SF Gate: Dramatic drop in cost of electricity/LOWER BILLS: Cheaper ,
 Front page of the SF Chronicle.  It's making its way in the press.  My Award 
for Most Expected Response -- the "consumer advocates" who now argue that the 
generators are manipulating prices downward!

Sue Mara
Enron Corp.
Tel: (415) 782-7802
Fax:(415) 782-7854
----- Forwarded by Susan J Mara/NA/Enron on 06/06/2001 12:24 PM -----

	"smara" <smara@enron.com>
	Sent by: <nobody@sfgate.com>
	06/06/2001 12:18 PM
		 
		 To: "smara" <smara@enron.com>
		 cc: 
		 Subject: SF Gate: Dramatic drop in cost of electricity/LOWER BILLS: Cheaper 
fuel, milder weather credited


 
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This article was sent to you by someone who found it on SF Gate.
The original article can be found on SFGate.com here:
http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2001/06/06/MN199202.DTL
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Wednesday, June 6, 2001 (SF Chronicle)
Dramatic drop in cost of electricity/LOWER BILLS: Cheaper fuel, milder 
weather credited
David Lazarus, Chronicle Staff Writer


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