Western Power Trading Forum.=20
Acting in the face of mounting political pressure and unrelenting criticism=
=20
from California, FERC voted Monday to impose round-the-clock price controls=
=20
throughout the 11-state Western region.=20
The FERC plan replaces a three-week-old plan that applied only to Californi=
a=20
and took effect only when power reserves fell to below 7 percent of demand=
=20
and an official "power alert" was declared.=20
By extending the plan to the entire West, experts said the commission=20
probably put an end to the phenomenon known as "megawatt laundering," in=20
which power was shipped out of California and then re-imported. Imported=20
power wasn't subject to the old price controls.=20
The new controls, said consultant Stiffler, "significantly narrow the abili=
ty=20
of a trader to move power around and play the market."=20

The Bee's Dale Kasler can be reached at (916) 321-1066 or dkasler@sacbee.co=
m.




State to borrow up to $5 billion to buy energy=20
By Emily Bazar
Bee Capitol Bureau
(Published June 20, 2001)=20
State Treasurer Phil Angelides announced Tuesday that he will borrow up to =
$5=20
billion to pay for future power purchases, a move he said was necessary to=
=20
avoid a continued drain on California's budget and cuts in other state=20
programs.=20
Since mid-January, energy purchased by the state Department of Water=20
Resources on the spot market and under long-term contracts has come out of=
=20
the state's general fund, the source of most state spending.=20
Once the loan becomes final by the end of next week, however, energy will b=
e=20
purchased with the proceeds.=20
Made possible by an emergency order from the governor, the loan ultimately=
=20
will be paid off by customers of the state's investor-owned utilities throu=
gh=20
their electricity rates.=20
"In essence, it stops the general fund bleeding," Angelides said.=20
The state has so far committed $8.2 billion from the general fund to=20
electricity purchases. Of that amount, Angelides said the Department of Wat=
er=20
Resources has actually spent about $6.1 billion through June 12 on power=20
purchases, and has received about $900 million back from customers'=20
electricity rates.=20
Officials expect the loan to finance power purchases through September, whe=
n=20
they plan to issue up to $13.4 billion in revenue bonds.=20
The bonds will reimburse the general fund and and pay off the loan.=20
"This gives the state some more running room, some more cushion in case=20
anything goes awry with the bond sale to make sure ... the state does not r=
un=20
out of general fund money, jeopardizing education programs, law enforcement=
=20
programs, children's and health services," the Democratic treasurer said.=
=20
Angelides said he has obtained firm commitments for $3.5 billion from JP=20
Morgan and Lehman Brothers at a blended interest rate of about 4.5 percent.=
=20
If the long-term bonds are not issued by Oct. 31, the interest rate would=
=20
climb to about 7 percent.=20
Lawmakers initially had hoped to close the short-term loan in May and float=
=20
the long-term bonds shortly thereafter. However, Republicans in the state=
=20
Legislature balked at the plan, forcing the delay of the bond sale until=20
mid-August.=20
Rather than wait, Gov. Gray Davis invoked his emergency powers to allow for=
=20
the loan and circumvent the delay.=20
Assembly Republicans don't mind that the governor used his emergency powers=
=20
to expedite the loan, said James Fisfis, a spokesman for the caucus. Instea=
d,=20
he said, they're concerned the loan could backfire and hurt Californians.=
=20
"If the larger bond offering falls through, the penalties and added interes=
t=20
could add up on ratepayers' bills," he said.=20
But Angelides argued that the loan would benefit ratepayers on several=20
fronts: Power generators can no longer argue the state should pay a "credit=
=20
premium" on electricity, he said, and for the most part will not be able to=
=20
walk away from long-term energy contracts that have provisions requiring th=
e=20
Department of Water Resources to obtain external financing by July 1.=20
Outside the Legislature, the announcement drew praise from financial analys=
ts=20
who had criticized the state for buying power with taxpayer money.=20
In late April, for instance, Standard & Poor cited fears over the state's=
=20
mounting power costs when it downgraded California's credit rating on state=
=20
bonds.=20
But S&P managing director Steven Zimmermann called the governor's executive=
=20
order a step in the right direction.=20
"We're very happy," Zimmermann said. "We were very anxious for the state to=
=20
take the general fund out of the energy purchasing position it's been in."=
=20

The Bee's Emily Bazar can be reached at (916) 326-5540 or ebazar@sacbee.com=
.



Dan Walters: Once burned, lawmakers are very wary of Davis-Edison agreement


(Published June 20, 2001)=20
The Capitol's politicians rarely attempt to resolve big, complicated policy=
=20
issues, preferring to occupy their time with relatively trivial matters --=
=20
which also tend to be the priorities of well-heeled and generous interest=
=20
groups.=20
And when they even acknowledge a need to address something big, they'll oft=
en=20
just nibble at the edges rather than confront the underlying conflicts=20
squarely. That's been the pattern on water, transportation, population grow=
th=20
and public education, to name but a few of many examples.=20
The Capitol completed just one comprehensive, or seemingly comprehensive, b=
it=20
of policymaking during the last quarter-century. But the issue on that=20
occasion was electric utility deregulation, which has exploded into an ener=
gy=20
crisis of monumental proportions. And that experience is having a paralyzin=
g=20
effect on the Capitol's denizens.=20
Some Capitol old-timers call it "1890 disease," named after the number of t=
he=20
1996 bill that created California's fatally flawed system of pricing electr=
ic=20
power. The legislation was written largely by lobbyists for affected intere=
st=20
groups and then presented to the full Legislature for take-it-or-leave-it=
=20
approval. The measure was passed without a single dissenting vote, even=20
though only a few lawmakers even began to understand its ramifications.=20
It was a huge failure of the legislative process, virtually a dereliction o=
f=20
duty, and those who participated have been doing some fancy explaining. But=
=20
given the history, both veteran legislators and those who came to the Capit=
ol=20
after 1996 are very leery about putting their names on additional pieces of=
=20
energy policy that could backfire if the real-world outcome is markedly=20
different from the purported effects.=20
One example is the $43 billion in long-term energy supply contracts=20
negotiated by Gov. Gray Davis' administration to end the state's dependence=
=20
on volatile spot market prices. When the long-term contracting program was=
=20
authorized by the Legislature early this year, it was on the assurances of=
=20
the administration that it could obtain large quantities of power at cheap=
=20
prices. But by the time that the contracts were made final, months later, t=
he=20
average price was 25 percent higher than what was stated earlier, while the=
=20
spot market had fallen dramatically. Now the long-term contracts that seeme=
d=20
like such a good idea in January and February could become financial=20
albatrosses.=20
An even more telling example is the deal Davis made with Southern Californi=
a=20
Edison to keep the utility from joining Pacific Gas and Electric in=20
bankruptcy. The utilities accumulated at least $13 billion in debts in six=
=20
months, buying power at prices much higher than they were allowed to=20
recapture from their customers. Consumer groups are denouncing the Edison=
=20
deal as a corporate bailout that would impose multibillion-dollar burdens o=
n=20
customers while imposing virtually no financial onus on Edison or its=20
creditors. And the deal's critics are pouncing on legislators' reluctance t=
o=20
do something that might haunt them later -- especially in 2002, a critical=
=20
election year.=20
"Five years ago, lawmakers and the utilities foolishly foisted this=20
deregulation scheme onto California consumers, and now the governor and=20
Edison expect the ratepayers to pay billions more to save the utilities fro=
m=20
their own mismanagement and bad policy decisions," consumer gadfly Harvey=
=20
Rosenfield said Tuesday as legislative hearings opened on the Edison deal.=
=20
"This time, the whole world is watching the Legislature."=20
Harry Snyder of Consumers Union echoed Rosenfield's pledge to hold=20
legislators accountable. "It looks a lot like 1890," Snyder said. "It's too=
=20
big, (and) this is the same process all over again."=20
The sheer complexity and potential ramifications of the deal are weighing=
=20
heavily on lawmakers. "This is not a Mother's Day resolution," Senate Energ=
y=20
Committee Chairwoman Debra Bowen said wryly as the hearings began. Davis an=
d=20
Edison lobbyists are pulling out all the stops, but legislators are very,=
=20
very nervous about taking another big step that could generate public=20
backlash.=20

The Bee's Dan Walters can be reached at (916) 321-1195 or dwalters@sacbee.c=
om
.



Senate Democrats lay back to see if FERC action provides rate relief=20



By Finlay Lewis
COPLEY NEWS SERVICE=20
June 19, 2001=20
WASHINGTON =01) Key Senate Democrats called a truce Tuesday in the politica=
l=20
wars raging over California's energy crisis, as they adopted a wait-and-see=
=20
posture over the Federal Energy Regulatory Commission's latest order=20
restricting electricity prices across much of the West.=20
Senators of both parties expressed relief over FERC's action on Monday. But=
=20
Sen. Dianne Feinstein, D-Calif., said she was skeptical that the order woul=
d=20
end wholesale price manipulation by power providers or result in refunds to=
=20
overcharged ratepayers.=20
Feinstein and Sen. Gordon Smith, R-Ore., have prepared legislation seeking =
a=20
much tighter pricing formula than the one FERC used. But she asked that the=
ir=20
bill be set aside temporarily in deference to the agency's action.=20
"I think we should wait and see what happens," Feinstein said during a Sena=
te=20
Energy and Natural Resources Committee hearing on the FERC order.=20
Democrats on the committee pressed FERC Chairman Curtis L. Hebert and the=
=20
four other commissioners on why they had not acted sooner to control the=20
daily price turbulence in the California energy market. A market-interventi=
on=20
order issued by FERC in April was designed to cope only with energy-supply=
=20
emergencies, despite pleas by California Gov. Gray Davis and other Californ=
ia=20
Democrats for more drastic measures.=20
"It's time to stop blaming and start problem-solving," said Hebert, a=20
Republican appointed chairman by President Bush.=20
Hebert noted that electricity prices on the volatile spot market have dropp=
ed=20
considerably since the April order. Prices on the energy futures market hav=
e=20
also tumbled, as have natural gas prices =01) a key component in the cost o=
f=20
electricity.=20
On Monday, FERC unanimously ordered around-the-clock restraints on wholesal=
e=20
electricity prices in California and 10 neighboring states over the next 15=
=20
months.=20
As was the case with the April measure, prices will be pegged to the costs =
of=20
the least efficient power provider when reserves in California fall below 7=
=20
percent. But when reserves are more plentiful, the prices will drop to 85=
=20
percent of the level established during supply shortages.=20
The order also provides for a 22-day period, involving arbitration and revi=
ew=20
by an administrative law judge, for resolving price-gouging allegations and=
=20
providing refunds in cases of improper pricing.=20
Adamantly opposing price controls earlier, FERC acted after coming under=20
intense pressure from lawmakers of both parties. Republicans said they were=
=20
worried that their GOP colleagues in California would have been blamed and=
=20
possibly imperiled at the polls if FERC had failed to act.=20
Bush, who also took a hard line against price caps, blessed FERC's action=
=20
after it was taken.=20
Hebert criticized the bill advanced by Feinstein and Smith as an attempt to=
=20
solve California's problem by "bureaucratic fiat."=20
Their measure would calculate wholesale electricity prices based on the=20
reported production costs of the individual generators, with an added=20
allowance for a profit margin.=20
Hebert argued that the "mitigation price" that FERC will establish "is not =
a=20
blunt, arbitrary figure that bears no resemblance to market conditions and =
is=20
subject to political pressures and whims."=20
Meanwhile, Commissioner William Massey made it clear that he harbors=20
misgivings about the FERC measure, although he supported it.=20
He said the agency should have acted earlier to avoid the subsequent=20
"carnage" in California, has failed to provide guidelines that would assure=
=20
refunds to overcharged consumers and has acted questionably in allowing pow=
er=20
providers to impose a 10-percent surcharge to cover credit-worthiness risks=
.=20
Massey, a Democrat who has consistently criticized his colleagues for movin=
g=20
too slowing in the California crisis, also said he wondered whether the ord=
er=20
would provide an unintended incentive for generators to continue using=20
inefficient units in order to assure higher profit margins for their more=
=20
modern facilities.=20
Sen. Barbara Boxer, D-Calif., said she would propose legislation later this=
=20
week designed to assure refunds to customers who have had to pay unfair=20
prices for their electricity.=20
"If FERC won't do it ... Congress should," Boxer said.=20
A spokesman for Sen. Jeff Bingaman, D-N.M., chairman of the committee, said=
=20
Bingaman agreed with Feinstein on the need for a time-out while the FERC=20
order is being implemented.=20
Gov. Davis will testify today (6/20) before the Senate Government Affairs=
=20
Committee, which is investigating FERC's role in the crisis. Hebert and the=
=20
other commissioners will also appear.=20






House panel erases Bush energy cuts=20



By Alan Fram
ASSOCIATED PRESS=20
June 19, 2001=20
WASHINGTON =01) A House subcommittee voted Tuesday to spend $1.2 billion mo=
re=20
next year than President Bush proposed for energy and water programs,=20
underlining lawmakers' sensitivity to the West's power problems and their=
=20
desire for home-district projects.=20
The $23.7 billion measure, approved by voice vote by a panel of the House=
=20
Appropriations Committee, is normally one of the more routine of the 13=20
annual spending measures Congress must approve. But with this year's=20
escalating battle between Bush and Democrats over energy policy, the=20
measure's profile has been raised.=20
The bill would provide $18.7 billion for the Energy Department, $641 millio=
n=20
more than Bush requested and $444 million more than this year. Fiscal 2002,=
=20
which the bill covers, begins Oct. 1.=20
It also includes nearly $4.5 billion for the Army Corps of Engineers and th=
e=20
hundreds of water projects it has under way across the country, $568 millio=
n=20
more than Bush proposed but $73 million less than this year.=20
The measure was approved shortly after top members of the committee met wit=
h=20
Bush at the White House.=20
Participants said Bush and the lawmakers reaffirmed their goal of keeping t=
he=20
price tag of the 13 bills to $661 billion, which is one-third of the overal=
l=20
federal budget. That would be a 4 percent boost over 2001, which many=20
Democrats =01) and some Republicans in private =01) say is too low.=20
"He said there would be attempts to raise this as we go through the process=
,=20
and let's stick with him," said Rep. Sonny Callahan, R-Ala., chairman of th=
e=20
energy and water subcommittee.=20
Illustrating the pressures Republicans face, David Sirota, spokesman for th=
e=20
Democrats on the committee, said the bill lacked the new spending needed fo=
r=20
renewable energy and other programs that could help alleviate power=20
shortages.=20
Under the bill approved Tuesday, renewable energy programs would get $377=
=20
million, $100 million more than Bush wanted and $1 million more than this=
=20
year. Nuclear energy, basic energy sciences, biological and environmental=
=20
research and a study of whether spent nuclear fuel should be stored at a=20
Nevada site would all get about what Bush proposed.=20
The bill's $7.03 billion for environmental cleanups is $699 million more th=
an=20
Bush proposed. Programs aimed at containing the nuclear arsenals of former=
=20
Soviet states would get $845 million, $71 million more than Bush's plan.=20
Members voted to hold the brief meeting behind closed doors after citing th=
e=20
national security sensitivity of publicly discussing some of the nuclear=20
weapons programs covered by the bill.=20






Davis, Regulators Face Off at Hearing

From Reuters=20

?????WASHINGTON -- California Governor Gray Davis, a Democrat, today blamed=
 a=20
Republican-led energy regulatory agency for not doing enough to help his=20
energy-starved state and demanded refunds of $6.7 billion for alleged=20
price-gouging by power generators.
?????Davis, whose political future has been linked to his state's electrici=
ty=20
woes, was testifying at a Senate hearing with members of the Federal Energy=
=20
Regulatory Commission.
?????The hearing marked the first time that Davis met face to face with all=
=20
five FERC commissioners.
?????FERC regulates interstate electricity markets and has jurisdiction to=
=20
order refunds by power generators found to have overcharged utilities.
?????Earlier this week the agency, led by a Republican majority, rejected=
=20
Davis' pleas for strict caps on prices that soared above $400 per megawatt=
=20
hour last month.
?????Sen. Joseph Lieberman, the former Democratic vice presidential nominee=
,=20
heads the Senate Governmental Affairs Committee that quizzed the FERC=20
commissioners and Davis on efforts to stabilize the chaotic Western=20
electricity market.
?????Davis accused FERC of failing to act aggressively against alleged=20
price-gouging by out-of-state generators.
?????"To date, not a single penny in refunds has been returned to=20
Californians," Davis said. "It is unconscionable for the generators to prof=
it=20
from their egregious overcharges. FERC must move quickly to enforce the law=
=20
and order the energy companies to give back the money."
?????Davis said the state is owed refunds of at least $6.7 billion.=20
California's grid operator has estimated that from May 2000 to May 2001,=20
power generators charged the state nearly $9 billion more than a competitiv=
e=20
market would warrant, he said.
?????California, the nation's most populous state, has been hit with a seri=
es=20
of rolling blackouts, the bankruptcy of its largest utility, and an economi=
c=20
slowdown since the power crisis began last year.
?????The state is expected to convene a criminal grand jury to investigate=
=20
whether some power generators withheld supplies, shut down plants or=20
exploited the bidding process to drive up prices. Out-of-state generators=
=20
deny any illegal activity, saying the high prices simply reflect supply=20
shortages.
?????Today also marks the day that FERC's newly expanded "price mitigation"=
=20
program goes into effect in all 11 Western states with a wholesale price=20
limit of $107.9 per megawatt hour linked to a market formula. The plan had=
=20
previously applied only to California during emergency power outages.
?????Since FERC's action earlier this week, Senate Democrats dropped a=20
legislative effort to strictly cap electricity prices in the West. However,=
=20
California Democrats in the House were still trying to force a full vote on=
 a=20
package of energy amendments, including a price cap.
?????The Bush administration and many Republicans oppose price caps,=20
contending they would discourage more power production.
?????Separately, today the U.S. Energy Department issued a study that=20
supported the White House's view that strict price caps would hurt, not hel=
p,=20
California.
?????The study found California faces about 113 hours of rolling blackouts=
=20
this summer, a level that would double if wholesale prices were capped at=
=20
$150 per megawatt because some 3,600 megawatts of generating capacity would=
=20
shut down. An alternative approach of setting a price cap based on producti=
on=20
costs plus $25 per megawatt would delay or close about 1,300 megawatts of=
=20
capacity scheduled to be built in the state, according to the study.
?????However, lawmakers from both political parties have scrambled for some=
=20
kind of solution to address the shortages in California well before the=20
congressional elections next year.
?????The FERC plan expands an existing "price mitigation" program in=20
California to 10 other Western states. The plan, which runs through Septemb=
er=20
2002, means that during nonemergency periods the price for wholesale power=
=20
cannot exceed 85 percent of the cost of electricity sold during a Stage 1=
=20
power shortage emergency in California.
?????A Stage 1 emergency is declared when electricity supplies fall below 7=
=20
percent of demand on the Western power grid.
?????The plan also imposes a 10 percent surcharge on all power sales into=
=20
California as financial protection for generators reluctant to sell to the=
=20
state's financially weak utilities.
?????Davis was due to meet the two newest FERC commissioners, Patrick Wood =
of=20
Texas and Nora Brownell of Pennsylvania, today. Both are former utilities=
=20
regulators in states that successfully deregulated their power industry and=
=20
nominated to the agency by President Bush.

Copyright 2001 Los Angeles Times=20






NEWS ANALYSIS
Energy on Agenda, but Issue Is Blame=20
Politics: Gov. Davis will try to sway voter anger toward the GOP as he face=
s=20
a Senate panel.=20

By RONALD BROWNSTEIN, Times Political Writer=20

?????WASHINGTON--When California Gov. Gray Davis testifies at a high-profil=
e=20
Senate hearing today, the issue formally on the table will be the expanded=
=20
electricity price controls that federal regulators approved this week. But=
=20
the session's political subtext will be the escalating struggle between Dav=
is=20
and national Republicans to determine where California voters look for=20
solutions--and blame--for the state's power woes.
?????In both California and Washington, Republican strategists believe Davi=
s=20
is trying to manufacture a succession of conflicts with the White House tha=
t=20
will allow him to run in 2002 as much against President Bush as against=20
whomever the state GOP nominates in the gubernatorial race. In return,=20
Republicans are trying to shift the focus back toward Davis--most=20
aggressively through a California-wide television advertising campaign=20
organized by Scott Reed, a former executive director of the Republican=20
National Committee.
?????"Our goal is to get the focus back to Sacramento, where it belongs,"=
=20
Reed said.
?????Both sides see the same prize in this tug of war: the opportunity to=
=20
determine where most Californians direct their anger during what could be a=
=20
long, hot summer of power shortages.
?????"The situation is that the public's minds are not made up on this=20
issue--whether it is Sacramento or Washington who has acted too little, too=
=20
late," said Mark Baldassare, a pollster at the independent Public Policy=20
Institute of California. "That gives both sides an opportunity to get their=
=20
messages out. The stakes are fairly high in terms of how the public in=20
California ends up assessing blame over the next few months."

?????A Slight Uptick in Davis' Popularity
?????Overall, Davis' political situation appears to be stabilizing. After=
=20
months of runaway power costs, the prices the state pays for wholesale=20
electricity are falling and new plants will come online next month. And=20
following a free fall in private polls, Davis has seen his numbers tick bac=
k=20
up slightly. Similarly, a poll financed by independent power generators=20
showed that in mid-June, for the first time in months, Californians were=20
becoming slightly more confident that the crisis is easing.
?????Within the state Capitol, Davis is asserting himself, demanding that=
=20
lawmakers hold hearings on his rescue plan for Southern California Edison. =
On=20
Monday, he released details of a similar plan for San Diego Gas & Electric.=
=20
Last week, he announced an agreement that is likely to increase generation =
by=20
alternative energy producers, who account for about a fourth of the state's=
=20
supply.
?????"This guy is changing," said state Sen. Steve Peace (D-El Cajon), who =
a=20
few months back had been urging that Davis take a more aggressive stance on=
=20
the crisis. "There is a difference in his demeanor and focus."
?????Yet the energy crisis still looms as a vast cloud over a reelection=20
campaign that once looked like a stroll on the beach.
?????The paradox for Davis is that the substantive victory for pricecontrol=
=20
advocates at the Federal Energy Regulatory Commission meeting this week may=
=20
complicate his political goal of maintaining a heavy focus on Washington.=
=20
Though Davis and some congressional Democrats portrayed FERC's decision as=
=20
insufficient, it appears to have lanced the pressure for federal legislatio=
n=20
to impose the tighter price controls that Davis supports.=20
?????Sen. Dianne Feinstein (D-Calif.), a principal sponsor of that bill, on=
=20
Tuesday announced she would shelve the measure for six months to give the n=
ew=20
FERC plan time to work.
?????As a result, the political effect of the FERC ruling could be to shift=
=20
the focus away from Washington back toward decisions in Sacramento, which i=
s=20
exactly what Republicans prefer. "Gray Davis is the dog that finally caught=
=20
the car," said Dan Schnur, a San Francisco-based GOP consultant. "Davis is=
=20
going to keep screaming about price caps and refunds, but now Republicans c=
an=20
point to substantive action."

?????Davis: 'Much More They Should Do'
?????For months, Davis has criticized Bush for refusing to support=20
electricity price controls and other measures that the governor says could=
=20
ease California's energy crunch. At almost every opportunity, Davis offers=
=20
the same message: California is taking the steps it needs to, but Washingto=
n=20
has failed to help enough. That was precisely Davis' message Monday when FE=
RC=20
significantly expanded the limited price caps it had imposed previously.
?????While saying that FERC had "finally taken a step in the right=20
direction," Davis added: "There is much more they should do"--including=20
providing refunds to California for alleged overcharges. The overall tone o=
f=20
Davis' statement was much more skeptical about FERC's action than the remar=
ks=20
from Feinstein, who described the decision as "a giant step forward."
?????Aides say Davis plans to repeat that two-part message in his appearanc=
e=20
today before the Senate Governmental Affairs Committee, chaired by Sen.=20
Joseph I. Lieberman (D-Conn.). In his testimony, and in a round of schedule=
d=20
television appearances, Davis will demand that FERC order refunds in the=20
range of $5 billion to $6 billion to the state, aides said. Davis also will=
=20
distribute to every member of Congress a 177-page book chronicling the=20
state's response to the crisis.
?????Inside the Bush White House, some officials see in Davis' cool respons=
e=20
to FERC's decision more evidence that the governor is determined to use the=
=20
White House as a foil in his reelection campaign. The prevailing view, one=
=20
official said, is that, no matter what concessions the administration offer=
s,=20
Davis will immediately raise the bar and demand something else--the way he=
=20
did by talking about rebates as soon as FERC offered tougher price controls=
.
?????"That is Davis' M.O.," said one official involved in the White House's=
=20
energy strategy. "He asks the administration to do something, the=20
administration does it, and then he attacks the administration for not doin=
g=20
enough. . . . He needs someone to blame."
?????Davis aides reject that characterization, arguing that the governor is=
=20
merely representing the state's interests against an administration that th=
ey=20
maintain is favoring energy producers over consumers. But Davis advisors=20
acknowledge that they have used focus groups to test campaign messages that=
=20
pin the blame for the energy crunch primarily on Davis' Republican=20
predecessor, Pete Wilson, and a "Republican president who has failed to sto=
p=20
his rich friends in the energy industry" from gouging consumers, one aide=
=20
said.
?????"You don't have to tell people in focus groups more than once how this=
=20
is connected," the Davis aide said.

?????Gubernatorial Rivals Are Free of Blame
?????Baldassare, the independent pollster, notes it may be especially=20
imperative for Davis to keep Bush's energy decisions in the spotlight becau=
se=20
none of his potential Republican opponents in 2002--California Secretary of=
=20
State Bill Jones, former Los Angeles Mayor Richard Riordan or businessman=
=20
William E. Simon Jr.--is easily tagged with complicity in the problem. "Non=
e=20
of them were really involved in the decision-making over deregulation,"=20
Baldassare said. "The only one else to blame, in a political sense, is=20
Washington and the Bush administration."
?????The new independent advertising campaign against Davis was inspired=20
largely by the fear of that strategy succeeding--damaging the standing in=
=20
California not only of Bush but also of other Republicans, particularly tho=
se=20
in Congress. Reed, whose American Taxpayers Alliance is funding the ads, sa=
id=20
he decided to launch the campaign after Davis appeared to gain the upper ha=
nd=20
in the media debate following Bush's visit to California late last month.
?????"The Bush trip really changed the terms of debate about Davis' problem=
=20
and made it more of a possible national Republican problem," Reed said. "Th=
e=20
entire terms of debate turned around and was focused on the issue of price=
=20
caps as opposed to negligence on Davis' behalf. Our group is attempting to =
go=20
out and engage Davis."
?????To "engage" Davis, Reed's group, which has not revealed its donors, is=
=20
spending what he said would be $1.5 million on an initial ad criticizing=20
Davis this week, though a spot check of TV stations around the state=20
indicated a far more modest buy. Reed said the group is planning to air a n=
ew=20
ad as soon as this week.
?????Democrats plan to answer the ads with attacks of their own and will be=
=20
filing complaints with the IRS and other federal agencies about the anonymo=
us=20
funding of the Reed ad.
?????Today's Senate hearing will give Davis another chance to respond to th=
e=20
GOP and make his case for greater help from Washington. But Lieberman aides=
=20
acknowledge the hearing is likely to be much less confrontational than it=
=20
would have been if FERC had not acted Monday. The agency's decision "change=
d=20
the dynamic," the aide said.
?????That assessment may apply not only to the conflict between FERC and it=
s=20
critics but also equally to the hostilities between Davis and the White Hou=
se.
---=20
?????Times staff writers Dan Morain in Sacramento and Mark Z. Barabak in Lo=
s=20
Angeles contributed to this story.

Copyright 2001 Los Angeles Times=20







Blackout Forecasts' Dark Side=20
If optimists are wrong and the power runs out, California's energy crisis=
=20
could quickly cost lives and cripple the economy.=20

By JENIFER WARREN, Times Staff Writer=20

?????It's here. Summer 2001, the blackout season, is only a day away.
?????Already Californians anticipate power outages when temperatures rise. =
By=20
August, the occasional annoyances endured so far--stoplights gone dark,=20
computers, air conditioners and elevators idled--could seem almost quaint.
?????Gov. Gray Davis insists we needn't worry. Four large new power plants=
=20
are firing up soon, he said, and government's best and brightest are lockin=
g=20
up still more megawatts to help meet our peak summer need. Californians,=20
Davis predicts, will valiantly heed his call to conserve, helping the state=
=20
survive the hot months, no sweat.
?????With luck, he'll be right. Power prices have stabilized, and some ener=
gy=20
analysts are wondering whether California may have tamed the blackout beast=
.
?????But what if those plants don't get built in time, people don't trim=20
their electricity use 7% and energy imports are more meager than expected?
?????And what if the state gets hit by a summer that is not moderately hot,=
=20
as Davis bets, but blistering, record-setting hot?
?????Government experts who ponder such questions don't expect disaster in=
=20
the coming months. But they are planning for it nonetheless.
?????At best, they say, Californians can expect some gridlocked=20
intersections, an occasionally overloaded 911 system, perhaps some business=
=20
bankruptcies, certainly inconvenience. At worst, the Western power grid cou=
ld=20
crash, causing uncontrolled blackouts that might lead to looting,=20
contaminated water supplies, even civil unrest.
?????"How bad could this summer get?" said state Sen. Joe Dunn (D-Santa Ana=
).=20
"This summer could be the worst disaster to ever hit the state of Californi=
a."
?????Imagine it's a Thursday morning in the third week of July. Relentless=
=20
heat grips California, the curse of a stubborn high-pressure ridge that jus=
t=20
won't budge.
?????As air conditioners from Redding to Chula Vista lumber to life, manage=
rs=20
of the state's power grid in Folsom gulp their third and fourth cups of=20
coffee, stare at a bank of computers and begin to fret.
?????Demand is jumping. Supply is static, Canada and Arizona have nothing t=
o=20
sell. It's looking tight.
?????Thirty minutes later, the picture is gloomier. A brush fire shuts down=
=20
transmission lines near Fresno, squeezing supply in the Central Valley. In=
=20
the Bay Area, the unusual heat drives demand well past projections.
?????By noon things look bleak. Operators of the Diablo Canyon nuclear powe=
r=20
plant near San Luis Obispo have cut output by 80%. The trouble? Chunks of=
=20
kelp have lodged in one of the plant's seawater intake valves, creating a=
=20
clog like one that plagued the facility in January.
?????With a chorus of groans, the grid's keepers scour the market for power=
=20
to offset the Diablo loss. No luck. As the mercury climbs and the Golden=20
State economy roars into full swing, electricity consumption ticks upward,=
=20
minute by minute. And when managers of a power plant near Long Beach cut=20
output because of a cracked turbine, everyone knows what it means.
?????Alert the utilities. It's lights out, California, for the fourth day i=
n=20
a row.
?????Dr. J. Michael Leary dreads blackouts--not personally, but=20
professionally. Leary is an emergency room physician in the desert city of=
=20
Rancho Mirage. When air conditioners go on the blink there, the=20
victims--scores of them, mostly old folks--wind up in his ER.
?????In a normal year, 75% of his emergency patients are geriatrics. Like=
=20
infants, the elderly are unusually vulnerable to the heat. When blackouts=
=20
hit, they are most at risk.
?????"It's as if you lived in Maine and they turned the heat off in January=
,"=20
Leary said. "This is an extreme environment we live in. The effects can be=
=20
devastating."
?????Many desert seniors are on fixed incomes and live in mobile homes, som=
e=20
of them poorly insulated boxes that turn into ovens under the brutal summer=
=20
sun. Take away the air conditioning and the humans inside start baking, qui=
ck.
?????For Leary, the specter of continual, back-to-back blackouts in=20
July--and, some predict, in June and August too--conjures images of an=20
82-year-old man, living alone in one of those mobile homes, taking medicati=
on=20
for heart disease. The cardiovascular drugs plague the man with numerous si=
de=20
effects; one inhibits his body's ability to cool itself.
?????When a person gets overheated, body temperature eventually rises=20
uncontrollably. Then comes a nasty spiral of effects, and pretty soon "you =
go=20
into shock," Leary said. "Everything just shuts down."
?????On average each year, 371 Americans die from heat-related causes, more=
=20
than the number killed by earthquakes, tornadoes, hurricanes, lightning and=
=20
floods combined. In 1995, a record hot spell in Chicago killed 465 people.=
=20
Eleven Californians died from the heat in 1998.
?????A new report by the United Seniors Assn. predicts that more than half =
a=20
million elderly Californians could need hospitalization for heat-related=20
ailments this summer.=20
?????Some communities have laid plans for cooling shelters, wading pools an=
d=20
other measures to provide relief. But will all who need help get it? Or get=
=20
it in time?
?????Out in the desert, paramedics expect a crush of 911 calls when the pow=
er=20
goes out and the ill, frail and frightened seek help. Leary and others at=
=20
Eisenhower Medical Center will be waiting, armed with ice packs, cooled IVs=
=20
and ventilators.
?????"I am very, very worried," the doctor said. "I think we'll see a great=
=20
toll in human suffering, even mortality."
?????California's tomato processors are no less anxious. They wash, cook,=
=20
peel, chop, mash and can about 1 million tons of tomatoes a week from July =
to=20
October--enough to account for half the world's supply. For them, a string =
of=20
unexpected power losses could mean economic ruin in a matter of days.
?????The reason lies in the peculiar nature of food processing--a sterile=
=20
system instantly contaminated if the power fails and the plant's precise=20
temperature is disturbed.
?????Once a batch of tomatoes is tainted, it must be thrown out--all 50,000=
=20
pounds. The plant must then be sanitized, a painstaking process that takes=
=20
about 36 hours.
?????"If you get hit by blackouts every third day for, say, two weeks, you'=
re=20
starting, stopping, cleaning, restarting--it's a nightmare," said Jeff Boes=
e,=20
president of the California League of Food Processors. "You could lose thre=
e=20
batches and be out $40 million before you knew what hit you."
?????Meanwhile, farmers with still more truckloads of tomatoes line up=20
outside the plant, waiting to be paid for their crop: "If we can't process=
=20
them, the farmers have spent an entire season growing them for nothing,"=20
Boese said.
?????In Sonoma County, the object in peril is the chicken. Egg producers=20
equip their laying houses with fans and swamp coolers to keep the hens=20
comfortable. Power is also needed to run giant refrigerators filled with eg=
gs.
?????"In a blackout, those hens can overheat in no time," said Rich Matteis=
=20
of the Pacific Egg and Poultry Assn. "In 20 or 30 minutes, you could have=
=20
100,000 birds die."
?????Many large producers have backup generators, but they are not designed=
=20
for ongoing, intensive use. Will they hold up? Small-scale egg producers=20
often have no backup power at all.
?????Hundreds of other California businesses could suffer if summer shapes =
up=20
as bad as some predict.
?????The Valero Refining Co. of California, northeast of San Francisco,=20
produces 115,000 barrels of gasoline a day. Because restarting a refinery i=
s=20
a complicated task, two or three blackouts close together could prompt=20
officials to shutter it until electricity supplies stabilize--costing=20
California about 10% of its gasoline supply.
?????At a Berkeley medical laboratory, doctors say power losses to their=20
freezers could destroy bone marrow needed to give young leukemia patients=
=20
lifesaving transplants. The state's 400 dialysis centers, where patients=20
without kidney function go to have their blood cleansed every other day, ar=
e=20
in the same fix. Few have backup generators, so when an outage hits,=20
technicians must crank the machines by hand.
?????Most Californians, of course, face far more ordinary consequences. The=
=20
scoreboards will fizzle at summer softball games, joggers on treadmills wil=
l=20
be stopped in their tracks, electric organs will go silent, leaving choirs =
to=20
sing without accompaniment.
?????Parents will be asked to retrieve children from day-care centers when=
=20
the lights and cooling systems conk out. Anniversary lunches may be ruined=
=20
when restaurants cannot grill salmon or blend margaritas.
?????Most people will tolerate occasional disturbances, psychologists say,=
=20
doing their part in a time of crisis. But what if such irritations become a=
n=20
everyday fact of life?
?????Hundreds of "essential" energy users--including prisons, fire=20
departments and airports--are protected from blackouts, and hundreds more=
=20
have applied for exemptions. That means the pool of people bearing the=20
blackout burden is shrinking, so more frequent outages are likely.
?????Blackout predictions vary widely, but at least one forecaster, a=20
consultant for California water districts, anticipates an outage almost eve=
ry=20
afternoon of every workday this summer if temperatures are unusually warm.
?????Californians are accustomed to trash compactors, giant-screen TVs and=
=20
having the Internet at their fingertips. How much deprivation will they=20
tolerate?
?????"So far, the version of blackouts we've experienced hasn't looked too=
=20
scary to people--it happens on a workday, in the afternoon, and you basical=
ly=20
have to come home and reset your VCR," said Dan Kammen, a professor of ener=
gy=20
and society at UC Berkeley.
?????But if outages become daily events, and start to invade the evening=20
hours, the public mood could change abruptly.
?????"When there's a disaster or crisis or trauma, people tend to act=20
heroically and work together," said Robert Butterworth, a Los Angeles=20
psychologist and trauma specialist. "But the civilized behavior only lasts =
a=20
short period. Then people start acting in unpredictable ways."
?????That tendency may be exacerbated, Butterworth said, by the nature of t=
he=20
energy crisis--not a natural disaster, but a man-made one.
?????"People start to look for a scapegoat," he said. "People will look for=
 a=20
target, and there's a tendency to strike out at whoever is closest to you."
?????One place that tendency may surface, Butterworth said, is on=20
traffic-clogged roads. Blackouts already have led to scores of accidents. A=
dd=20
summer heat to the mix, and repeat the pattern day after day at rush hour,=
=20
and motorists' patience could wear thin, law enforcement officials say.
?????"We're bracing for . . . possible acts of violence and road rage," sai=
d=20
Sacramento County Sheriff's Lt. Larry Saunders.
?????Lon House is the water consultant who predicts California could see=20
blackouts almost every summer weekday. Among the worries for the 440 water=
=20
agencies he represents: losing the ability to pump water during wildfire=20
season.
?????"I'm telling them to be ready for a major earthquake every day this=20
summer--meaning all your power is out throughout your district for multiple=
=20
hours," House said.
?????House insists he isn't an alarmist. But on top of the fire fears, he=
=20
warns that blackouts of more than a few hours would allow air into water=20
pipes, contaminating supplies. If that happens, Californians would be urged=
=20
to boil their water until the system can be disinfected from one end of the=
=20
pipe to the other.
?????Though rolling blackouts are risky, they remain essentially a controll=
ed=20
phenomenon, occurring when and where the grid managers and utilities decide=
.=20
Far more frightening--and devastating--are unexpected, cascading outages th=
at=20
could shut down the entire Western power grid. It happened in August 1996,=
=20
leaving 4 million people without power during a triple-digit heat wave.
?????The problem began when power lines in Oregon sagged into trees and shu=
t=20
themselves off. That triggered a chain reaction of automatic switch-offs an=
d=20
oscillating surges of energy that ultimately shut down all four of the main=
=20
power arteries between California and the Pacific Northwest.
?????That robbed the system of thousands of megawatts--enough to power the=
=20
city of Seattle four times over--and scattered outages across California an=
d=20
six other Western states. Thousands of customers were without power for mor=
e=20
than a day.
?????Though such an episode is rare, California grid managers say it is mor=
e=20
likely today because the system is taxed by the ever-increasing load of=20
electricity it bears.
?????"The system is very dynamic, and when it's heavily loaded and highly=
=20
stressed, like it is now, the smallest little thing could cause big trouble=
,"=20
said Kevin Bakker, who oversees California's connection to the greater=20
Western power grid.=20
?????If a massive, uncontrolled outage should hit, the ramifications could =
be=20
dizzying, said Mike Guerin, chief of law enforcement for the state Office o=
f=20
Emergency Services. Police departments would probably go to tactical alert,=
=20
guarding against looting by criminals who might take advantage of disabled=
=20
alarm systems and darkened street lights.
?????In hot areas, cities might convert municipal buses--parked with air=20
conditioners running--into cooling shelters, Guerin said. The state would=
=20
provide emergency generators to nursing homes and others in need, while the=
=20
California National Guard might be called into action.
?????"With this kind of blackout scenario, you're not worried about the=20
bologna going bad in the refrigerator," Guerin said. "We're talking about=
=20
doctors doing surgeries on backup generators for three days. We're talking=
=20
about a lot of things we don't like to think about."
---=20
?????Times staff writers Nancy Vogel and Alexander Gronke and researcher=20
Patti Williams contributed to this story.

Copyright 2001 Los Angeles Times=20







FERC Move Short-Circuits Push for Hard Price Caps=20


By RICHARD T. COOPER and JANET HOOK, Times Staff Writers=20

?????WASHINGTON--The Federal Energy Regulatory Commission's decision to=20
impose full-time price ceilings on wholesale electricity in California and=
=20
the West appears to have deflated the congressional drive for a return to=
=20
traditional utility regulation.
?????Sen. Dianne Feinstein (D-Calif.), calling the "price mitigation" syste=
m=20
FERC unveiled Monday "a giant step forward," announced Tuesday that she is=
=20
pulling back her bill to force a return to the "cost of service" pricing=20
system that prevailed before deregulation. Republican Sen. Gordon Smith of=
=20
Oregon, a co-sponsor, agreed, as did Sen. Jeff Bingaman (D-N.M.), chairman =
of=20
the Senate Energy Committee.
?????House Democrats vowed to fight on for tougher controls, but they were=
=20
given little chance to succeed.
?????As a result, although the political blame game will rage on, the reali=
ty=20
of a long, ugly summer for California appears to have arrived: at least=20
several months of tears, toil, sweat--and fast-rising electric bills.
?????California consumers are likely to face an unpleasant paradox, energy=
=20
analysts said: Given present power shortages, blackouts are virtually=20
inevitable this summer. And, since state authorities are beginning to let=
=20
high wholesale prices flow through into retail bills after months of=20
subsidies, many consumers could face higher charges at the same time their=
=20
lights begin to flicker.
?????Even if FERC's order succeeds and wholesale prices fall, as they have=
=20
begun to do in recent weeks, consumers' bills are likely to rise. Since=20
retail charges lag well behind wholesale prices, closing the gap will=20
probably mean a period of higher costs for consumers, regardless of what=20
happens in wholesale markets.
?????There is light at the end of the tunnel, energy analysts said, but it =
is=20
probably a year away. And reaching it, they said, depends in part on=20
government officials taking no action that might spook investors and disrup=
t=20
present plans for expanding the region's capacity to generate and deliver=
=20
more power.
?????The new FERC system, which its designers said would provide temporary=
=20
price relief while preserving incentives for energy investment, imposes=20
cost-based curbs on wholesale prices throughout the West and covers all suc=
h=20
sales, not just those during periods of extreme shortages, as did the order=
=20
issued in April.
?????FERC Chairman Curtis L. Hebert Jr. told the committee the new system=
=20
will prevent "megawatt laundering" and other potential abuses. He said his=
=20
agency is "committed to ferreting out any forms of market misbehavior 24=20
hours a day, seven days a week."
?????With the apparent collapse of demands for more intervention, Congress=
=20
now seems ready to give FERC a year or more of leeway to see whether its pl=
an=20
will curb wholesale prices and create what FERC member Linda Breathitt, a=
=20
Democrat, called "a breathing spell" in which California and the West can=
=20
"repair their dysfunctional markets."
?????"It still remains to be seen whether there can be manipulation, but I=
=20
think we should wait and see," Feinstein said Tuesday at a Senate Energy=20
Committee meeting attended by all five FERC members. The commissioners call=
=20
their new system "price mitigation," not price caps, but Feinstein said it=
=20
amounts to the same thing.
?????"Whether you call it price mitigation or something else, a rose is a=
=20
rose is a rose," said Feinstein, a member of the energy committee.
?????And Sen. Barbara Boxer (D-Calif.), appearing before the committee as a=
=20
witness, said: "I was very pleased with [Monday's] about-face by FERC. I=20
believe they have a new tone."
?????Democrats on the other side of the Capitol pledged to keep fighting fo=
r=20
traditional regulation, but with Republicans in control of the House, the=
=20
struggle appears to be largely symbolic.
?????House Democrats wanted to introduce amendments on price controls and=
=20
other energy policy to a mid-year supplemental appropriation bill due to co=
me=20
before the House today. However, GOP leaders expected to block Democrats fr=
om=20
even offering the amendments on procedural grounds.
?????The most sweeping of the amendments would set cost-based limits on=20
wholesale energy prices in the West. Rep. Henry A. Waxman (D-Los Angeles) a=
nd=20
other sponsors insisted that the measure is still needed in spite of the FE=
RC=20
action, which he said would continue to provide windfall profits to=20
generators, encourage suppliers to withhold power and do too little to=20
restrain the price of natural gas.
?????He called the FERC policy an "experiment" that is using California and=
=20
other Western states as subjects.
?????Similarly, Rep. Nancy Pelosi (D-San Francisco) said: "Although the FER=
C=20
decision [Monday] is a step in the right direction, I am concerned it does=
=20
not remove incentives for energy suppliers to withhold power, drive up pric=
es=20
and gouge consumers."
?????The commission went as far as it did in part because of the specter of=
=20
broader price control legislation, Pelosi said. "They felt the heat, they s=
aw=20
the amendments coming and decided to act."
?????And Rep. Bob Filner (D-San Diego), in an interview Tuesday, said he wi=
ll=20
press ahead with legislation to impose hard price caps. "I would advise the=
=20
senators that after a year of dealing with these price gougers that they wi=
ll=20
easily manipulate this latest order," he said, calling it a "Swiss cheese=
=20
order--full of holes."=20
?????Feinstein's shift put House Democrats in an awkward political position=
=20
because it came just as they prepared to make their big push for tougher=20
controls. But the Democrats tried to minimize the differences in legislativ=
e=20
strategy.
?????"She too is waiting to see if the FERC experiment works," Waxman said.=
=20
"I'm a little more skeptical, but we're both watching carefully."
?????As a political matter, a Democratic leadership aide acknowledged, the=
=20
FERC order muddies the debate at a time when Democrats have been working ha=
rd=20
to make it a defining issue--and one they had hoped would help them win=20
control of the House in the 2002 elections.
?????"It's hard to describe to people what the difference is between what w=
e=20
want and what FERC has done," said the aide.
?????And Republicans said FERC's action had clearly taken the wind out of t=
he=20
sails of price control efforts that some GOP strategists feared might have=
=20
passed the House.
?????"I would have thought [it would pass] last week," said John Feehery,=
=20
spokesman for House Speaker J. Dennis Hastert (R-Ill.). "But now, with what=
=20
FERC did, it takes a lot of air out of the balloon."
?????"I think the FERC action will dissipate that strong push," agreed Emil=
y=20
Miller, a spokeswoman for House Majority Whip Tom DeLay (R-Texas). "It will=
=20
take the heat off."
?????House Majority Leader Dick Armey (R-Texas) said the message to Democra=
ts=20
was, "It's time to come off your political high horse."
?????He said he wanted to keep Democrats from offering their price control=
=20
amendment to Wednesday's supplemental appropriation bill because the propos=
al=20
is "a political statement, not a policy statement."
---=20
?????Times staff writers Megan Garvey and Richard Simon contributed to this=
=20
story.

Copyright 2001 Los Angeles Times=20








Plan Won't Raise Rates, Davis Says=20
Edison: Governor seeks to assure Senate, where Democrats say action is a=20
bailout of nearly bankrupt utility.=20

By CARL INGRAM, Times Staff Writer=20

?????SACRAMENTO--Gov. Gray Davis sought to assure the state Senate on Tuesd=
ay=20
that his plan to save Southern California Edison from threatened financial=
=20
collapse would work without increasing customer rates.
?????Davis sent assurances to the Senate Energy Committee through his top=
=20
attorney, Barry Goode, who helped negotiate the controversial proposal with=
=20
the utility.
?????Senate Republicans have taken a wait-and-see attitude on the plan. But=
=20
they generally contend that the business of utilities belongs in the hands =
of=20
private enterprise.
?????But Democrats in both houses have charged that the deal between Democr=
at=20
Davis and Edison represents a state bailout of the nearly bankrupt=20
Rosemead-based utility. The analysis is shared by leading consumer activist=
s.
?????At the first in a series of Senate hearings on the package, which is=
=20
considered all but dead in its current form, Sen. Byron Sher (D-Palo Alto)=
=20
voiced concerns about political problems with the plan.
?????He asked Goode, who was flanked at a witness table by Edison executive=
s,=20
whether monthly bills of the utility's customers would increase as a=20
consequence of approval of the governor's package.
?????"Our models say there will be no additional impact on the ratepayers,"=
=20
Goode replied.
?????Other members appeared ready to pursue rate increase questions, but=20
Chairwoman Debra Bowen (D-Marina del Rey) cut them short. She said the issu=
e=20
would be fully examined at a later hearing.
?????To spare Edison from going into bankruptcy and to restore its=20
credit-worthiness, Davis and executives of the utility reached a complex=20
compromise in April, the centerpiece of which was a state purchase of=20
Edison's transmission grid for about $2.8 billion, more than twice its book=
=20
value.
?????Edison has estimated that it owes $3.5 billion to creditors, including=
=20
wholesale power generators, as a result of deregulation of retail electrici=
ty=20
prices in 1996.
?????Because of a freeze in retail rates, Edison was prohibited from passin=
g=20
its energy costs to customers.
?????Other features of the deal include dedicating a portion of consumer=20
rates to help pay off the debt, a guaranteed 11.6% rate of return to Edison=
=20
on its sales and investments, and termination of an ongoing Public Utilitie=
s=20
Commission investigation into financial dealings of Edison's parent company=
,=20
Edison International.
?????The energy committee held the hearing for fact-finding purposes and di=
d=20
not consider the Edison bill, SB 78x by Sen. Richard Polanco (D-Los Angeles=
).
?????But the Davis-Edison deal has angered consumer activists, who contende=
d=20
that bankruptcy for Edison would be preferable.
?????They deplored it as a bailout that would cost Edison customers $5=20
billion to $7 billion.
?????"If the Legislature makes the mistake of forcing the ratepayers of=20
California to pay one more penny to bail out these companies, we will put [=
an=20
initiative] right on the ballot," said Harvey Rosenfield of the Foundation=
=20
for Taxpayer and Consumer Rights.
?????Consumer organizations in 1998 put to the voters an initiative to junk=
=20
the 1996 deregulation law. The measure failed.
?????Rosenfield, Harry Snyder of Consumers Union and Matt Freedman of the=
=20
Utility Reform Network all asserted at a news conference that the Davis=20
rescue program should be killed.
?????Snyder, who opposed deregulation, said the governor's bill is shaping =
up=20
as a replay of 1996.
?????"It's too big, too complicated. . . . This is the same process that=20
brought about this [deregulation] disaster," Snyder said.
?????Separately, San Diego Gas & Electric agreed Monday to sell its=20
transmission grid to the state for about $1 billion on the same terms as=20
Edison.
?????With all the controversy surrounding the Edison deal, the chance of=20
SDG&E winning legislative approval of its sale is slightly better than 50%,=
=20
said Stephen L. Baum, chief executive of Sempra Energy, parent of SDG&E.
?????"I think there's a widely shared view in the Legislature that they don=
't=20
want the state in the long-term business of power procurement. . . . In ord=
er=20
to get Edison back into that business there has to be this infusion of=20
capital" to pay off past electricity debts and make the utility=20
credit-worthy, Baum said.
---=20
?????Times staff writer Nancy Rivera Brooks contributed to this story.

Copyright 2001 Los Angeles Times=20







State to Pay Electric Bill With Loan, Not Taxes=20


By MIGUEL BUSTILLO, Times Staff Writer=20

?????SACRAMENTO--California taxpayers, who have had to bankroll billions of=
=20
dollars in electricity purchases for the teetering power utilities, will so=
on=20
no longer see their money evaporate at record rates, under an executive ord=
er=20
by Gov. Gray Davis.
?????As early as next week, the order will stop the hemorrhaging of the sta=
te=20
budget by allowing Treasurer Phil Angelides to borrow $5 billion to buy=20
electricity. That money is expected to cover power purchases until this fal=
l,=20
when the state plans to sell an unprecedented $12.5 billion in bonds to rep=
ay=20
the general tax fund and buy future electricity.
?????Angelides said Tuesday that he has already lined up $3.5 billion in=20
loans from two Wall Street firms, and expects to secure at least another=20
billion by next week, when he plans to close the deal and obtain the money.
?????The loan is critical, he said, because without it, electricity purchas=
es=20
would completely deplete state coffers as early as October.
?????"In essence, it stops the general-fund bleeding," Angelides said. "Wha=
t=20
this interim financing does is take the pressure off the general fund and,=
=20
hopefully, avert a cash crisis."
?????The loan could also ease concerns on Wall Street that California's ris=
ky=20
entry into the power business has placed the state budget in a precarious=
=20
position. Those concerns were one of the main reasons two major credit rati=
ng=20
agencies downgraded the state earlier this year.
?????"We have been looking forward to this day," said Ray Murphy, a vice=20
president at Moody's Investors Service, one of the two firms that downgrade=
d=20
California's credit rating. "We view this as a positive first step toward=
=20
getting the state out of the power business. We wanted the state to get the=
=20
general fund out of the business as quickly as possible."
?????California has allocated $8.2 billion in taxpayer money for electricit=
y=20
since January because the state's private utilities became too saddled with=
=20
debt to continue purchasing power on the open market. and massive blackouts=
=20
loomed.
?????Under a plan devised by Davis and approved by the Legislature, the sta=
te=20
budget is supposed to be reimbursed for the power purchases with the bond=
=20
issue, the largest in American history. The bonds, in turn, are to be paid=
=20
off by utility ratepayers through their monthly bills.
?????The bond issue, however, has been delayed by partisan politics and=20
complex legal issues raised by the bankruptcy of Pacific Gas & Electric Co.=
,=20
the state's largest private utility.
?????A bond sale initially planned for May is now scheduled for late=20
September, according to Angelides' latest estimate. The state's Public=20
Utilities Commission still needs to take a number of technical actions befo=
re=20
the sale can take place.
?????As a result, the state budget has been drained for power purchases far=
=20
longer than initially anticipated--a situation that has imperiled spending =
on=20
education, transportation and other critical needs, at least temporarily.
?????Angelides had earlier sought to secure a $4-billion bridge loan to rep=
ay=20
the state budget for power purchases until the bonds were sold, but was=20
rebuffed by Republicans in the Legislature, who argued that the loan was no=
t=20
necessary.
?????Davis' executive order, issued late Monday as part of the Democratic=
=20
governor's emergency powers during the energy crisis, gives Angelides the=
=20
authority to press ahead.
?????But it does not allow the treasurer to use the loan to repay the budge=
t=20
for the billions spent so far this year on electricity, as he had originall=
y=20
intended. Rather, it permits Angelides to use the loan proceeds to assist t=
he=20
Department of Water Resources, the state agency buying power, with its futu=
re=20
electricity expenses.
?????If the bond issue is further delayed, Angelides estimated, the loan=20
would gives California another four to six months before it would begin to=
=20
run out of money. Furthermore, the loan closes a potential loophole that=20
existed in the long-term contracts Davis had signed to stabilize the cost o=
f=20
electricity, which would have let power suppliers walk away from the deals =
if=20
the state had not secured a source of financing by next month.
?????But Republicans warned that by entering into a bridge loan deal withou=
t=20
knowing when the bonds would be sold, Davis and the Democrats were incurrin=
g=20
major risks that could further drive up the price tag of the crisis.
?????The loan carries a blended interest rate of about 4.5%, but if it is n=
ot=20
repaid by Oct. 31, the rate jumps to 7%. Because the loan is to be repaid b=
y=20
the bonds, which have been marred by a history of delay, GOP officials=20
Tuesday were already calling the bridge loan a "bridge to nowhere."
?????"The thing that is most troubling is that the governor did not bother =
to=20
consult with anyone," said Assembly Republican leader Dave Cox (R-Fair Oaks=
),=20
who learned of Davis' order from reporters. "It's disappointing, but the=20
governor does not seem to recognize there is a legislative branch."

Copyright 2001 Los Angeles Times=20







Edison Unveils Blackout Warning Plan=20
Technology: The utility will notify customers by Internet and telephone whe=
n=20
power might go out.=20

By DANIEL HERNANDEZ, Times Staff Writer

?????Southern California Edison on Tuesday unveiled a system that will=20
forecast coming blackouts over the Internet and by telephone.=20
?????Ordered by the state to create a warning system for customers as=20
California enters a summer that will almost certainly include rotating=20
blackouts, Edison is also preparing to use automatic phone calls, faxes and=
=20
wireless communications to alert subscribers to outages.=20
?????With these steps, Edison is complying with an order by the state Publi=
c=20
Utilities Commission, which in April told the company to notify customers o=
f=20
coming outages. Privately held Pacific Gas and Electric Co. established a=
=20
similar program months ago.=20
?????Edison previously opposed a notification system, arguing that such a=
=20
system could incite looters and burglars. But police agencies, including th=
e=20
Los Angeles County Sheriff's Department, saw more danger in not warning=20
customers, said Richard Rosenblum, an Edison senior vice president.
?????"On balance, [we concluded] it was preferable for public safety to mak=
e=20
that information available," Rosenblum said.
?????Consumer advocates said Edison's notification system is welcome, if=20
tardy.
?????"It's fair to say that Edison has been a little behind where PG&E has=
=20
been in trying to implement this," said Mike Florio, an attorney with the=
=20
Utility Reform Network and a member of the California Independent System=20
Operator board, which runs the state power grid.
?????Edison's Web site, www.sce.com, now features a pop-up screen that warn=
s=20
of any blackouts coming in the next hour. It also links to a page, which ca=
n=20
be reached at www.outagewatch.com, that forecasts which "outage groups" wil=
l=20
be cut off next in the event of rotating blackouts. Detailed maps outline=
=20
which areas are included in each group.=20
?????The new Web features are expected to handle about 4 million simultaneo=
us=20
users. Beginning this month, Edison customers also can learn their block=20
number by looking at their bills, said Edison spokesman Gil Alexander.
?????Outage information also will be made available on an automated phone=
=20
line, (800) 611-1911.
?????Edison officials are negotiating with another company to provide=20
additional warnings by e-mail, fax, phone and wireless communications. SDG&=
E,=20
which like Edison was required to inform customers of outage forecasts, has=
=20
moved more quickly, providing large industrial customers with blackout=20
notification via pager since June 4.
?????Up-to-the-minute outage reports also will be provided in several=20
languages to radio and TV stations, Edison officials said.
?????Edison officials emphasized that the new alert system can never be 100=
%=20
accurate, and that sudden blackouts, although rare, are always a possibilit=
y.=20
?????"We have planned as aggressively as we think is warranted, understandi=
ng=20
that you can't predict how your customers will respond," Alexander said.

Copyright 2001 Los Angeles Times=20







State Joins Challenge to Bush on Air-Conditioner Standards=20
Regulations: U.S. rolled back Clinton rule from 30% increase in efficiency =
to=20
20% on manufacturers' urging.=20

By JENIFER WARREN, Times Staff Writer=20

?????California and two other states joined environmentalists Tuesday in=20
suing the Bush administration over its decision to weaken efficiency=20
standards for home air conditioners.
?????The lawsuit caps weeks of criticism heaped on the administration after=
=20
it rolled back a rule requiring manufacturers to increase the efficiency of=
=20
air conditioners 30% by 2006.
?????That rule was adopted by President Clinton during his final days in=20
office and after years of research and debate. California and other=20
states--including Texas--endorsed it as a way to substantially cut energy u=
se=20
and improve air quality.
?????But after reviewing the rule at the industry's behest, Bush=20
administration officials in April sliced the mandated increase to 20%. The=
=20
higher standard, they said, would have made home coolers too expensive,=20
especially for the poor.
?????Conservationists and consumer groups blasted the policy change, callin=
g=20
it shortsighted at a time when California and other states are enduring an=
=20
energy crunch.
?????In California, residential air-conditioning accounts for about 15% of=
=20
the peak energy demand. Weakening efficiency standards, critics say, will=
=20
require as many as 60 new power plants nationwide, four in California.
?????"This is a time when we need to conserve electricity and reduce our=20
dependence on the large energy generators and importers," state Atty. Gen.=
=20
Bill Lockyer said in an interview. "Weakening this standard is precisely th=
e=20
wrong message at precisely the wrong time."
?????In their lawsuit, Lockyer and the attorneys general of New York and=20
Connecticut allege that federal law bars the U.S. Department of Energy from=
=20
softening an appliance efficiency standard. A separate but similar suit was=
=20
filed by the Natural Resources Defense Council, the Consumer Federation of=
=20
America and another nonprofit group.
?????Joe Davis, the Energy Department's deputy spokesman, said there would =
be=20
no immediate comment on the suit, filed in federal court in Manhattan. He=
=20
added, however, that "we believe all of the actions of our decision-making =
in=20
the air conditioner standards are well within the law."
?????When Clinton's rule was issued in January, his outgoing energy=20
secretary, Bill Richardson, said the payoff in power savings and cleaner ai=
r=20
would be one of the administration's greatest environmental achievements.
?????But a trade association representing air conditioner manufacturers=20
challenged the new rule, arguing that it would dramatically increase costs =
of=20
the units--priced between $2,000 and $4,000--and thus discourage people fro=
m=20
replacing old ones.
?????The Department of Energy sided with the industry group in April.=20
Officials said Clinton's proposal would have added $335 to the price of a n=
ew=20
air conditioner, while the lower, 20% standard would boost prices only abou=
t=20
$213.
?????Others, however, say those figures do not take into account the=20
economies of scale gained when manufacturers increase production of the mor=
e=20
efficient units. When Congress passed the first efficiency standard for air=
=20
conditioners in the late 1980s, "industry said the sky was falling, and tha=
t=20
it would increase the cost of air conditioners by $700," said Andrew Delask=
i,=20
executive director of the nonprofit Appliance Standards Awareness Project. =
In=20
fact, he said, U.S. Department of Commerce data showed no price jump.
?????Dan Reicher, the assistant secretary of Energy under Clinton who overs=
aw=20
development of the stricter standards, added that high-efficiency air=20
conditioners "are not some exotic, untested technology."
?????"There are lots and lots of air conditioners already meeting the=20
standards--between 5% and 10% of the units sold today," he said.
?????Although most manufacturers support the Bush rollback, the second=20
largest maker of air conditioners--Houston-based Goodman Global Holding,=20
which produces the Amana brand--opposes it, saying any higher upfront costs=
=20
would be recovered by consumers in lower utility bills.
?????On Tuesday, the company's president, John Goodman, issued a statement=
=20
supporting the lawsuit, saying the tougher standard would "give consumers a=
n=20
enormous cost saving, U.S. energy consumption will drop and our environment=
=20
will benefit from reduced air pollutant emissions and greenhouse gases."
---=20
?????Times staff writer James Gerstenzang in Washington contributed to this=
=20
story.

Copyright 2001 Los Angeles Times=20







New Price Caps Not a Deterrent, Power Firms Say=20
Regulation: Producers are unhappy with the federal action but say it is=20
unlikely to discourage them from constructing new plants.=20

By NANCY VOGEL and THOMAS S. MULLIGAN, Times Staff Writers=20

?????The expanded electricity price limits approved by federal regulators=
=20
could squeeze big energy traders but will probably not discourage power pla=
nt=20
construction in California, electricity producers said Tuesday.
?????Power plant owners and marketers said they had not had time to digest=
=20
the 53-page order and thus could not say exactly how it would affect=20
California and the 10 other Western states it covers.
?????But the companies generally asserted Tuesday that the order would not=
=20
deter them from investing in the vast, power-starved Western region--though=
=20
they have often raised such a prospect in arguing against price controls.
?????Whatever its long-term effects, Monday's order by the Federal Energy=
=20
Regulatory Commission appeared to have an immediate effect in dampening=20
prices in California's volatile daily, or spot, market.
?????The order does not take effect until today, but the prospect of new=20
measures aimed at limiting prices appeared to tame markets Tuesday.=20
Californians used more electricity at the late-afternoon peak than on any d=
ay=20
this year, yet market prices hovered around $100 a megawatt-hour.
?????That is well below the average of $284 a megawatt-hour that the state=
=20
paid for electricity from January through April, with prices soaring as hig=
h=20
as $1,900 at times of tight supply.
?????"All the markets in the West have come down," said Mike Wilczek, senio=
r=20
power markets reporter for Platts, the energy market information division o=
f=20
the McGraw-Hill Cos. "It's bearish news."
?????Nevertheless, several generators minimized the effects of the FERC=20
order, contradicting earlier warnings from some industry sources and=20
officials of the Bush administration who consider price limits to be=20
impediments to future investment in power plants.
?????"Calpine will have no problem operating under this order," said Joe=20
Ronan, vice president of regulatory affairs for San Jose-based Calpine Corp=
.,=20
which has three power plants under construction in California and plans to=
=20
build at least three others.
?????The federal order lasts only until September 2002, he said, and becaus=
e=20
it sets prices based on the cost of running the most expensive, inefficient=
=20
power plant in the market, it should guarantee the owners of modern plants =
a=20
profit.
?????Another company planning major investments in California, Duke Energy=
=20
Corp. of North Carolina, said it will not be seriously affected by the=20
federal order because it has sold the output of its four California plants=
=20
well into the future.
?????"We've already forward-sold 90% of our generation for 2001 and 70% for=
=20
2002," company spokesman Pat Mullen said.
?????Reliant Energy Inc. of Houston, which owns five power plants in=20
California, was not so sanguine about the federal order, but it has not=20
backed away from plans to install more generators.
?????"We remain committed to California, as hard as it is to do business he=
re=20
today," spokesman Richard Wheatley said. "We have plans that are on the=20
drawing boards for at least one, possibly two projects."
?????On Monday, Reliant Chief Executive Joe Bob Perkins called the FERC=20
action "more of a political response" than an acknowledgment of the gap=20
between electricity supply and demand in California.
?????"Price caps don't work," Perkins said, and he warned California=20
consumers against assuming that the energy crisis is over simply because=20
wholesale electricity prices have recently dropped to their lowest levels i=
n=20
a year.
?????Prices are falling because of mild weather, not price controls, he sai=
d.
?????"Without sound economics that increase available supply and reduce pea=
k=20
demand . . . consumers can only hope for favorable weather and look forward=
=20
to [rolling blackouts]," Perkins said.
?????Energy analyst Frederick Schultz of Raymond James & Associates in=20
Houston called the FERC order "a nonevent to the California generators"=20
because so much of their power is now being sold through long-term contract=
s.
?????However, every long-term deal reduces the size of the electricity=20
market, which supplies about 20% of California's needs. And that, in turn,=
=20
limits trading opportunities for such firms as Enron Corp., which profit on=
=20
the daily market's ups and downs, Schultz said.
?????Enron representatives did not respond to calls for comment.
?????The federal order imposes round-the-clock price curbs on wholesale=20
electricity sold in 11 Western states that are connected by transmission=20
grids.
?????Under the order, traders say, market prices will probably hover around=
=20
$100 a megawatt-hour, depending upon the price of the natural gas that fuel=
s=20
most of the state's electric generating plants. Though that is well below=
=20
recent market prices, it is higher than the average of about $32 a=20
megawatt-hour that California utilities paid in 1999, before the state's=20
deregulated market spiraled out of control.
?????The FERC order dictates that the price for spot market electricity=20
across the West will be based on the cost of producing one megawatt-hour of=
=20
power at the least-efficient plant selling to California grid operators. Ma=
y=20
31, when a previous FERC order based on a similar formula took effect, the=
=20
price set was $127 a megawatt-hour.
---=20
?????Vogel reported from Sacramento, Mulligan from New York.

Copyright 2001 Los Angeles Times=20








Wednesday, June 20, 2001=20
The FERC's Action Is Good, Bad,Ugly=20
By PETER NAVARRO


?????The Federal Energy Regulatory Commission's new wholesale price caps wi=
ll=20
save the Western states literally tens of billions of dollars in electricit=
y=20
bills. As wonderful as that sounds, the FERC order still allows wholesale=
=20
generators to extract enough windfall profits to drive the region into=20
recession.=20
?????The FERC's approach may also perversely lead to more air pollution and=
=20
natural gas shortages.=20
?????Let's look at what the FERC did right. First, the order approved Monda=
y=20
establishes price caps on a 24/7 basis rather than simply during power=20
emergencies--a long overdue reform.=20
?????Second, the order protects the entire West, not just California. This=
=20
regional cap will end "megawatt laundering," whereby in-state generators so=
ld=20
power across California lines and then resold it back into the state to eva=
de=20
caps.=20
?????Third, the order closes the ridiculous broker loophole that made the=
=20
FERC's previous price caps Swiss cheese. Before, generators could redirect=
=20
their sales from the market to energy brokers who were exempt from the pric=
e=20
caps.=20
?????So where did the FERC go wrong? The problem may be traced to the two=
=20
competing methods of imposing price caps and the all-important concept of=
=20
"economic rent."=20
?????Economic rent, in the wholesale electricity market, is the market pric=
e=20
of electricity minus the producer's cost, where cost includes not just labo=
r=20
and fuel but a "fair profit" on the invested capital as well. In traditiona=
l=20
regulation, this fair profit is calculated very simply as the market cost o=
f=20
the money borrowed to build the power plant.=20
?????Under this definition, if the producer's cost is a nickel a kilowatt=
=20
hour and he can sell it for 35 cents--as producers in the West have been=20
doing--the producer can extract 30 cents of economic rent from consumers.=
=20
?????In California, the extraction of such economic rent through market=20
manipulation has taken place on a grand-theft scale. In 1999, California's=
=20
electricity bill was about $7 billion. Last year, it was almost $30 billion=
=20
for roughly the same amount of electricity. This year, California's bill is=
=20
well on its way to $50 billion annually.=20
?????To stop this rip-off, Gov. Gray Davis proposed "cost-based" price caps=
.=20
Such caps are calculated on a plant-specific basis. Each generator is allow=
ed=20
to recover its cost of production, including the fair profit, but not a pen=
ny=20
more.=20
?????Thus, for example, a newer, highly efficient plant generating power at=
 a=20
nickel per kilowatt hour would collect a nickel. The oldest, least efficien=
t=20
plant that generated power for 20 cents would be allowed to collect 20 cent=
s.=20
?????By setting different prices for different plants, the economic rents a=
re=20
driven to zero. Yet each generator still has a fair profit incentive to=20
produce. From a public policy perspective, it's the best of all possible=20
worlds. And it was categorically rejected by the FERC. Instead, the FERC se=
ts=20
a single price for all generators based on the cost of the "least efficient=
=20
plant."=20
?????The obvious problem with this umbrella pricing rule is that it still=
=20
allows generators to extract billions in economic rent from consumers.=20
?????In our previous example, and under the FERC's rule, the least efficien=
t=20
plant still collects 20 cents a unit to recover costs. However, the most=20
efficient plant producing power at a nickel-per-kilowatt also collects 20=
=20
cents rather than a nickel and thus extracts a full 15 cents of economic=20
rent.=20
?????Thus, under the FERC's rule, wholesale generators still will be able t=
o=20
capture tens of billions of dollars more from consumers and businesses than=
=20
under Davis' cost-based rule.=20
?????The FERC's approach is still subject to the same kind of strategic=20
gaming that has been the hallmark of this crisis. Generators will ensure th=
at=20
during peak times, when the price cap is being established, the most=20
expensive possible plant is in operation--whether it needs to be or not. Th=
is=20
will peg the price at the highest level.=20
?????In addition, the FERC provides generators with a perverse incentive to=
=20
run their least efficient units more often. Since these least efficient=20
plants are also the highest polluting, the result will be dirtier air.=20
Moreover, the excessive running of these plants may also put a strain on=20
already stretched natural gas supplies. These least efficient plants use up=
=20
to 40% more natural gas to produce a unit of electricity.=20
?????The bottom line: The FERC "done good." But it could have done a lot=20
better. And the way things stand now, there still is a danger that higher=
=20
electricity costs could push California and the rest of the West--and=20
eventually the nation--into a nasty recession.=20
- - -

Peter Navarro Is an Associate Professor of Economics and Public Policy at U=
c=20
Irvine. E-mail: Pnavarro@uci.edu

Copyright 2001 Los Angeles Times=20






Davis OKs stopgap loan=20
CRISIS POWERS: Action sidesteps Legislature=20
Greg Lucas, Sacramento Bureau Chief
Wednesday, June 20, 2001=20
,2001 San Francisco Chronicle=20
URL: http://www.sfgate.com/cgi-bin/article.cgi?f=3D/c/a/2001/06/20/MN173816=
.DTL=20
Circumventing the Legislature, Gov. Gray Davis used his emergency powers=20
yesterday to authorize borrowing up to $5 billion for energy purchases in=
=20
advance of a record bond issue.=20
Sidestepping the Legislature with a stroke of the pen, Davis' action=20
indicates that the state may need more time to prepare a $12.5 billion bond=
=20
issue this fall, the largest sale of its kind in history.=20
The Democratic governor's action was swiftly assailed by the Republican=20
leadership.=20
"This is not a dictatorship. It's a democracy," said Assembly GOP leader Da=
ve=20
Cox of Carmichael. "There is a judiciary, a legislative side and an executi=
ve=20
side, and everyone has roles and responsibilities. Yet we continue to have=
=20
the governor say, 'I'm the only one around here that makes any difference.=
=20
The rest of you shall do my bidding.' "=20
Normally, it is the Legislature that has the power to raise and spend money=
,=20
and a governor may not spend a cent unless lawmakers allow him to.=20
But Davis has broad powers under the state of emergency, which he declared =
in=20
January to combat California's energy crisis.=20
NO ADVANCE NOTICE
The governor's aides declined to comment on yesterday's executive order and=
=20
gave no advance notice of it.=20
"This executive order, authorizing a bridge loan, will allow us to get=20
California's General Fund out of the power-buying business," was the=20
governor's only comment in a written statement issued last night.=20
State Treasurer Phil Angelides said lawyers had advised him and the governo=
r=20
that such borrowing could be authorized by an executive order.=20
The loan from Wall Street will temporarily fill the $5.2 billion -- and=20
growing -- hole in the state budget created when the state began buying=20
electricity on behalf of the state's cash-starved utilities in January.=20
The idea is to tide the state over until a larger bond sale of $12.5 billio=
n=20
can be arranged later this year. A portion of that sale will pay back the=
=20
$5.2 billion borrowed from Wall Street.=20
'STOPS THE BLEEDING'=20
"It stops the general fund bleeding," said Angelides. "It takes the pressur=
e=20
off, and hopefully we'll avert a cash crisis."=20
The state runs out of internal borrowing power sometime in October. Angelid=
es=20
said the loan would buy the state another four to six months.=20
The idea of a loan was floated earlier this year.=20
Cox and other GOP lawmakers objected, wondering why the state should pay=20
interest on borrowed money when it could still borrow from various accounts=
=20
within the state budget.=20
They refused to vote for a bill authorizing the larger bond sale of $12.5=
=20
billion, forcing a delay in issuing it until at least Aug. 14.=20
The idea of borrowing from Wall Street appears to have been abandoned, sinc=
e=20
both Davis administration and legislative budget-writers said the state cou=
ld=20
keep borrowing internally into October, well after the bond sale.=20
Yesterday's executive order authorizing the borrowing suggests that neither=
=20
Angelides nor Davis are confident that the steps needed to prepare the $12.=
5=20
billion bond issue for market can be completed before then.=20
Angelides had previously said he hoped to sell the bonds in early September=
.=20
Yesterday, he said the governor's "hope is to still sell long-term bonds by=
=20
Sept. 30."=20
ACT OF DESPERATION?
Sen. Tom McClintock, R-Northridge, described the executive order as an act =
of=20
desperation that "would suggest they are expecting the large bond sale to=
=20
occur later rather than sooner.'=20
Numerous actions must be completed before the bond sale.=20
Among them are the approval by the Public Utilities Commission of several=
=20
deals with the state and utilities, to ensure that enough money from=20
consumers flows back to bond buyers to pay off interest and principal.=20
Although Davis' executive order authorizes $5 billion in loans, Angelides h=
as=20
only lined up $3.5 billion.=20
So far, only two lenders have come forward to offer the state a loan, J.P=
=20
Morgan with $2.5 billion and Lehman Brothers with $1 billion, at an interes=
t=20
rate of 4.5 percent. If the long-term bonds are not sold by Oct. 31, that=
=20
will increase to 7 percent.=20
Angelides said he hoped to line up another $1 billion by next week, when th=
e=20
loan deal occurs.=20
Assuming a loan of $4.5 billion, Angelides said the state would pay out $8=
=20
million in fees.=20
E-mail Greg Lucas at glucas@sfchronicle.com.=20
,2001 San Francisco Chronicle ? Page?A - 1=20




Experts say state must seize the day=20
ANALYSIS: Price caps set stage for future=20
David Lazarus, Chronicle Staff Writer
Wednesday, June 20, 2001=20
,2001 San Francisco Chronicle=20
URL: http://www.sfgate.com/cgi-bin/article.cgi?f=3D/c/a/2001/06/20/MN58963.=
DTL=20
One day after federal authorities ordered long-sought electricity price cap=
s=20
throughout the West, analysts said yesterday it is up to California to=20
respond with measures to bring an end to the state's long, frustrating=20
experiment with deregulation.=20
Possible steps the experts point to include raising power bills, easing=20
pollution controls and spending billions of dollars in taxpayers' money on=
=20
new plants.=20
"Gov. (Gray) Davis and his team have been making this up week by week," sai=
d=20
Paul Joskow, director of the Center for Energy and Environmental Policy=20
Research at the Massachusetts Institute of Technology.=20
"It's time for them to get together with the Federal Energy Regulatory=20
Commission (FERC) to come up with some solutions," he said. "The state need=
s=20
to get down to business and decide how the power market is going to look 18=
=20
months from now."=20
Easier said than done. To date, California's strategy for tackling its ener=
gy=20
woes largely has consisted of wheedling, cajoling and all but begging feder=
al=20
officials to come to the rescue.=20
Now that the federal regulators have gone much of the way toward granting t=
he=20
state's wishes, analysts said Davis and other officials must act swiftly an=
d=20
decisively to further remedy California's prolonged power troubles.=20
For his part, however, the governor feels that federal regulators have not=
=20
done enough. He will push today during congressional hearings in Washington=
=20
for billions of dollars in refunds for California ratepayers.=20
"FERC has taken some first steps, but the proverbial fat lady hasn't sung,"=
=20
said Steve Maviglio, a spokesman for Davis.=20
This persistent focus on federal assistance could slow progress toward a=20
lasting solution to California's problems, some analysts believe.=20
"We are still likely to experience blackouts this summer," said Michael=20
Zenker, director of Cambridge Energy Research Associates in Oakland. "It's=
=20
not yet clear that the state will do what it can to address other aspects o=
f=20
the problem."=20
Put simply, such steps would require enormous political courage -- and woul=
d=20
be very expensive. In the end, taxpayers and ratepayers will bear the burde=
n=20
for this prolonged fiasco.=20
Among measures under consideration:=20
-- Raising electricity rates even higher. Although Californians got the=20
largest rate increase in state history last month, even higher charges woul=
d=20
promote conservation and lessen the need for California to borrow billions =
of=20
dollars in the bond market.=20
-- Loosening emissions restrictions for power plants statewide. This would=
=20
provide more electricity during shortages but turn back the clock on=20
California's strict environmental standards.=20
-- Building new plants at taxpayers' expense. This would guarantee a steady=
=20
supply of juice but would leave the state struggling for years to recoup th=
e=20
huge investment costs.=20
Of the three, easing pollution controls is the easiest first step and the=
=20
most likely, analysts said. Such environmental protections have been roundl=
y=20
criticized by power industry officials who claim the restrictions have=20
hampered the construction of new generating plants.=20
Taxpayer-financed power plants are possible under a new state power authori=
ty=20
backed by the governor, but the timing and financing remain undecided.=20
Higher electricity rates could be the toughest move to make, analysts agree=
.=20
They note that Davis will seek re-election next year and doesn't want to be=
=20
seen as the governor who sent voters' power bills into the stratosphere.=20
Already, critics are trying to paint him as the governor who was asleep at=
=20
the power switch.=20
As federal regulators were moving at last on the price-cap front this week,=
=20
another big development took place closer to home Monday when Davis disclos=
ed=20
a tentative deal with Sempra Energy's San Diego Gas & Electric Co. The plan=
=20
calls for the state to purchase the utility's 1,800 miles of power lines fo=
r=20
nearly $1 billion.=20
As with a similar accord reached with Southern California Edison, the Sempr=
a=20
deal is intended to counter the catastrophic effects of California having=
=20
deregulated wholesale power prices but not allowing the state's utilities t=
o=20
pass on costs to customers.=20
Between them, California's three major utilities have rung up more than $15=
=20
billion in debt.=20
Here, too, the state appears unsure how to proceed. Both the Sempra and=20
Edison agreements require approval from the Legislature. It's anyone's gues=
s=20
whether such approval is forthcoming.=20
"It's going to be a really, really tough sell," said Nettie Hoge, executive=
=20
director of The Utility Reform Network in San Francisco. "These aren't=20
fabulous deals."=20
ONE SCENARIO FOR UTILITIES
Rather, she believes the agreements will be reworked so that less taxpayer=
=20
money changes hands while allowing the utilities to retain possession of=20
their power systems.=20
Hoge said this could subsequently influence a speedy resolution of Pacific=
=20
Gas and Electric Co.'s bankruptcy proceedings. If it can avoid selling off=
=20
key assets like power lines, PG&E may be more open to any settlement plans=
=20
put forward by the state.=20
"The utilities are all going to end up with similar deals," Hoge forecast.=
=20
State Senate President Pro Tem John Burton, D-San Francisco, isn't so sure.=
=20
He observed that the Edison deal hinges on a sale of the utility's power=20
lines to the state, while the Sempra accord could stand even without such a=
=20
transaction.=20
"The two deals are totally unrelated," Burton said, adding that approval of=
=20
the Edison accord is "very much in flux." A bankruptcy filing by the state'=
s=20
second-largest utility remains a distinct possibility, he said.=20
This would only increase the importance of price caps in bringing some=20
stability back to California's power market.=20
While the state's current rate freeze will continue cushioning consumers fr=
om=20
the volatility of wholesale electricity prices, the caps -- or "price=20
mitigation," as federal regulators are calling it -- will limit the amount=
=20
that power generators can charge on the open market.=20
SYSTEM HAS FLAWS
It is not a perfect system: Power companies can base prices on the cost of=
=20
running the least-efficient -- and thus costliest -- generating facility. B=
ut=20
this amount almost certainly will be below some of the more outrageous pric=
es=20
seen when the sky was the limit.=20
On at least one occasion this year, California's wholesale power price topp=
ed=20
$3,000 per megawatt hour, compared with just $30 about a year ago.=20
"This is a plan that is good for California, good for the Pacific Northwest=
=20
and good for the entire West," said FERC Chairman Curt Hebert.=20
That remains to be seen. As it stands, the price caps will remain in effect=
=20
through next summer.=20
E-mail David Lazarus at dlazarus@sfchronicle.com.=20
,2001 San Francisco Chronicle ? Page?A - 1=20




California's energy crisis hits Northwest like a tidal wave=20
Jeff Hammarlund
Wednesday, June 20, 2001=20
,2001 San Francisco Chronicle=20
URL:=20
http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/06=
/20/E
D165509.DTL=20
THERE WAS a time when many Northwesterners thought we could watch=20
California's energy crisis from a safe distance.=20
We have since learned that a major energy crisis does not stop at the Golde=
n=20
State's borders but, instead, rolls over the Northwest like a tidal wave,=
=20
wreaking havoc with our economy and overwhelming our carefully crafted ener=
gy=20
policies.=20
As one Northwest utility official put it, "We learned that everyone else is=
=20
the tail. California is the dog."=20
To understand why the Northwest is now facing its own energy crisis and how=
=20
the energy problems in the Northwest and California each affect each other,=
=20
one must understand how the Northwest gets its power.=20
In the Northwest, falling water is our primary fuel. Depending on the=20
available snowpack, hydroelectricity produced at more than 200 dams in the=
=20
Columbia River basin generates between 60 and 75 percent of the region's=20
electricity. About two-thirds of this hydropower comes from 29 dams owned a=
nd=20
operated by the two federal agencies, the U.S. Army Corps of Engineers and=
=20
the Bureau of Reclamation.=20
By taking advantage of the region's geography and climate, the Columbia's=
=20
hydroelectric dams have produced some of the least expensive electricity in=
=20
the nation, power that has been the economic backbone of the region.=20
However, the Columbia's hydrosystem also has two curses.=20
One is that water conditions can vary greatly, and right now the Northwest=
=20
and California are in the middle of an extreme drought. The second is the=
=20
dams' negative impact on salmon. These dams operate under a federal salmon=
=20
recovery plan established under the Endangered Species Act that calls for=
=20
more water to be sent over spillways to help push the salmon downstream=20
instead of through the dams' power-generating turbines.=20
That power is sold at cost and transmitted to Northwest consumer-owned=20
utilities by yet another federal agency called the Bonneville Power=20
Administration. These "cost-based" rates cover the expense of repaying the=
=20
U.S.=20
Treasury for the cost of developing these hydropower projects, moving the=
=20
power over massive transmission lines, and supporting efforts to restore th=
e=20
dwindling salmon runs.=20
Under federal law, Northwest consumers get preferred access to the relative=
ly=20
low-cost power. Any surplus power can be sold, most often to California's=
=20
municipal and investor-owned utilities.=20
This Northwest "regional preference" to federal power was part of the deal=
=20
that led to the construction of the massive transmission lines, called "the=
=20
intertie," which first connected the Northwest with California and the=20
Southwest in the late 1960s.=20
For decades, the intertie worked almost flawlessly and to everyone's benefi=
t.=20
During the summer, when air conditioners caused California's power use to=
=20
peak, many California utilities would supplement their needs by turning to=
=20
the Northwest. In the winter, when Northwest electric furnaces are turned o=
n=20
for space heating, California utilities would return the favor and ship the=
ir=20
surplus power north.=20
Recently, the BPA has had to purchase large blocs of power on the wholesale=
=20
market to meet its contractual obligations to its Northwest customers.=20
The same exorbitant wholesale prices that began to plague California last=
=20
year have also affected the Northwest, meaning that the BPA has been runnin=
g=20
out of money, and is now in danger of defaulting on its debt obligations to=
=20
the Treasury.=20
California's deregulation plan has affected energy relations between the tw=
o=20
regions in other ways. For example, the BPA has historically sold surplus=
=20
power to California for relatively low prices. However, the state's=20
deregulation law made it almost impossible for California utilities to ente=
r=20
into favorable long-term contracts.=20
Instead, power had to be purchased at the much higher "market clearing pric=
e"=20
on the short-term spot market.=20
The BPA has taken extraordinary steps to help California keep the lights on=
.=20
At times, the agency even declared energy emergencies, which allowed it to=
=20
temporarily override salmon protections and use the water to generate power=
=20
for California rather than sweep salmon over the dams. California officials=
=20
have praised the BPA for its cooperation, but Northwest environmentalists a=
nd=20
tribal leaders complain that the BPA has been helping California address it=
s=20
energy crisis by selling salmon down the river.=20
The Northwest will be helped by FERC's decision yesterday to extend limited=
=20
temporary price restrictions it had imposed in California in the spring to=
=20
other Western states during severe shortages. The order should also be good=
=20
for California. Without consistent price restrictions throughout the West,=
=20
power marketers would simply skip California during an emergency and sell a=
t=20
higher prices elsewhere.=20
But not everyone is happy with the decision. Many critics say the rates are=
=20
still too high, and some critics said in s published report that the "order=
=20
rewards inefficiency by pegging price ceilings to the costliest California=
=20
gas plants."=20
The half-hearted response from FERC, along with continuing supply shortages=
=20
and other problems make it likely that California will continue to face=20
rolling blackouts and high utility bills -- even though they may not be as=
=20
high as we once feared.=20
The Northwest may follow suit next winter.=20
Some in our region fear that some desperate California political leaders=20
might try to wrest control of the BPA and a large portion of the Columbia=
=20
Basin's hydropower. The 6,600 megawatts of hydropower from the Columbia's=
=20
federal dams would only offer a few drops in the bucket for California's=20
massive 50,000-megawatt system, but its loss would devastate the Northwest=
=20
economy.=20
The four Northwest governors (of Washington, Oregon, Idaho and Montana) and=
=20
more than 40 state legislators met in February and agreed to explore ways t=
o=20
ensure that the Northwest does not lose its regional preference to the=20
Columbia's hydropower.=20
Northwest governors have had some productive meetings with Gov. Gray Davis=
=20
and his staff this year regarding power sharing, and there are encouraging=
=20
signs that trust is growing at this and other levels.=20
Just last week, officials from the BPA, California's Department of Water=20
Resources, and the California ISO agreed on a plan that outlines when and h=
ow=20
the BPA may be able to help California during the expected summer shortages=
.=20
We will soon find out whether our two regions will succeed in collaborating=
=20
with or cannibalizing each other as we enter the next phase of the West Coa=
st=20
energy crisis.=20
Ultimately, California's experience with energy deregulation makes the case=
=20
for a strong and supportive federal role in the energy markets. It also=20
reinforces the view that electricity should be treated as an essential=20
service and be sold at cost by utilities that are owned and controlled by t=
he=20
public, rather than as a commodity and sold at the highest price.=20
In fact, something like a California power authority that places California=
=20
in charge of its own destiny makes more sense to me all the time.=20
Jeff Hammarlund is an adjunct associate professor and research fellow at th=
e=20
Mark Hatfield School of Government at Portland State University where he=20
teaches graduate courses on energy policy. He is also president of Northwes=
t=20
Energy and Environmental Str=20
,2001 San Francisco Chronicle ? Page?A - 19=20




Davis demands nearly $9 billion for electricity overcharges=20
H. JOSEF HEBERT, Associated Press Writer
Wednesday, June 20, 2001=20
,2001 Associated Press=20
URL:=20
http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/06/20/n=
ation
al1103EDT0569.DTL=20
(06-20) 08:03 PDT WASHINGTON (AP) --=20
California Gov. Gray Davis demanded that power generators refund nearly $9=
=20
billion in electricity overcharges and complained that federal regulators=
=20
have "looked the other way while energy companies bilked our state."=20
Davis told a Senate hearing Wednesday that the decision by the Federal Ener=
gy=20
Regulatory Commission to curtail price spikes in California and 10 other=20
Western states was a step forward. "But its actions do nothing about the=20
overcharges" over the past year, he said.=20
The governor, a Democrat, has been criticized by Republicans, who charge he=
=20
has allowed the California power crisis to get out of hand.=20
Davis defended his actions, saying the state has stepped up approval for ne=
w=20
power plants and strengthened conservation programs. He also said the state=
=20
has little control over price gouging by out-of-state power generators.=20
"The governor once said he could solve California's problems in 15 minutes.=
=20
... But it appears that California has continued to try and hide the true=
=20
cost of power by having the state pay for it instead of the utilities,"=20
putting California taxpayers in jeopardy, said Sen. Frank Murkowski,=20
R-Alaska.=20
Murkowski said many of the alleged overcharges are by public power entities=
=20
not under FERC jurisdiction=20
Sen. Joe Lieberman, D-Conn., chairman of the Governmental Affairs Committee=
,=20
said the FERC, which regulates wholesale electricity sales, has been slow t=
o=20
respond and "surprisingly reluctant" to assure that electricity prices are=
=20
just and reasonable, as required by the 1934 Federal Power Act.=20
The agency's response to the Western power problem "raises serious question=
s=20
about whether (FERC) has or will oversee the newly deregulated energy=20
markets" not only in the West but across the rest of the country.=20
The federal agency, whose commissioners were to testify later in the day,=
=20
imposed limited, market-based price caps on Monday in California and 10 oth=
er=20
Western states from Washington to Arizona. The agency also ordered the=20
parties to attend a conference next week to try to work out agreements on=
=20
overcharges and other issues.=20
Months ago, the FERC singled out $124 million in alleged overcharges by pow=
er=20
generators. The power companies have since challenged the agency's findings=
=20
and the matter remains in dispute.=20
"To date not a single penny in refunds has been returned to California,"=20
complained Davis. He said that between May 2000 and the beginning of this=
=20
month power generators are believed to have overcharged California $8.9=20
billion.=20
"They must be required to give us back our money," said Davis. "It is=20
unconscionable that FERC looked the other way while energy companies bilked=
=20
our state for up to $9 billion."=20
The state spent $7 billion for electricity in 1999 and $27 billion in 2000=
=20
and is projected to pay nearly $50 billion this year, said Davis. "Power=20
generators have been able to exert extreme power over our energy market," h=
e=20
said.=20
Davis rejected Republican criticism that the state is not addressing the=20
problem. He said newly approved power plants will provide 20,000 additional=
=20
megawatts of electricity by 2003, including 4,000 megawatts by the end of=
=20
this summer. "Everything that can be done to bring reliable, affordable=20
energy to California is being done ... except wholesale price relief," he=
=20
said.=20
"This administration has minimized this crisis (for) more months," said Sen=
.=20
Patty Murray, D-Wash., alluding to President Bush's repeated refusal to urg=
e=20
the FERC to mitigate electricity prices. Bush has strongly opposed price=20
controls, although he indicated support for FERC's limited price mitigation=
=20
effort this week.=20
Murray said the government should issue a disaster declaration so that=20
businesses can get low-income loans, and require that FERC press its=20
investigation into price gouging and demand refunds not only in California=
=20
but in the Pacific Northwest, where electricity prices have also skyrockete=
d.=20
Republicans continued their opposition to more stringent price caps based o=
n=20
the cost of generation at individual power plants.=20
"Having a federal agency try to determine what is a just and reasonable pri=
ce=20
is laughable," said Sen. Fred Thompson of Tennessee, the committee's rankin=
g=20
Republican. Hard price caps "don't work when supply is the problem. ... The=
y=20
make a bad situation worse," he said.=20
After FERC issued its limited price control order this week, Senate Democra=
ts=20
on Tuesday said they would drop legislation to require more stringent=20
cost-based price caps on Western electricity sales.=20
Democrats in the House, however, said they would continue to pursue a bill=
=20
requiring the FERC to take more aggressive action.=20
,2001 Associated Press ?=20




Fed price caps placate Demos=20
But Feinstein's bill to regulate energy producers was more strict=20
Carolyn Lochhead, Chronicle Washington Bureau
Wednesday, June 20, 2001=20
,2001 San Francisco Chronicle=20
URL:=20
http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/06=
/20/M
N145950.DTL=20
Washington -- With federal regulators moving to cap prices on wholesale=20
electricity, California's Dianne Feinstein and other Senate Democrats=20
yesterday withdrew their threat to do it for them.=20
"A rose is a rose by any other name," Feinstein declared to the five member=
s=20
of the Federal Energy Regulatory Commission, the day after they unanimously=
=20
imposed a sweeping price ceiling on electricity throughout eleven western=
=20
states.=20
"I'm very grateful," Feinstein told the commissioners, who were called to=
=20
testify to the Senate Energy and Natural Resources Committee. "Let's watch=
=20
and wait and see how this order works."=20
Feinstein had been leading the Democratic charge in Washington to force FER=
C=20
to impose price controls; indeed, yesterday's hearing had been intended to=
=20
highlight the agency's inaction. Gov. Gray Davis is still billed to appear=
=20
today at another Senate panel headed by Sen. Joe Lieberman, D-Conn., to=20
investigate price gouging.=20
The 60-page FERC order, which takes effect at midnight tonight and remains=
=20
until September 2002, limits prices based on the cost of the least-efficien=
t,=20
and therefore highest-cost, generating plant. It is intended to mimic the w=
ay=20
a competitive market functions.=20
While Democrats hailed FERC's move, power generators and marketers warned=
=20
that it would backfire, leading to more blackouts and stifling investment i=
n=20
new power plants.=20
"It doesn't create or conserve a single megawatt in California or the West,=
 "=20
said Enron spokesman Mark Palmer. "Government price controls always have=20
unintended consequences, and history has proven that those have never been=
=20
good for consumers."=20
Joe Bob Perkins, president and chief operating officer of Reliant Energy,=
=20
bluntly called the price caps "a political response" to California's crisis=
=20
that ignores the basics of supply and demand.=20
"Price caps don't work," Perkins said in a statement. "This fact has been=
=20
proven over and over in the context of virtually every business sector in=
=20
which government regulators have experimented with such measures."=20
The Bush administration, which has fought electricity price caps since taki=
ng=20
office in January, yesterday insisted that FERC had actually spurned them.=
=20
"It's important to note that FERC rejected price controls," said White Hous=
e=20
spokesman Ari Fleischer, who instead called it "a market-based mitigation=
=20
plan."=20
He added the order is "in keeping with the president's desire to help the=
=20
state of California and to make certain that there is no illegal price=20
gouging carried on by any companies."=20
FERC's action coincided with the arrival of two new Bush appointees to the=
=20
agency, Patrick Henry Wood III, a former Texas utility regulator, and Nora=
=20
Mead Brownell, a former Pennsylvania regulator.=20
The soft-spoken, boyish-looking Wood yesterday sought to allay Feinstein's=
=20
lingering concerns that the new price control scheme would still permit=20
generators to manipulate the market.=20
Feinstein's bill would have gone further than the new FERC plan, imposing a=
=20
cost-of-service based price cap that would return California to the=20
regulatory regime it had before its 1996 electricity restructuring.=20
"I am personally not allergic to that sort of remedy," Wood told the panel =
-=20
- a position that is toxic to the Bush administration's former opposition t=
o=20
price caps. "The cost-of-service regime was good enough for 80 years," Wood=
=20
said. "We're trying to move away from it but we can still do it."=20
FERC's action, followed by Feinstein's bill withdrawal, quickly defused a=
=20
mounting political confrontation between the Bush White House and Democrats=
=20
over price caps -- one that saw Capitol Hill Republicans beating a retreat.=
=20
Democrats argued that Bush, by refusing to impose price controls, was=20
allowing out-of-state generators based mostly in Texas to gouge California=
=20
consumers.=20
The administration, especially Vice President Dick Cheney and Energy=20
Secretary Spencer Abraham, had insisted that price controls would backfire =
by=20
reducing electricity sales and power plant investment, making the state's=
=20
blackouts worse.=20
Yesterday, Sen. Gordon Smith, an Oregon Republican who co-sponsored=20
Feinstein's bill, as much as said the White House would have lost the fight=
.=20
Smith said their measure "would have won large majorities in both the Senat=
e=20
and House" had it gone to a vote.=20
E-mail Carolyn Lochhead at clochhead@sfchronicle.com=20
,2001 San Francisco Chronicle ? Page?A - 11=20




Potrero Hill power plant hit by 2 lawsuits=20
Neighbors, city ask court to cut back hours of operation=20
Rachel Gordon, Chronicle Staff Writer
Wednesday, June 20, 2001=20
,2001 San Francisco Chronicle=20
URL:=20
http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/06=
/20/M
N238116.DTL=20
The San Francisco city attorney joined forces with environmental and=20
community groups and sued in federal court yesterday to force the operator =
of=20
the Potrero Hill power plant to cut its ramped-up electricity output until=
=20
more rigorous pollution controls are installed.=20
The plant, run by Mirant Corp., increased its output in response to Gov. Gr=
ay=20
Davis' move to relax environmental laws on power producers and generate mor=
e=20
electricity for Californians.=20
The lawsuits, filed against Mirant in U.S. District Court, allege the compa=
ny=20
is illegally operating its so-called peaker plants. The suits appear to be=
=20
the first challenge in California to Davis' efforts to produce more power.=
=20
The Potrero Hill plant, which runs during times of peak demand, has a total=
=20
of six turbines that generate 156 megawatts of electricity, enough to power=
=20
156,000 homes. Each turbine is permitted to operate 877 hours a year -- a=
=20
threshold that already has been exceeded.=20
Mirant struck a deal March 30 with administrators of the Bay Area Air Quali=
ty=20
Management District -- the regional agency that regulates air pollution -- =
to=20
run the plants as much as needed to keep up with the energy demand. In=20
return, Mirant will pay $20,000 per ton of excess emissions of nitrogen=20
oxides, a pollutant that causes smog. The company placed $400,000 on deposi=
t.=20
"The Mirant Corporation is behaving like an outlaw and the air district is=
=20
their willing accomplice in violating clean air laws," said Mike Thomas, an=
=20
organizer with Communities for a Better Environment, one of the plaintiffs.=
=20
The other groups that sued are Bayview-Hunters Point Community Advocates an=
d=20
Our Children's Earth.=20
The city filed a separate suit over the same issue.=20
The lawsuits ask the court to order Mirant to stop operating beyond the 877=
-=20
hour cap until it obtains new permits. The city and environmental groups=20
argue the permits for expanded operation are required by the federal Clean=
=20
Air Act.=20
The lawsuits also demand that more stringent pollution controls be installe=
d=20
on the peakers. The increased power production poses a potentially serious=
=20
health risk to the people who live and work in the surrounding neighborhood=
,=20
the plaintiffs charge.=20
Because the peaker plants weren't originally intended to run full time, the=
y=20
aren't equipped with the most up-to-date pollution controls.=20
The plaintiffs also allege the air district regulators violated the=20
California Environmental Quality Act by failing to conduct thorough reviews=
=20
of the expanded operation and not allowing for public comment.=20
"We as a city are not saying no to power. We're saying there's a process an=
d=20
they need to follow it," said San Francisco Supervisor Sophie Maxwell, who=
=20
represents District 10 where the power plant is located.=20
Terry Lee, a spokesman for the air district, said her agency and Mirant did=
=20
nothing illegal. Mirant spokesman Patrick Dorinson concurred.=20
They pointed to Davis' executive orders earlier this year that gave power=
=20
companies the right to step up production without going through the normal=
=20
permit process and adhering to the stricter pollution controls.=20
William Rostov, an attorney for Communities for a Better Environment,=20
contends Davis does not have authority to override federal air quality laws=
.=20
Lee said the U.S. Environmental Protection Agency signed off on the=20
governor's plan.=20
The plant, near 23rd and Illinois streets, long has been a target of=20
neighbors trying to close it. Mirant is hoping to build a new 540-megawatt=
=20
plant on the site that uses cleaner-burning natural gas. The existing plant=
=20
burns highly polluting distillate oil.=20
Lee said the money Mirant is paying for the extra emissions will help reduc=
e=20
air pollution in Potrero Hill. The efforts include placing filters on Muni=
=20
diesel fuel buses that operate in the neighborhood and installing a lower-=
=20
polluting engine on a tug boat that runs off the nearby shores.=20
"Is this a perfect situation? No," Lee said. "But under the governor's=20
executive orders this is the way we're proceeding."=20
E-mail Rachel Gordon at rgordon@sfchronicle.com.=20
,2001 San Francisco Chronicle ? Page?A - 13=20




Washington wakes up=20

Wednesday, June 20, 2001=20
,2001 San Francisco Chronicle=20
URL:=20
http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/06=
/20/E
D40132.DTL=20
WASHINGTON, after all, does feel our pain. Partial but reasonable price=20
controls will contain wholesale electricity prices beginning today under a=
=20
long-sought ruling by the Federal Energy Regulatory Commission. It's about=
=20
time.=20
Where was this agency until now, and why the sudden willingness to help?=20
Politics.=20
At first, the Bush administration denounced controls as market interference=
=20
that would chase off investment in power generation.=20
But the peril has spread beyond California to other Western states, whose=
=20
governors are Republicans. Mid-term elections for Congress are coming up ne=
xt=20
year. Also, the White House was besieged by California Republicans and=20
business groups worried about blackouts and price gouging.=20
President Bush finally sounded the retreat the day before the commission=20
vote. He could accept a "mechanism" that would "mitigate any severe price=
=20
spike." He insisted that the final results were not firm price controls,=20
which arguably they are not.=20
Gov. Gray Davis, who begged for help for months, said the final package=20
didn't go far enough. What he wanted were tougher limits pegged to generati=
on=20
costs, plus a profit figure of 30 to 50 percent.=20
The final formula approved by the commission amounts to a loose-fit limit=
=20
that should dampen the absurd price surges that have endangered the state.=
=20
The 24/7 plan rewards modern plants by setting prices based on the=20
least-efficient power producers. It covers 11 states, not just sickly=20
California.=20
There is room for doubt. Canny operators may find ways to exploit the prici=
ng=20
mechanism. Also, California will be whacked with a one-state-only surcharge=
=20
of 10 percent. The commission took no action on another Davis complaint tha=
t=20
power generators may have overcharged the state by $6.2 billion.=20
Still, the new limits may be the most anyone could expect. Consider how far=
=20
Washington has come: A hidebound ideology has given way to real-world=20
recognition of a huge problem. U.S. Sen. Dianne Feinstein acknowledged as=
=20
much yesterday when she dropped a measure to impose stricter price limits.=
=20
California's troubles aren't over. Conservation remains supremely important=
.=20
New power plants need approval and speedy construction. The financial damag=
e=20
to state utilities and the state's coffers needs attention. The severity of=
=20
summer blackouts is a wild card.=20
The federal controls add a measure of protection from this volatile mix. It=
's=20
a shame that help didn't come sooner.=20
,2001 San Francisco Chronicle ? Page?A - 18=20









Feinstein halts electricity price caps bill=20
Posted at 12:15 a.m. PDT Wednesday, June 20, 2001=20
BY JIM PUZZANGHERA=20

Mercury News=20


WASHINGTON -- Like a steam valve on an overheating boiler, the move by=20
federal regulators to enact broad new electricity price controls in the Wes=
t=20
has relieved much of the growing political pressure for stronger action --=
=20
for now.=20
Sen. Dianne Feinstein removed one major source of that pressure Tuesday.=20
Satisfied that the Federal Energy Regulatory Commission has taken ``a giant=
=20
step forward'' in curbing California energy prices, Feinstein withdrew her=
=20
legislation to enact price caps on wholesale electricity prices throughout=
=20
the West.=20
``Let's watch and wait and see how this order works,'' the California=20
Democrat told members of the commission during a Senate hearing.=20
But while the battle over the actions of federal regulators may have=20
subsided, the larger political war over energy prices continues.=20
California Gov. Gray Davis, who has been pounding away for weeks at the Bus=
h=20
administration for not providing enough help to the state, will step into t=
he=20
fray here today. The governor will appear at a Senate hearing where he will=
=20
praise federal regulators for moving in the right direction with the new=20
plan. But he's also expected to continue to press for harder price caps and=
=20
criticize federal regulators for taking months to act while the state drain=
ed=20
billions from its budget to pay for electricity.=20
In addition, Davis will question some aspects of the plan, such as the lack=
=20
of strong action on forcing refunds from suppliers. ``He wants to make sure=
=20
that Congress gets the message loud and clear that we want our money back=
=20
from the overcharges by generators,'' said Davis media representative Steve=
=20
Maviglio.=20
But the Republicans are just as eager to lay responsibility for the=20
electricity crisis on Davis, who is up for re-election next year. A=20
hard-hitting Republican-backed TV ad campaign in California organized by=20
Scott Reed, a former executive director of the Republican National Committe=
e,=20
blames the governor for failing to act quickly when the crisis first emerge=
d.=20
The politics of shifting blame are likely to set the tone for the hearings=
=20
organized by the new Democratic chair of the Senate Governmental Affairs=20
Committee, Sen. Joe Lieberman, D-Conn. Davis and all five FERC commissioner=
s=20
have been invited to the hearing to determine if the commission has lived u=
p=20
to its legal obligation to ensure ``just and reasonable'' electricity price=
s=20
in California.=20
Price controls=20
With that oversight hearing pending this week, the commission called a=20
special meeting Monday and took stronger action. It expanded existing=20
electricity price controls around the clock and to 11 Western states. Under=
=20
the commission's plan, ceiling prices will be set that suppliers can exceed=
=20
as long as they provide justification for the higher price. A hard price ca=
p=20
would set a price that could not be exceeded.=20
Commission Chairman Curt H,bert, a Republican, said politics played no role=
=20
in enacting the new plan. But Commissioner William Massey, one of two=20
Democrats on the five-member commission, acknowledged that political pressu=
re=20
in recent weeks from Republicans and newly empowered Democrats in the Senat=
e=20
had an impact.=20
``We are an independent agency but we operate in a highly charged political=
=20
environment. I would not imply that we did not rule on an independent basis=
=20
here, but you know, this is Washington, D.C., for God's sake,'' Massey told=
=20
the Mercury News on Tuesday. ``I think that it was enlightening to the agen=
cy=20
that this wasn't just a Democratic question, this was Democrats and=20
Republicans throughout the West saying, `My God, solve this problem.' And s=
o=20
we hope we have.''=20
The White House, which had opposed any form of price controls, also moved t=
o=20
adjust to this political reality.=20
``To the degree that it is a market-based program, this is in keeping with=
=20
what the president said, and the president is pleased to be able to help=20
California in that manner,'' White House press secretary Ari Fleischer said=
.=20
``It does not change the president's fundamental view that a separate=20
economic matter, which would be price controls, would not be productive.''=
=20
But Democrats are eager to point to the shift as evidence that the White=20
House realized it was paying too high a political price for its earlier=20
position, insisting that the electricity crisis was largely California's=20
problem to solve.=20
``The Bush administration is realizing the jig is up. The game is over,''=
=20
said Sen. Barbara Boxer, D-Calif. ``Their attitude of hands-off has hurt th=
em=20
deeply.''=20
Democrats in the House have vowed to continue pushing for a vote on their o=
wn=20
price-caps bill. The legislation is adamantly opposed by Republican leaders=
=20
in Congress, who believe FERC's actions Monday are enough government=20
intervention.=20
``I hope that its actions are based on market principles, not political=20
half-measures,'' said House Majority Whip Tom DeLay, R-Texas. ``It's now ti=
me=20
for Governor Davis to stop pointing fingers and shifting blame.''=20
Feinstein has vowed to quickly resurrect her bill if electricity prices sho=
ot=20
up dramatically. Boxer said she will introduce legislation to force FERC to=
=20
order power suppliers to refund what the state says are billions of dollars=
=20
in overcharges for electricity purchases.=20
Meeting on refunds=20
The commission has set up a conference for the state, suppliers and utiliti=
es=20
to settle the contentious refund issue by July 10. If no settlement can be=
=20
reached under the auspices of an administrative law judge, the judge will=
=20
make a recommendation to the commission and it will resolve the dispute,=20
H,bert said.=20
Massey had supported Feinstein's legislation to force him and his fellow=20
commissioners to enact price caps. But after the commission unanimously=20
approved its expanded price-control plan, he joined the four other=20
commissioners Tuesday in urging the Senate Energy and Natural Resources=20
Committee not to pass such a law.=20
The commission's chair, H,bert, strongly warned against legislative action,=
=20
saying, ``I believe in my heart, and I know in my educated mind, that we ar=
e=20
on the right track.''=20
But the issue disappeared Tuesday as Feinstein and the Republican co-sponso=
r=20
of the price-cap legislation tabled their plan.=20
``I think it renders substantially moot the legislative efforts that she an=
d=20
I were pursuing,'' Sen. Gordon Smith, R-Ore., said of the commission's new=
=20
price-control plan. ``And I do believe that effort would have won large=20
majorities in the Senate and the House, and so I think what you are doing i=
s=20
reflecting the will of the elected representatives of the American people.'=
'=20
Feinstein said that whatever the commission calls the plan, it is close=20
enough to hard caps to merit a chance to work.=20
``I view this action by FERC as a giant step forward and I'm very grateful =
to=20
you,'' she told the commissioners. ``I also view the fact that Senator Smit=
h=20
and I have worked hard on this bill perhaps has been helpful in urging you=
=20
along.''=20













FERC's fixes have fallen short=20
Published Wednesday, June 20, 2001, in the San Jose Mercury News=20
BY FRANK WOLAK=20
ON Monday, for the third time in the past eight months, the Federal Energy=
=20
Regulatory Commission, the agency charged with regulating wholesale=20
electricity prices in California, implemented remedies that it claims will=
=20
set just and reasonable wholesale electricity prices. This is a case where=
=20
the third time is unlikely to be a charm.=20
As chairman of the Market Surveillance Committee of the California=20
Independent System Operator, the independent committee formed by FERC to=20
monitor the California market, I have analyzed the results of FERC's previo=
us=20
attempts. They reveal a misunderstanding of important details of the=20
California electricity market. It is therefore not surprising that they hav=
e=20
been ineffective.=20
Starting in November of 2000, FERC acknowledged that wholesale prices in=20
California during the summer of 2000 were unjust and unreasonable. Its=20
December 2000 order implemented the first set of remedies. Both the=20
California Power Exchange Market Monitoring Committee and the committee I=
=20
chair pointed out important shortcomings in FERC's analysis of the Californ=
ia=20
market and argued that its remedies would most likely harm, rather than=20
enhance, market performance.=20
At this time, FERC also did not order refunds for the unjust and unreasonab=
le=20
prices, even though it acknowledged the prices reflected the exercise of=20
market power, which is the ability of a producer to force prices higher. Th=
e=20
Federal Power Act requires refunds under these circumstances. But FERC said=
=20
it was unable to find specific instances of firms exercising market power.=
=20
This makes no sense. If FERC finds that prices indicate market power, then=
=20
the generators who bid those prices are exercising market power.=20
Following the implementation of these remedies, conditions in the Californi=
a=20
market deteriorated far beyond what had been predicted by the two market=20
monitoring committees. Even though January and February are the lowest dema=
nd=20
months of the year, average wholesale electricity prices were almost 10 tim=
es=20
higher in 2001 than they were during the same two months of 2000 and almost=
=20
double the average price during the summer of 2000. In January, March and=
=20
May, California experienced several days of rolling blackouts and had syste=
m=20
emergencies almost every day during January and February of 2001.=20
IN April, FERC made another round of market rule changes designed to lead t=
o=20
just and reasonable prices. However, in response to growing pressure from=
=20
Congress, less than 10 days after these remedies were implemented, FERC=20
enacted its most recent order.=20
Before Congress declares victory, it should verify that FERC's most recent=
=20
plan achieves the following two goals.=20
First, the plan should guarantee that the average price of wholesale=20
electricity paid by California over the next two years is equal to the=20
average price that would occur in a competitive electricity market, with=20
California's current supply and demand conditions and fuel costs. The Feder=
al=20
Power Act requires not just a high probability of just and reasonable rates=
;=20
it requires that they occur with certainty.=20
The second goal is to alter the incentives faced by all market participants=
=20
so that it will no longer be profit-maximizing for a firm to withhold=20
electricity from the market in order to drive up prices.=20
FERC's most recently implemented plan does not achieve either of these goal=
s,=20
although it does come closer than any previous attempts.=20
One solution satisfying both of these goals has been proposed to FERC. In a=
=20
December report to FERC, the Market Surveillance Committee of the Californi=
a=20
ISO proposed a one-time regulatory intervention. This intervention would=20
require that each generator serving California sign a forward contract=20
guaranteeing that California consumers can purchase 75 percent of the=20
generator's expected output over the next two years at a specified=20
competitive benchmark price. Once a firm has signed these forward contracts=
,=20
it is free to sell all remaining energy in the western U.S. wholesale marke=
t=20
at whatever price it can obtain.=20
The obligation to provide power under the contracts, and the incentive to=
=20
sell 25 percent of power at unrestricted prices, would prevent generators=
=20
from withholding power.=20
Unless FERC implements a solution satisfying these two goals, Congress shou=
ld=20
require FERC to suspend the market-based pricing authority for all supplier=
s=20
in the Western U.S. for the next two years and order all sales during this=
=20
period at cost-of-service prices. This will guarantee that FERC meets the=
=20
statutory mandate of the Federal Power Act in California.


Frank Wolak is a professor of economics at Stanford University.=20
















Wednesday, June 20, 2001=20






Easing the crunch on costs of power=20
It could have been worse. Yesterday the Federal Energy Regulatory Commissio=
n=20
expanded limited price caps on electricity to cover 11 Western states and t=
o=20
last 24 hours a day during an emergency.=20
This follows an action in April that imposed caps only in California during=
=20
the hours the state declared a power emergency.=20
Under the new rules, "when reserves are below 7 percent in the California=
=20
Independent System Operator spot markets ... the maximum price that can be=
=20
charged for spot market sales ... will be 85 percent of the highest hourly=
=20
price that was in effect during the most recent Stage 1 [emergency] called =
by=20
the ISO," the FERC explained yesterday.
The order will last until Sept. 30, 2001.=20
The action came after intense pressure by Democrats and the Bush=20
administration on the FERC, whose three Republican and two Democrat members=
=20
all voted for the new controls.
It also comes after continuing stories about "gouging" by suppliers. On=20
Sunday, the Register reported how Tulsa-based Williams, an energy supplier,=
=20
manipulated the market to keep prices high.=20
And after Gov. Gray Davis last week attacked Los Angeles' government-run=20
Department of Water and Power for gouging the state on electricity purchase=
s,=20
reported the Los Angeles Daily News, "the DWP caved in, and agreed to start=
=20
selling the state power at 'cost'."
The new FERC ruling certainly is better than the demand for across-the-boar=
d,=20
continuous price controls demanded by Gov. Davis and other Democrats.
"They're trying to let the market do the best it can under tremendous=20
pressure," Robert Michaels, a professor of economics at Cal State Fullerton=
,=20
told us of the FERC members. "It's explicitly only for one kind of power,=
=20
that on short-term, so-called spot market kinds of exchanges. Most power is=
=20
under other kinds of contracts not touched."
The main effect of the new order is that, unlike full-blown price controls,=
=20
it should not discourage the construction of new power generators.=20











[B] POWER UPDATE/ US Senate panel to hold off vote on Calif. cap bill=20






June 20, 2001=20





(BridgeNews) June 19, 2124 GMT/1724 ET=20
................................................................. TOP=20
STORIES:=20
US Senate panel to hold off vote on Calif. power cap bill=20
San Francisco, June 19 (BridgeNews) - U.S. Senate Energy and Natural=20
Resources Committee Chairman Jeff Bingaman, D-N.M., plans to hold off on=20
voting on a bill for U.S. West power price caps following a request by fell=
ow=20
senators Dianne Feinstein, D-Calif., and Barbara Boxer, D-Calif., according=
=20
to an aide in Bingaman's office Tuesday. ( Story .20121 )=20
IPE says merger with ICE complete; will keep IPE name=20
New York, June 19 (BridgeNews) - London's International Petroleum Exchange=
=20
has completed its merger with the Intercontinental Exchange, an electronic=
=20
market for the trading of energy and metals products, IPE Chief Executive=
=20
Richard Ward said Tuesday. He said the company will still be called the IPE=
.=20
His statement follows ICE's announcement Monday that all of conditions of i=
ts=20
recommended offer to acquire the issued share capital of IPE Holdings had=
=20
been satisfied or waived and that the offer was unconditional. ( Story=20
.17970, .19353 )=20
................................................................. OF=20
INTEREST:=20
--AMERICAS--=20
FERC order seen having little effect on US generator profits=20
San Francisco, June 19 (BridgeNews) - A U.S. Federal Energy Regulatory=20
Commission order to impose a "soft" price cap on U.S. West wholesale power=
=20
prices will likely have little significant effect on producer profits from=
=20
electricity sales while the order is in effect over the next year, industry=
=20
analysts said Tuesday. Some analysts cautioned that some producers without=
=20
long-term contracts could be negatively affected by the order. ( Story .203=
40=20
)=20
White House says FERC power plan "helpful step" for California=20
Washington, June 19 (BridgeNews) - The White House Tuesday said action take=
n=20
Monday by the federal energy regulators to extend limits on electricity=20
prices in California "is and can be a helpful step" for the beleaguered=20
state. ( Story .18824 )=20
Calif. ISO rescinds Tues blackout forecast; supplies still tight=20
New York, June 19 (BridgeNews) - While the California Independent System=20
Operator has rescinded its forecast of possible blackouts for Tuesday, the=
=20
agency running the Golden State's electricity grid is currently projecting=
=20
very little surplus power generated in the state for the day. ( Story .1491=
3=20
)=20
Three states sue DOE over air conditioning standards ruling=20
New York, June 19 (BridgeNews) - Attorney generals of California, Connectic=
ut=20
and New York along with several consumer groups sued the Department of Ener=
gy=20
to block a Bush Administration plan allegedly designed to weaken efficiency=
=20
standards for residential appliances, including air conditioners and heat=
=20
pumps. The complaint filed Tuesday in Manhattan federal court calls the=20
administration "short sighted" and seeks to invalidate its rule changes. (=
=20
Story .18548 )=20
NY, New England ISOs expand power reserve sharing agreement=20
New York, June 19 (BridgeNews) - The Independent System Operators (ISO) for=
=20
New York (NYIOS) and New England (ISO-NE) have agreed to expand their=20
reserve-sharing agreement to allow for each ISO to draw on available reserv=
es=20
in the other region in the event of a system interruption, according to a=
=20
statement issued Tuesday by ISO-NE. ( Story .19283 )=20
AGA Preview: US natural gas inventories seen up 85 to 95 bcf=20
New York, June 19 (BridgeNews) - The American Gas Association (AGA) is=20
expected to report Wednesday that U.S. natural gas stocks have risen by 85=
=20
billion to 95 billion cubic feet (bcf) for the week ended Friday, according=
=20
to a BridgeNews survey of brokers, analysts and traders. The AGA will relea=
se=20
the storage report at 1400 ET Wednesday. ( Story .1856 )=20
--ASIA/PACIFIC--=20
GAIL planning 20-bln-rupee gas pipeline in southern India=20
New Delhi, June 19 (BridgeNews) - India's state-owned Gas Authority of Indi=
a=20
Ltd. plans to lay a new 500-kilometer-long natural gas pipeline connecting=
=20
the two southern states of Kerala and Karnataka at a cost of 20 billion=20
rupees, the Press Trust of India said Tuesday. The pipeline will carry 6=20
million cubic meters of gas. ( Story .12193 )=20
Indonesia official sees power cuts by 2004 unless new units built=20
Jakarta, June 19 (BridgeNews) - Indonesia will face power cuts by 2004 unle=
ss=20
additional generating capacity is built, Eddie Widiono, president director =
of=20
state power group PLN, said at an industry seminar here on Tuesday. But=20
experts warned that the capital markets were unwilling to finance the=20
billion-dollar investments needed and the public sector could not afford it=
.=20
( Story .12536 )=20
Indonesia to restructure PLN, raise power tariff, says minister=20
Jakarta, June 19 (BridgeNews) - The government aims to revive investment in=
=20
Indonesia's power sector with a scheduled 17.5% rise in electricity prices=
=20
this year and a later $3 billion debt equity swap to restructure state powe=
r=20
company PLN, minister of energy and mines Purnomo Yusgiantoro said Tuesday.=
=20
PLN will negotiate directly with independent power producers (IPPs) to=20
install additional capacity, he added. ( Story .10568 )=20
Indonesian minister claims ExxonMobil to resume Aceh operations soon=20
Jakarta, June 19 (AFP) - PT Exxon Mobil Indonesia will resume oil and gas=
=20
production in separatist-plagued Aceh province in early July, ending a free=
ze=20
of more than three months for security reasons, a minister said Tuesday. (=
=20
Story .10751 )=20
--EUROPE/MIDDLE EAST--=20
Czech's Temelin nuclear plant reactor to be restarted in July=20
Prague, June 19 (AFP) - Reactor number one at the controversial Temelin=20
nuclear plant in the Czech Republic will be restarted on July 21 after bein=
g=20
shut down for two months for repairs, the plant's spokesman announced=20
Tuesday. The reactor was shut down in early May when faults were detected i=
n=20
its non-nuclear secondary circuit, the latest in a series of technical=20
glitches discovered since it was first put into service in October last yea=
r.=20
( Story .16716 )=20
British Energy: Sizewell B power plant back onstream=20
London, June 19 (BridgeNews) - The 1188-megawatt Sizewell B nuclear power=
=20
plant has been back onstream "for a few days," a spokeswoman for operator=
=20
British Energy told BridgeNews Tuesday, refusing to detail when exactly the=
=20
plant was recommissioned and whether its available capacity had since been=
=20
utilized by the market. ( Story .12928 )=20
Germany's Mueller says nuclear phase-down formula won't disrupt=20
Berlin, June 19 (BridgeNews) - The formula for shutting down German nuclear=
=20
power plants should cut atomic generating capacity only one-sixth by 2010,=
=20
insufficient to raise fears of shortages, said Economics Minister Werner=20
Mueller. ( Story .12337 )=20
TURKEY CRISIS: Press: Govt late on IMF pledged power sell-offs=20
Ankara, June 19 (BridgeNews) - The Turkish Cabinet has decided to propose t=
o=20
the parliament to extend the transfer of operational rights of power plants=
=20
to the private sector by another four months, once again violating pledges=
=20
made to the IMF when securing a U.S. $10 billion bailout package after the=
=20
February crisis, Sabah newspaper reported Tuesday. The government, in its n=
ew=20
IMF-supported program, pledged to complete transfer of the rights by=20
end-June. ( Story .11978 )=20
se ................................................................. SPOT=
=20
NEWS LINKS:=20
Media://NewsSearch::/source=3Dmar/category=3Dn-eny/go/search=20
................................................................. THE=20
MARKETS:=20

US FUTURES:                           UK FUTURES




.1908 NY Natural Gas Pre-Opg .1795 IPE Nat Gas Review=20


.1906 NY Natural Gas Review .1794 IPE Nat Gas Midday=20
.1747 NY Natural Gas=20

US/CANADA CASH NATURAL GAS            UK/EUROPE CASH NATURAL GAS




.1894 Henry Hub natural gas .1807 UK Spot Gas=20
.1884 US/Canada Spot Natural Gas=20

US CASH ELECTRICITY                   UK/EUROPE CASH ELECTRICITY




.8575 California PX: Next day .1892 UK Power Index=20
.8576 .8577 WSCC Forwards (AM/PM) .1889 Nordic Power Market=20
.8585 .8586 PJM Forwards (AM/PM) .1890 Spanish Power Market=20
.8593 .8594 Cinergy Forwards (AM/PM) .1844 UK EFA Power Market=20
.8597 .8598 Entergy Forwards (AM/PM) CANADA CASH ELECTRICITY=20
.8601 .8602 ERCOT Forwards (AM/PM) .5637 Canadian Power Market=20
.8603 New England Forwards=20
.8587 .8600 TVA Forwards (AM/PM)=20
OTHER=20
.1873 US Nuclear Plants Operating Status=20
.2029 BRIDGE CALENDAR: US POWER: Key events to watch=20
.2030 US Utility Deregulation Digest=20
.1704 US Utility M&A Digest=20
................................................................. SYMBOL=20
LINKS:=20
Click below for adamb chart in Athena NATURAL GAS=20
NYMEX - Media://Chart:NYMEX:/symbol=3DUS@NG.1=20
IPE - Media://Chart:IPE:/symbol=3DGB@NGP.1 NYMEX ELECTRICITY=20
Palo Verde electricity - Media://Chart:PaloVerde:/symbol=3DUS@VK.1=20
COB electricity- Media://Chart:COB:/symbol=3DUS@OW.1=20
Cinergy electricity - Media://Chart:Cinergy:/symbol=3DUS@CN.1=20
Entergy electricity - Media://Chart:Entergy:/symbol=3DUS@NT.1=20
PJM electricity - Media://Chart:PJM:/symbol=3DUS@QJ.1=20
.................................................................=20
BridgeNews=20
Send comments to gennews@bridge.com=20









[B] FERC order seen having little effect on US generator profits=20






June 20, 2001=20




By Christine Cordner
San Francisco, June 19 (BridgeNews) - A U.S. Federal Energy Regulatory=20
Commission order to impose a "soft" price cap on U.S. West wholesale power=
=20
prices will likely have little significant effect on producer profits from=
=20
electricity sales while the order is in effect over the next year, industry=
=20
analysts said Tuesday. Some analysts cautioned that some producers without=
=20
long-term contracts could be negatively affected by the order.=20

*                    *                  *


"FERC's decision to expand the soft price cap throughout the western grid i=
s=20
not very painful for generators," Barry Abramson, UBS Warburg analyst, said=
=20
in a research note. "The expanded soft price cap will have little impact on=
=20
the earnings of the wholesale generating companies. By definition, every=20
other power plant is more efficient than the least efficient power plant, a=
nd=20
thus every other power plant should be able to make a good profit selling a=
t=20
the soft price cap.=20
"Furthermore, on most days, most of the power that is produced is sold at=
=20
prices below the soft price cap, so the soft-price cap has little impact on=
=20
the overall earnings of the wholesale generators in the region," Abramson=
=20
said.=20
FERC on Monday unanimously voted 5-to-0 to expand wholesale price caps to t=
he=20
10 western states comprising the Western Systems Coordinating Council. FERC=
=20
also expanded the price caps on wholesale power to 24 hours per day, seven=
=20
days per week, from limits only during supply emergencies when reserve=20
margins in California fall below 7%.=20
Under the order, wholesale power prices will be limited to 85% of the price=
=20
in effect during the final hour of the most recent emergency, when Californ=
ia=20
is not in a supply emergency. The proxy price will be based on the costs fo=
r=20
the least efficient power plant used to generate electricity on that day as=
=20
well as the price for natural gas.=20
Generators, investor-owned utilities and independent power producers,=20
however, can receive more than the proxy price if they can justify the high=
er=20
generation costs. The plan also allows a 10% surcharge on all wholesale pow=
er=20
sales in California in order to account for credit risk.=20
In a research note, JP Morgan analysts Jim Von Riesemann and Anatol Feygin=
=20
said that earnings for generating companies "should remain relatively intac=
t=20
and valuations look attractive," especially for AES, Mirant and NRG.=20
Robert Winters, a Bear Stearns analyst, said, "The near-term actions by the=
=20
FERC (and the focus on Monday's meeting), the heightened political rhetoric=
=20
and the weakening in gas and power prices across much of the U.S. over the=
=20
past month has led to the weakness in the shares of the wholesale energy=20
companies...We believe very attractive buying opportunities are being creat=
ed=20
within certain areas of the wholesale energy sectors where companies are no=
w=20
trading at discounts to their projected earnings growth range."=20
Winters said there were buying opportunities with Williams, "which continue=
s=20
to be our top pick in the wholesale energy space," and with Enron Corp.=20
But Abramson noted that the order does not allow producers "to mark up the =
r=20
price of spot power for resale above the soft price cap," which could affec=
t=20
some profit margins.=20
"The FERC plan should make it challenging for some to repeat the growth of=
=20
the last couple of quarters in the West, particularly those that without=20
long-term contracts. It appears that the plan would likely dampen volatilit=
y,=20
although price caps can have unexpected consequences," said Merrill Lynch=
=20
analyst Steven Fleishman.=20
"On a relative basis, we believe companies that have locked up much of thei=
r=20
capacity under long-term contracts and have efficient baseload power are be=
st=20
positioned under the new FERC plan," Fleishman said in a note. He said=20
Calpine, Dynegy, NRG Energy and Williams stand to benefit the most from thi=
s=20
scenario.=20
"Companies that could be challenged are those with less long-term contracts=
,=20
that are more dependent on inefficient peaking plants, and that could be=20
affected by less volatility in the West," Fleishman said. "The big question=
=20
is how well the marketers positioned their books ahead of this changed=20
environment." He said Reliant Resources since it appears to have the least=
=20
contracted in the West for 2002.=20
The plan, which will be in effect from Wednesday to Sept. 30, 2002, follows=
=20
pleas from California Gov. Gray Davis to control wholesale prices, which he=
=20
said cost the state roughly $50 billion this year.=20
The state's largest utility Pacific Gas & Electric declared bankruptcy=20
earlier this year, citing losses from high wholesale prices. End=20









SCE Unveils Rotating Blackout Web Site and Public Notification Plan=20






June 20, 2001=20




ROSEMEAD, Calif., June 19 /PRNewswire/ via NewsEdge Corporation -=20
Southern California Edison (SCE) today unveiled its enhanced Web site and=
=20
public notification process to help guide the public through possible=20
rotating power blackouts when ordered by the California Independent System=
=20
Operator (Cal-ISO).=20
"We have been able to increase significantly the amount of outage informati=
on=20
available to our customers, because we want to empower them with critical=
=20
information to prepare for and safely cope through power blackouts," said P=
am=20
Bass, SCE's senior vice president of customer service. "We recognize that t=
he=20
more information customers have before and during rotating outages, the=20
better equipped they will be to address the concerns and safety of their=20
families and employees."=20
Bass said customers have indicated they want to know four basic things when=
=20
rotating blackouts occur: the location, the duration, whether it affects=20
them, and what they should and should not do to safely get through the=20
outages. SCE offers several information resources that address these concer=
ns=20
-- through toll-free phone lines, through news media updates, and now throu=
gh=20
an expanded, user-friendly rotating outage Web site.=20
All of these sources will tell customers that the outages rotate among=20
electrical circuits across SCE's vast service area for about one hour, as=
=20
directed by Cal-ISO. They will also list the likely affected customer group=
s=20
and communities, and even provide geographic maps outlining the specific=20
neighborhoods. Customers will also be able to access practical tips on how =
to=20
prepare and function safely through outages.=20
Customers can find out the group their home or business is assigned to by=
=20
identifying their alphanumeric Rotating Outage Group Number, which now=20
appears directly under the customer's name and address in the top left corn=
er=20
of the bill's front page. When Cal-ISO predicts possible rotating outages,=
=20
SCE will immediately announce which groups may be affected through its outa=
ge=20
hotline -- (800) 611-1911 -- its Web site -- www.sce.com -- and through the=
=20
news media.=20
When outages are forecasted or actually begin, customers can determine if=
=20
their group is part of the current outage or likely to be included in the=
=20
next round, since SCE generally interrupts groups in numerical order, with=
=20
some exceptions. For example, customers can now hear on the morning news=20
whether Cal-ISO is predicting outages for the day. By calling the hotline o=
r=20
checking www.sce.com, they can learn which groups would likely be interrupt=
ed=20
if circumstances turn out as predicted. If their group number is on the lis=
t=20
of groups likely to be interrupted, the customer could take steps to prepar=
e=20
for the likelihood of rotating blackouts affecting their home or business=
=20
that particular day.=20
It should be noted that group numbers may change without advance notice for=
=20
operational reasons or when state regulators revise their policy regarding=
=20
customers exempted from blackouts. SCE will notify customers of such change=
s=20
as quickly as practical.=20
Visitors to SCE's customer Web site, www.sce.com, will find the following=
=20
helpful enhancements:=20
-- The site displays outage group numbers and corresponding communities=20
affected during recent, current, and predicted rotating outage=20
incidents.=20
-- When customers click on the name of a community affected by an outage,=
=20
they are taken to a detailed street map of the affected circuit.=20
-- The Web site offers general outage information and links, including=20
outage preparation and safety tips, grid status information from Cal-=20
ISO, frequently asked questions about rotating outages, and=20
conservation tips.=20
-- A dynamic home-page pop-up window will change messages depending on=20
state power conditions. For example, during a Stage 2 Emergency,=20
customers will be directed to information about potential outages.=20
During a Stage 3 Emergency in which rotating outages are underway, the=20
box will provide a hotlink to group numbers and communities currently=20
affected and likely to be affected should outages likely continue.=20
For customers who don't have Internet access, SCE provides essentially the=
=20
same Web site information through an automated outage phone line, (800)=20
611-1911. This service makes it possible to obtain outage information=20
immediately without waiting. Among major features:=20
-- Customers can call at any time to learn the Rotating Outage Group=20
Number assigned to their home or business.=20
-- When customers experience a power blackout, they can call to determine=
=20
whether they are part of a rotating outage incident or if their=20
circuit has been affected by a routine interruption such as a car or=20
construction accident.=20
-- During rotating blackouts, customers can learn if their circuit is=20
currently affected or may be affected in the coming hours and which=20
portions of specific communities may be affected.=20
-- When customers call, they should have their account number and group=20
number handy. However, if customers call during a rotating outage=20
incident and do not know their group number, they will be able to=20
obtain information by entering their zip code.=20
SCE's media relations office has developed strategic communications=20
partnerships with radio and television stations that provide frequent live=
=20
updates to the public, including information about circuit groups affected =
or=20
likely to be affected by outages.=20
It should be further noted that while SCE is committed to providing as much=
=20
advance public notification about pending rotating blackouts, it can only d=
o=20
so as it receives timely notification from Cal-ISO.=20
SOURCE Southern California Edison=20
CONTACT: Corporate Communications of Southern California Edison,=20
626-302-2255, www.edisonnews.com=20
Web site: http://www.sce.com (EIX)=20











Edison CEO/ Ruling Hasn't Helped=20






June 20, 2001=20





By LESLIE GORNSTEIN
AP Business Writer
LOS ANGELES (AP) via NewsEdge Corporation -=20
A federal ruling this week limiting wholesale energy prices in 10 Western=
=20
states hasn't been enough to pull Southern California Edison any further fr=
om=20
the brink of bankruptcy, Edison International chief John E. Bryson said=20
Tuesday.=20
The state's second-largest utility is no further from or closer to bankrupt=
cy=20
now than it was ``two weeks, four weeks, six weeks ago,'' Bryson told a pre=
ss=20
conference before a speech to Town Hall Los Angeles, a public policy forum.=
=20
Bryson is chairman, president and chief executive officer of Edison=20
International, parent of subsidiary Southern California Edison, which serve=
s=20
4.2 million customers.=20
Bryson said, however, that he senses a warming among state legislators to a=
=20
proposed bailout deal between his company and the state.=20
That deal would supply billions of dollars to Edison in exchange for years =
of=20
cheap power and possibly the utility's power lines.=20
``Interest has at least intensified in Sacramento on the part of legislator=
s=20
to take steps _ debate continues exactly what steps _ to have Edison health=
y=20
and to take the state out of the power business and so on,'' Bryson said.=
=20
Such lawmaker approval is required for the deal to survive. Key lawmakers=
=20
surrounding the deal were not immediately available for comment.=20
In his Town Hall address, Bryson used the forum as a kind of open plea to=
=20
state legislators, listing what he called a series of widespread myths that=
=20
might be keeping leaders from acting.=20
``The first myth is that somehow Southern California Edison is seeking a=20
bailout from taxpayers,'' Bryson said. ``Only the reverse is true.''=20
Instead, Bryson said, it was Edison who bailed out California by keeping th=
e=20
lights on even when the utility's power costs far exceeded its revenues.=20
Secondly, Bryson said, Edison and its investors are not profiting from the=
=20
power crisis, and SoCal Edison's parent did not act improperly by collectin=
g=20
money from the utility earlier this year.=20
That money was later given to shareholders, a move that outraged consumer=
=20
groups.=20
Bryson also warned that a SoCal Edison bankruptcy would severely hurt=20
California's economy by scaring away new businesses and investment capital.=
=20
``Inaction would deeply hurt the state of California and all of us,'' he=20
said.=20










Editorial Desk; Section A=20
At Last, Action on California=20
?=20
06/20/2001=20
The New York Times=20
Page 22, Column 1=20
c. 2001 New York Times Company=20
After months of dithering, the Federal Energy Regulatory Commission took so=
me=20
potentially meaningful steps on Monday to contain the wholesale price of=20
electricity in California and elsewhere in the Western United States. Anxio=
us=20
not to be seen as caving in to public pressure or abandoning its fidelity t=
o=20
the free market, the White House described the new policy as ''consistent=
=20
with where the president has been all along.'' Gov. Gray Davis of Californi=
a=20
, for his part, said the policy did not go far enough, and of course only=
=20
time will tell whether it does. But to many others, including Senator Diann=
e=20
Feinstein of California , the move amounted to the first significant federa=
l=20
intervention in the California wholesale market since the crisis began last=
=20
year. Ms. Feinstein withdrew her own price-cap bill pending the outcome of=
=20
the new plan.=20
Under the new arrangement, approved unanimously by a reshuffled five-member=
=20
Regulatory Commission, price limits will be based on the cost of producing=
=20
electricity at the least efficient generator. The formula covers the sale o=
f=20
electricity for immediate delivery -- the so-called ''spot market'' that=20
supplies about 20 percent of California 's needs and that California turns =
to=20
when it is desperately trying to keep the lights on. The companies will be=
=20
allowed to charge higher prices during peak periods, but not the huge sums=
=20
they command today.=20
In addition, the constraints will apply throughout 10 other Western states,=
=20
presumably eliminating any incentive for generators to withhold power from=
=20
the California market in order to obtain a higher price elsewhere. The=20
controls are to expire in September of next year, which should relieve some=
=20
of the administration's earlier fears that constraints of any kind would=20
discourage investment in new and badly needed sources of supply.=20
The benefits will not immediately be felt by California consumers. Both=20
individuals and businesses have recently been hit by rate increases belated=
ly=20
imposed by the state's Public Utilities Commission at Mr. Davis's request.=
=20
But the new plan should ultimately benefit taxpayers by lessening the impac=
t=20
of higher energy costs on the state government, which has been buying power=
=20
on behalf of the state's two largest utilities, both essentially insolvent.=
=20
Recent estimates have suggested that California , which paid $7 billion for=
=20
electricity two years ago, could pay as much as $50 billion this year.=20
Until quite recently the president and his energy czar, Dick Cheney, had=20
seemed almost indifferent to California 's needs. But Republican members of=
=20
Congress from California and other Western states have been growing=20
increasingly restive as they contemplate the potential political fallout in=
=20
the midterm elections of 2002. In addition, the two newest members of the=
=20
regulatory commission, both Bush appointees, have expressed sympathy for=20
California 's plight. Whatever the reason, the administration appears to ha=
ve=20
seen the light, even though it is reluctant to admit it.









National Desk; Section A=20
Regulators' Order Could Bring Broad California Power Accord
By LAURA M. HOLSON with JEFF GERTH
?=20
06/20/2001=20
The New York Times=20
Page 14, Column 3=20
c. 2001 New York Times Company=20
LOS ANGELES, June 19 -- An order by federal regulators that power generator=
s=20
enter settlement talks with the State of California could open the door to =
a=20
sweeping compromise of the financial issues in the state's power crisis,=20
energy industry analysts and executives said today.=20
But the question that remains -- and it is a vital one, they said -- is=20
whether the Federal Energy Regulatory Commission has the wherewithal to for=
ce=20
the warring parties to hammer out an understanding that, at its heart, is a=
s=20
much about politics as about money.=20
The commission on Monday gave California regulators and power generators=20
until July 9 to come up with a plan for settling accounts between the=20
generators and California 's struggling utilities. The power companies are=
=20
owed billions, but the state has accused them of price-gouging. If the=20
parties cannot reach some agreement, an administrative judge will step in a=
nd=20
recommend a settlement to the commission instead.=20
Asked at a Senate hearing in Washington today to clarify what he hoped to=
=20
accomplish as a result of the two weeks of settlement talks, the commission=
's=20
chairman, Curtis L. Hebert Jr., was noncommittal. The parties, he explained=
,=20
need two things for the talks to succeed: a deadline and uncertainty.=20
Senator Dianne Feinstein, Democrat of California , expressed skepticism abo=
ut=20
the undertaking. Ms. Feinstein said at the hearing, held by the Senate Ener=
gy=20
and Natural Resources Committee, that she was concerned that the commission=
=20
had laid out ''no rules'' for the talks.=20
''Very little, if any, money has changed hands as a result of prior=20
settlement conferences,'' she said.=20
Many industry executives and state officials have not yet seen the=20
commission's order, and they were scrambling today to figure out exactly wh=
at=20
they were being asked to do.=20
''Without seeing what exactly is in the order, who knows?'' said Sean=20
Gallagher, a staff lawyer for California 's Public Utilities Commission.=20
''But we wouldn't turn our noses up at participating in negotiations.''=20
Gary Ackerman, executive director of the Western Power Trading Forum, a=20
coalition of energy traders and electricity generators, noted that the=20
federal regulators' timetable ''has a very short fuse.'' And the fact that=
=20
the state's biggest utility, the Pacific Gas and Electric Company, has file=
d=20
for bankruptcy will complicate efforts to reach a comprehensive agreement, =
he=20
added.=20
''I don't hold high hopes that a settlement would work out,'' Mr. Ackerman=
=20
said, ''but I commend the FERC for taking a stab.''=20
Moreover, the parties to the settlement talks may lack an element vital to=
=20
successful negotiations: trust.=20
Several California entities, including the Public Utilities Commission, are=
=20
investigating whether generators took advantage of consumers by charging=20
excessive prices for power. The Independent System Operator, which runs the=
=20
state's power grid, released a study in March concluding that Californians=
=20
might have been overcharged for electricity by more than $6 billion. One=20
state government negotiator said the California attorney general's office=
=20
could file a suit against the power generators in the next few weeks.=20
And as state officials, including Gov. Gray Davis, continue to hurl attacks=
=20
at the generators, calling them pirates and profiteers, the companies and=
=20
California utilities are blaming legislators, saying they failed to address=
=20
the power crisis quickly enough.=20
In March, Duke Energy, one of the companies the state has accused of=20
profiteering, offered to negotiate a broad settlement, but Governor Davis=
=20
ruled out calling off the state's inquiries as part of any agreement.=20
The outlines of Duke's proposal included a compromise on the money owed by=
=20
California utilities, in exchange for the dropping of private lawsuits,=20
California 's complaints to federal regulators and the state investigations=
.=20
Duke would have admitted no wrongdoing.=20
In formal proceedings, the power generators to date have vigorously fought=
=20
discounting the debts they are owed by California .=20
The Federal Energy Regulatory Commission has ordered generators to refund=
=20
nearly $130 million in what it judged to be overcharges. Today one of the=
=20
commissioners, William L. Massey, said 80 percent of that money had not bee=
n=20
collected.









A Section=20
Davis Finds Hope in Calif. Power Crunch
Rene Sanchez and Peter Behr
?=20
06/20/2001=20
The Washington Post=20
FINAL=20
Page A06=20
Copyright 2001, The Washington Post Co. All Rights Reserved=20
LOS ANGELES, June 19 -- Sinking in the polls, under attack by a new=20
Republican advertising campaign and still struggling to avert a summer of=
=20
blackouts, California Gov. Gray Davis (D) nevertheless seems heartened abou=
t=20
the latest developments in the power crisis that has engulfed his state and=
=20
threatened his political career.=20
On his first trip to Washington in months, Davis will detail California 's=
=20
plight Wednesday in testimony to a Senate committee newly led by sympatheti=
c=20
Democrats -- one important reason for his optimism.=20
But he has others: Conservation is taking hold in the state, and prices for=
=20
power on the daily spot market are dropping. California has managed to avoi=
d=20
rolling blackouts so far this month, in part because it has been spared a=
=20
heat wave.=20
Federal regulators, under pressure even from Republican lawmakers, decided=
=20
Monday to impose more controls on prices that energy suppliers can charge=
=20
California . Two new power plants are scheduled to begin producing=20
electricity in weeks. California also has recently secured more than a doze=
n=20
deals for power over the next decade, a move Davis contends will stabilize=
=20
the volatile wholesale market for energy.=20
In short, Davis and his aides say their concerted political strategy and=20
efforts to ease the crisis are beginning to pay off.=20
"The bottom line is that we're stabilizing prices and assuring the power wi=
ll=20
be there without additional rate increases," said Steve Maviglio, a spokesm=
an=20
for the governor. But he added: "We're not ready to say the war is over. It=
's=20
still going to be a tight summer."=20
Whether any or all of those steps will keep the lights on in California thi=
s=20
summer, or help solve an array of other financial problems the crisis has=
=20
caused, is hardly clear.=20
In fact, California 's power shortfall could produce 113 hours of rotating=
=20
outages this summer, according to a U.S. Department of Energy study schedul=
ed=20
to be released Wednesday.=20
Since California 's two largest utilities fell into financial ruin this yea=
r,=20
forcing the state to spend nearly $5 billion to buy power directly and=20
saddling residents with huge new rate increases, the support that Davis onc=
e=20
had from a majority of voters has vanished. Recent polls suggest that he=20
could have trouble winning a second term.=20
Consumer advocates here are besieging him, saying that the $43 billion in=
=20
long-term power deals that Davis has signed could lock residents into payin=
g=20
artificially high utility rates for years. Some contend that all he has=20
gained from Washington is political cover.=20
"The Bush administration has created this toothless price cap mechanism tha=
t=20
will be used as political protection but certainly not consumer protection,=
"=20
said Doug Heller, a director of the Foundation for Taxpayer and Consumer=20
Rights.=20
Davis has stuck mostly to the same political script. He is demanding more=
=20
federal help for California -- on Monday he called the Federal Energy=20
Regulatory Commission's decision merely "a step in the right direction" --=
=20
and he is denouncing out-of-state energy suppliers and their Republican=20
allies.=20
Today, Republicans launched a $1.5 million advertising offensive that blame=
s=20
Davis for the state's energy crunch. The spots, running on English and=20
Spanish-language media, describe the crisis as "Grayouts from Gray Davis."=
=20
Scott Reed, the GOP strategist who runs the American Taxpayers Alliance,=20
which funded the ad campaign, said his group wants to counter the governor'=
s=20
spin. "The blame game has to end," said Reed.=20
But Davis's aides say the ads are a sign that Republicans sense California =
's=20
energy predicament could deepen GOP political troubles in the state.=20
Privately, some Republican lawmakers pushing for more federal assistance sa=
y=20
they are worried that in midterm congressional elections next fall the GOP=
=20
could lose House seats in California that it needs to hold a majority.=20
Today's hearing will bring both Davis and his adversaries on the Federal=20
Energy Regulatory Commission before the Senate's Governmental Affairs=20
Committee, chaired by Sen. Joseph I. Lieberman (D-Conn.).=20
Instead of a committee debate on California 's electricity prices, the focu=
s=20
of the session may be shifting toward the billions of dollars of alleged=20
overcharges by energy suppliers.=20
Under growing pressure from both parties in Congress, FERC's commissioners=
=20
responded Monday with far more extensive price controls than they had been=
=20
willing to consider previously. They extended April price controls that had=
=20
applied only to times of power emergencies to all hours of the day, through=
=20
September 2002. And they expanded the controls to cover 10 other western=20
states.=20
California Sens. Dianne Feinstein and Barbara Boxer, both Democrats, said=
=20
FERC's action was a positive step and agreed to delay efforts to direct the=
=20
commission to clamp down on California 's energy prices. "We're willing to=
=20
give them a chance to see if it works," Boxer told reporters.=20
Now, Davis will press his demands that FERC recover some $8 billion in=20
alleged overcharges by wholesale power suppliers since the crisis began -- =
a=20
far larger amount than the $124.5 million in refunds that FERC has so far=
=20
assessed.=20
Whether there is even a chance of a peace process is unclear. Just last wee=
k,=20
California Attorney General Bill Lockyer announced plans to convene a=20
criminal grand jury to investigate whether power generators illegally=20
conspired to drive up electricity and natural gas prices.=20
The governor could face other new problems. Several of California 's major=
=20
independent power generators said the price controls and state lawsuits=20
against the generators made it more difficult to justify expanding operatio=
ns=20
in California , a warning echoed today by Energy Secretary Spencer Abraham.=
=20
But heading into the summer, California 's power prices are much lower than=
=20
they were a month or two ago, with daily or "spot" power prices averaging $=
78=20
per megawatt hour in June, compared to $372 in April.=20
Both Davis and the FERC commissioners are taking credit. S. David Freeman,=
=20
Davis's energy adviser, said that the long-term power contracts the state h=
as=20
signed, the new power plants and favorable weather have tamed prices.=20
FERC Chairman Curt Hebert Jr. said Monday that the limited price restraints=
=20
that the commission imposed on wholesale electricity sales in April have be=
en=20
a key reason for the price decline.=20
Sanchez reported from Los Angeles and Behr from Washington. Staff writers=
=20
Mike Allen and Juliet Eilperin contributed to this report from Washington.=
=20

http://www.washingtonpost.com=20
Contact: http://www.washingtonpost.com=20









National Desk; Section A=20
The Lesson of When to Give Aid to Free Markets
By DAVID E. SANGER
?=20
06/20/2001=20
The New York Times=20
Page 14, Column 3=20
c. 2001 New York Times Company=20
WASHINGTON, June 19 -- Three weeks ago George W. Bush addressed a sympathet=
ic=20
audience of business executives at the Century Plaza Hotel in Los Angeles a=
nd=20
declared that his administration ''will not take any action that makes=20
California 's problems worse, and that's why I oppose price caps'' on=20
electricity .=20
As he spoke, the Democratic governor of California , Gray Davis, sat=20
impassively on the dais, preparing to meet Mr. Bush and then denounce him f=
or=20
failing to protect California consumers from an electricity market gone wil=
d.=20
Today, the White House halfheartedly welcomed action by federal regulators =
to=20
impose throughout the West a system that looks and smells a lot like price=
=20
caps -- though the White House said it was something different.=20
''This is not a price control,'' Ari Fleischer, the White House spokesman,=
=20
said. ''This is a market-based mitigation plan that now will extend to 11=
=20
Western states.''=20
In fact, it bore some resemblance to a proposal made by 10 leading economis=
ts=20
who urged a middle ground between fixed prices and a deregulated electricit=
y=20
market. Mr. Davis used their proposal to support his position in favor of=
=20
limited price restraints when Mr. Bush visited California .=20
The White House shift from outright opposition to price controls to its mor=
e=20
nuanced position today exemplifies how Mr. Bush has tempered his embrace of=
=20
completely unfettered markets in recent weeks. He didn't have much choice.=
=20
As the threat of blackouts loomed, demands for action rose from officials o=
f=20
both parties and from consumers in the West. It was almost possible to hear=
=20
sighs of relief at the White House today that the Federal Energy Regulatory=
=20
Commission -- an independent body in the Energy Department -- had moved to=
=20
turn down the political heat.=20
In fact, while some House Democrats are still pressing for firmer caps on=
=20
prices, Senators Dianne Feinstein, Democrat of California , and Gordon H.=
=20
Smith, Republican of Oregon, withdrew a bill that would have placed strict=
=20
price controls on electricity sold in Western markets.=20
Senator Feinstein said the White House could call yesterday's regulatory=20
action ''mitigation'' or anything else it pleased.=20
''A rose is a rose by any other name,'' she said today.=20
And a free market is not always free. Two weeks ago the administration said=
=20
it would rescue steel companies and steelworkers who have long complained=
=20
about unfair competition from South Korea, Taiwan, China, Brazil, Germany,=
=20
Russia and Ukraine. The White House defended the action by saying it was th=
e=20
only way for the industry to adjust to a new competitive environment.=20
Last month, with no major announcements at the White House, the Bush=20
administration voted for International Monetary Fund aid to two countries,=
=20
Turkey and Argentina, that (like California ) had made some economically=20
disastrous political decisions.=20
In each case, Mr. Bush's economic orthodoxies were tempered by political=20
realities.=20
The California crisis was one thing when it involved a Democratic governor =
in=20
a state Mr. Bush lost by a million votes; it was another, one of his aides=
=20
conceded today, when congressional Republicans from around the West were=20
warning Mr. Bush that blackouts and sky-high prices could blow up in his=20
first year in office.=20
''We heard from a lot of members of Congress who feared that Republicans=20
would be tarred with worsening the problem, even though it happened on Gray=
=20
Davis's watch,'' the political aide said. ''The president took that on=20
board.''=20
Similarly, the steel decision was partly about enforcing laws against=20
''dumping'' foreign products in the market -- and partly about Mr. Bush's=
=20
desire to convince labor unions not to block his trade agenda. Like=20
Californians coping with higher energy prices, the steelworkers need time t=
o=20
adjust to a new world, the administration said.=20
''Open markets improve the lives of people by increasing opportunity, choic=
e=20
and economic freedom,'' Robert B. Zoellick, Mr. Bush's trade representative=
,=20
said in an interview today. ''But compassionate conservatism also recognize=
s=20
the reality that the effects of rapid change fall harder on some communitie=
s=20
and industries,'' which, he said, need ''vital breathing space to adapt to=
=20
change.''=20
While Mr. Bush expressed deep reservations about I.M.F. bailouts during the=
=20
presidential campaign, the situation seemed a bit more complicated once he=
=20
got to Washington. The State and Defense Departments feared that if Turkey=
=20
were engulfed in economic chaos, and blamed the United States for failing t=
o=20
come to its aid, its leaders might be less inclined to let American fighter=
=20
jets use its territory to mount missions over Iraq.=20
So given the choice between letting the Turkish people pay a high price for=
=20
political mistakes -- Californians take note -- and weakening American=20
pressure on Saddam Hussein, Mr. Bush decided that economic niceties were le=
ss=20
important than political consistency. Mr. Bush chose the Pentagon over the=
=20
Treasury.=20
Administration officials said these actions did not represent a retreat fro=
m=20
let-the-markets-prevail orthodoxy.=20
Lawrence B. Lindsey, Mr. Bush's chief economic adviser, said in an intervie=
w=20
today that he opposed price caps at the beginning of the California crisis=
=20
and that he opposed them now. But he would not criticize the federal=20
commission for ''mitigating'' price spikes in the market.=20
''What they are trying to do is achieve two incompatible missions --=20
preserving what is called 'just and reasonable pricing' and assuring an=20
adaquate supply of electricity ,'' Mr. Lindsey said. Yet the reality, he=20
added, is that new supplies of electricity will not become available for a=
=20
year or more. ''FERC is doing its best to square that circle in the face of=
=20
the fundamental problem, which is inadequate supply,'' he said.=20
That is the kind of argument that keeps economists happily arguing for hour=
s.=20
It is not likely to be the kind of argument Mr. Bush himself is likely to=
=20
engage in for long. As one of his political advisers said the other day,=20
''Don't think about this purely in terms of megawatts. We need to produce=
=20
more electricity , but we also need to produce some more seats in the=20
House.''=20
ann.schmidt@enron.com, bryan.seyfried@enron.com, elizabeth.linnell@enron.com, 