Perspective on California and refunds.



GOVERNOR DAVIS COMMENTS ON FEDERAL ENERGY REGULATORY COMMISSION'S REPORT

The following is a transcript of Governor Gray Davis' remarks on the Federal
Energy Regulatory Commission's (FERC) report:

"My goal is to keep the lights on and to keep the price of electricity
affordable. That is more of a challenge than you might imagine in this
complicated deregulated world we find ourselves in. I believe we are making
a good start.

"Last year I was able to sign legislation that basically stabilized rates in
San Diego, and I supported hundreds of millions of dollars for renewable
power resources, like the photovotaic program you see behind us, to support
financially and also encourage voluntary support for conservation programs
up and down the state to reduce California's use of electricity by 10% when
we had a Stage Two alert and to encourage demand management programs by a
number of industries, including the technology and grocery industry that
reduce the demand on any given day.

"Having said all that, this market is dysfunctional. It is a very difficult
environment for deregulation to work. And I repeat again, deregulation can
work but only if all parties act responsibly and if the market is
competitive, which it is not.

"I was pleased to see that Secretary Richardson agrees with me that this
market is dysfunctional and I am also somewhat pleased by the initial
reports of the action that FERC took today. It is a mixed blessing. They do
recognize that we are operating in a dysfunctional market and they do agree
that the rates are not just or reasonable. However, they did not, as I
encouraged, order rebates to the consumers and businesses in San Diego who
were literally gouged and for the profiteering and market manipulation that
San Diego had to suffer through.

"FERC also decided to abolish the stakeholder boards at the ISO-independent
service operator, and the power exchange. FERC agrees with me that they are
self-serving and either contributed to or participated directly in market
manipulation. However, it is unclear what will replace those boards. The
good news is that they agree with our premise that the market is
dysfunctional, rates are unreasonable and unjust. The bad news is there is
no immediate remedy for ratepayers here in California.

"I believe the marketplace generally makes good decisions but I am not going
to be a prisoner of ideology. I do not want some knee jerk reactions to
drive our economy or our consumers to their knees. I have seen time and
again the most right wing conservatives in San Diego that say, 'please give
us money to bail us out from the increased prices that have descended upon
us.' So as I have long understood, economics drives politics and at the
moment we are shipping about $6 billion more out of this state for
electricity than we paid about 12 months ago. That has got to stop.

Question inaudible.

"It appears that the FERC said they are going to restructure it and this
again suggestes the complexity that we have to deal with. Once the state
deregulated distribution from power generation in 1996, the PUC basically
surrendered most of its control over the purchase and acquisition of
electricity for California and that control reverted to the Federal Energy
Regulatory Commission. As I read the initial reports from the FERC decision
today, they are saying the ISO and the power exchange are dominated by stake
holder members and they think that is ill advised, as do I. There will be
new boards established and we will tell you how they are established. So it
is unclear whether we have the authority to, independent of the FERC to
establish our own ISO and power exchange. My initial reading of the press
reports suggest that we may not. That is something that has to be cleared up
over the next several days.

Question inaudible.

"We have had a series of meetings over the past two months with all kinds of
stakeholders from turn to utilities to generators, other consumer groups
from San Diego and we are trying to forge a consensus which will indicate
the path that we will take. I am not at the point where I can tell you what
that consensus is. But we are making progress.

Question inaudible.

"That we are going to fight for consumers, that they should not bear the
full brunt of this experiment in deregulation. At best it was premature and
the market place was not prepared. The marketplace is dysfunctional, it is
not competitive. There is a far greater demand for electricity than we can
generate in this state. I want them to know that we are working night and
day to find a solution that will ensure that they are not the guinea pigs
for this ill-conceived scheme.

"I am pleased that FERC has recognized that the marketplace is
dysfunctional, recognized that rates are unjust and unreasonable. I am not
pleased that they have not offered any solutions. It looks like we are going
to have to wait until November 9th at the hearing in front of FERC at which
their full plan will be unveiled and there will be a chance to comment,
critique and modify and then thirty days after that the plan will be adopted
in full or in part. This is a very important meeting in which our
administration will be fully represented and I hope to be able to inform the
consumers of this state more fully at the conclusion of that meeting if not
before.

"I believe refunds are due and necessary. FERC and the Secretary of Energy
have concurred with my assessment that these rates are not just and
reasonable and I believe that FERC has the power to order refunds. It is
unclear whether they believe they have the power to do it or not. Congress
could settle

the question by simply passing legislation to ensure that. Over the long
haul, by that I mean 5 to 10 to 15 years, I believe deregulation can work
but only if we have a competitive marketplace and if all parties act
responsibly. As I told everyone involved in this process, some people may
win the battle but lose the war if they insist on gouging every consumer and
citizen of this state. The people of California will stand up; they will
rise up and take matters into their own hands. The problem with deregulation
lowering rates, is that we have not seen them and frankly none are on the
immediate horizon.

Question inaudible.

"Let me just say two things. I think there is plenty of blame to go around
but there is no question that the generators who happen to be out-of-state
companies are charging us 600 to 700% more for the very same electricity
that we purchased last year. You cannot add value to an electron. An
electron is an electron. They are simply taking advantage of an ill-advised
scheme envisioned in the 1996 act to charge what the market will bear. I am
standing up and saying no more. We are not going to take this lying down. We
are fighting back. The difficulty is that we do not have the power that we
used to have. The state surrendered a lot of that power when Governor Wilson
signed the deregulation bill. Actually carried by Jim Brulte and co authored
by Steve Peace, they were the two driving forces as they will be happy, well
maybe not so happy, to acknowledge. It may have seemed like a good idea in
1996 but I did not participate in that debate and I don't have a comment on
whether it was a good idea then. But clearly in the year 2000 it is not a
good idea. Again our problem is we can describe the problem and we have some
limited authority over the power the utilities have not yet sold off to the
generators which is about 35-40% of their facilities that they used to own
and we do not have control over the facilities they have sold off to the out
of state generators that purchased them. FERC has control over them and it
is unclear whether we even have control to establish our own ISO and our own
power exchange and if we did I would have them reconstituted. There is no
question about that. They are too self serving too inbred and too incestuous
and do not represent consumer interests. Plus you cannot hold anyone
accountable there is no one public official on any one of those boards. You
cannot hold anyone accountable and they determine largely what the price of
electricity is and how any shortages are allocated throughout the state. So
these are serious responsibilities given to these stakeholder boards and no
public official participates on those boards.

Question inaudible.

"You are more right than wrong. As the chief executive of this state I am
going to advocate what I believe is in the best interests of our consumers
and businesses. Electricity is the lifeblood of our economy. Without water
and electricity, consumers and businesses are just simply out of luck.
Whether or not this deregulatory scheme in 1996 made sense then is a
question not worth debating today. But it does not make sense today.
Unfortunately that plan adopted by our legislature and governor Wilson in
1996 surrendered control over generating facilities that the PUC used to
monitor and supervise. So it is unclear how much power is left to the state.
FERC seems to be suggesting

today, not much. Obviously as governor of this state I want to assert as
much authority as I possibly can because I know I will be held accountable
and obviously I would like the authority to go along with the responsibility
that is laid at my doorstep.

"I have one goal in mind: to do our level best to make sure that our lights
stay on and our economy has the benefit of the electricity it needs and the
prices are reasonable. What path we take to that matters less to me than
that we get to that result. Because that is the result that is necessary to
allow consumers to go about their lives and business to function and make a
profit and hire more people and to sustain our economic growth which in turn
provides the resources that allow us to finance the schools and protect the
environment and provide healthcare. Without electricity there is no economic
growth, without economic growth we do not have the resources to do justice
to our public obligations. Thank you for coming out here today.

# # #

Julee Malinowski-Ball
Legislative Analyst/Associate
CalETC/Edson+Modisette
916-552-707
Fax- 552-7075
CalETC@ix.netcom.com or jmball@ns.net