Greetings:

Sorry to bombard, but there is simply so much in the press today that affects 
just about everything that this group has been, and will continue to be, 
struggling with, that I thought it might be useful information for folks to 
have.  Note in particular the story about the bonds in today's WSJ.  My 
apologies if you feel spammed. Feel free to lash out if that's the case.

Best,
Jeff

PS  We had not idea that Maviglio owned our stock.  
******************************************************************************
***************************
Sac Bee, Tues, 7/31: Davis spokesman under fire for stock 
Sac Bee, Tues, 7/31: Davis energy aide leaves -- without pay 
Sac Bee, Tues, 7/31: Power delivery efficiency questioned: Output at low-cost 
generating plants has been cut while costlier ones continue to operate
Sac Bee, Tues, 7/31: Davis: FERC excluding $5 billion of owed refunds 
Sac Bee, Tues, 7/31: Bill would streamline the path to local power: More 
cities, including Davis, are taking a look at creating municipal utility 
districts
SD Union, Tues, 7/31: SDG&E denies it deceived ratepayers about debt 
SD Union, Tues, 7/31: Sempra set to unveil plans for new plant, business park
SD Union, Tues, 7/31: Davis press secretary confirms buying energy company 
stock
LA Times, Tues, 7/31: Davis' Energy Advisors Draw SEC Attention
SF Chron, Tues, 7/31: California governor's press secretary confirms buying 
energy company stock 
SF Chron, Tues, 7/31: PG&E's $500,000,000 second-quarter surprise 
SF Chron, Tues, 7/31: Power and 'juice' 
SF Chron, Tues, 7/31: S.F. to vote on electric power to the people 
Measures would start public utility districts 
Mercury News, Tues, 7/31: Davis' advisers probed by SEC 
OC Register, Tues, 7/31: Ethics issue in stock buy? 
OC Register, Tues, 7/31: Aide denies stock deal was improper 
OC Register, Tues, 7/31: Power firms amp up lobbying 
OC Register, Tues, 7/31: Gouger Gray Davis  (Commentary)
Energy Insight, Tues, 7/31: Turning coal into a tradable commodity
WSJ, Tues, 7/31: Debt Pitch: California's Next Test In Electricity Crisis:
Selling Power Bonds
LA Times, Tues, 7/31: California ; Op Ed Desk 
Commentary The State Will Pay for Davis' Panic
WSJ, Tues, 7/31: Electrical Switch: Now, Cheaper Power
Is Causing Hefty Losses for California 
------------------------------------------------------------------------------
-------------------------------------------------------------

Davis spokesman under fire for stock 
By Amy Chance and Dale Kasler
Bee Staff Writers
(Published July 31, 2001) 
Davis administration spokesman Steve Maviglio acknowledged Monday that he 
bought stock in Calpine Corp. in June, at a time when the company was 
announcing a breakthrough in its bid to build a controversial San Jose power 
plant. 
His disclosure came several days after Gov. Gray Davis dismissed five state 
power purchasers for owning stock in the company and drew new complaints that 
Davis administration officials may have improperly mixed their private 
finances and their public roles. 
Maviglio, now acting as interim communications director for the 
administration, said he put in an "open" order for Calpine stock May 31, 
agreeing to buy 300 shares once the stock hit a certain price. 
He said that threshold was met June 20, the day after an action by the 
Federal Energy Regulatory Commission brought down "all energy stock prices 
across the board." 
Maviglio said he bought the stock for his individual retirement account, and 
it has since declined in value. Under terms of the open order, he said, he 
had no control over the exact date of purchase. 
Maviglio touted the company in his role as spokesman to the governor in a 
story published June 27 in The Bee. He said Monday that he was simply 
responding to a reporter's question about the company's positive reputation. 
"They have made a clear commitment to invest in California's future," 
Maviglio said at the time. "Their pricing has been far more reasonable than 
any other generator." 
In the interview, Maviglio also contrasted Calpine and Texas-based 
generators. He said Calpine "took a different tack from the Joe Bobs of the 
world," an apparent reference to Joe Bob Perkins, a senior executive with 
Reliant Energy Inc. of Houston. 
Maviglio acknowledged the stock ownership several days after the 
administration ended its relationship with several energy consultants who 
held stock in energy companies, including Calpine. 
Under pressure from Secretary of State Bill Jones, a Republican who hopes to 
challenge Davis for governor next year, the Davis administration has spent 
several weeks scrambling to answer questions about the stock holdings and 
potential conflicts of its consultants and energy traders. 
Jones said Monday that Maviglio should be fired. 
"These actions are unethical, unconscionable, unacceptable, and heads should 
roll," he said in a statement. He said the Democratic governor should direct 
all of his staff to immediately file updated conflict-of-interest statements 
to reflect current holdings. 
Jones, who last week asked the Securities and Exchange Commission to 
investigate administration consultants for insider trading, also said the 
probe should be expanded "to include all of the governor's staff." 
Federal law and SEC regulations forbid anyone from trading stocks while 
possessing "insider information" -- relevant facts not available to the 
public, according to the SEC. Violations can bring lawsuits and criminal 
prosecution. 
Michael Prozan, a Menlo Park lawyer and expert on insider trading, said the 
prohibition against it originally focused on halting company executives from 
profiting from news before it was disclosed publicly. 
But the laws have been broadened to include others besides company employees. 
Investment bankers, lawyers and journalists have been snared by 
insider-trading crackdowns. 
Davis' office was instrumental earlier this year in paving the way for 
removing barriers to construction of a Calpine plant in San Jose. On May 30, 
after opposing the project for years, San Jose Mayor Ron Gonzales announced 
he had negotiated an agreement addressing his concerns and agreed to support 
construction. 
His action came after Davis in April endorsed the plant's construction and as 
the state Energy Commission threatened to approve it over local objections. 
On June 20, the company announced it had won tentative state approval to 
build the plant. 
Maviglio said he buys many stocks and that Enron Corp. and Calpine are the 
only energy generators among them. He owns 100 shares of Enron stock, which 
he purchased in 1996. 
"I deal with hundreds of California companies just about every day, and this 
was one that I saw that looked like a good investment based on public 
knowledge," he said. "I read six newspapers a day or more, and I know what's 
going on in the world. If there's a standard that I can't invest in something 
that I have general public knowledge of, then I wouldn't have any stocks at 
all." 
Maviglio said that the "open" order he placed meant that he could not have 
used inside information to make his stock purchase. 
"Had I had specific knowledge about a contract being signed or what actually 
happened in the office of the mayor of San Jose ... that would have been 
unrelated," Maviglio said. "There was no timing-based sequence to it." 
Calpine stock, despite the company's considerable success, has slipped in 
recent weeks because of general investor anxiety about the California energy 
crisis. 
The stock, which trades on the New York Stock Exchange, closed at $49.30 on 
May 31, the day Maviglio says he placed the purchase order. The order was 
executed as the stock dipped below $40 on June 20, closing that day at 
$39.85. 
The day before, the Federal Energy Regulatory Commission announced a 
price-control plan that investors believed was damaging to generators' 
profits. On Monday, the stock closed at $37.13. 
Last week, the Davis administration stopped doing business with five energy 
traders under contract with the administration after Maviglio said 
administration lawyers "came to the determination that there are possible 
violations of the law or close to it." 
"It's not a crime to own energy stock," Maviglio said Monday. "The difference 
with these traders is they're making governmental decisions. They're 
committing the state's resources by spending money to buy power." 
Jim Knox, director of California Common Cause, said he believes the 
Governor's Office made critical errors while hiring staff to purchase energy 
for the state. 
"Had the Governor's Office gone to the trouble to have these people fill 
statements of economic interest, as they were required to do by law, they 
should have known this before they were hired and they shouldn't have been 
hired," Knox said. 


The Bee's Amy Chance can be reached at (916) 326-5535 or achance@sacbee.com 
<mailto:achance@sacbee.com>. 
Emily Bazar of The Bee Capitol Bureau contributed to this report.







Davis energy aide leaves -- without pay 
By Emily Bazar
Bee Capitol Bureau
(Published July 31, 2001) 
A high-paid consultant to Gov. Gray Davis who came under fire for his 
dealings with a California utility has cut ties with the administration and 
won't be paid for work already completed. 
Under terms of a settlement made final Monday, former Clinton damage control 
specialist Chris Lehane will no longer help shape Davis' public response to 
the energy crisis. 
Neither Lehane nor partner Mark Fabiani -- who were hired by Davis in May on 
a six-month, $30,000-a-month contract -- will receive any money for their 
services. Fabiani left last month. 
Because Lehane and Fabiani each received at least $10,000 under contract with 
Southern California Edison in the past year, Lewis Uhler, president of the 
National Tax Limitation Committee, filed a lawsuit alleging that conflict of 
interest laws had been violated. 
But Davis spokesman Steve Maviglio said Lehane and Fabiani were instrumental 
in persuading the Federal Energy Regulatory Commission to limit the wholesale 
cost of power in the state. 
"Chris Lehane provided an invaluable service to the people of California in 
helping us get action after a yearlong wait from FERC," he said. "It's a 
shame that politics gets in the way of public service." 
Uhler, however, said he believes Lehane and Fabiani represent a larger 
problem in the Davis administration, and he pointed to the recent dismissal 
of energy traders who held stock in energy companies. 
"Doesn't anybody in the Governor's Office understand conflict of interest?" 
Uhler asked. 
"This is really sending a signal that the Governor's Office thinks that it is 
somehow above the law." 


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



Power delivery efficiency questioned: Output at low-cost generating plants 
has been cut while costlier ones continue to operate.
By Carrie Peyton
Bee Staff Writer
(Published July 31, 2001) 
California is sometimes deliberately cutting output from low-cost power 
plants while running more expensive ones, utility and grid officials say. 
The sporadic episodes haven't cost much yet, but they illustrate a 
potentially troubling disconnect in the system that has quickly grown between 
two agencies that help deliver electricity to a power-strapped state. 
"We seem to be building this inefficiency into the system, and it doesn't 
seem to be getting better," said Mike Florio, a consumer advocate who sits on 
the governing board of the Independent System Operator. 
The trouble is that the ISO, created in 1996 to manage the power grid in a 
deregulated electric market, tries to run the grid by auctions that -- in 
theory -- provide the cheapest electricity for the state's consumers. 
Meanwhile, the state Department of Water Resources, which in January stepped 
in to buy power on behalf of cash-strapped utilities, isn't bidding at some 
auctions because it believes it can provide cheaper power if it doesn't. 
"We have an inefficient market and an inept government entity. It's sort of 
the worst of both worlds," Florio said, criticizing his agency and the DWR. 
ISO staffers decline to discuss the situation in detail, saying it involves 
confidential bidding behavior. 
But Pete Garris, chief of operations for the power-buying arm of the 
Department of Water Resources, confirmed that the ISO has been asking his 
agency to take part in more auctions, but the state has declined. 
The state's role is to buy electricity for customers of utilities whose 
credit was no longer good enough to buy on their own, he said. 
"We're not in it to do those kinds of marketing functions," he said. "It's 
not necessarily a good fit." 
Some of the ISO auctions are used to lessen congestion on transmission lines. 
Others are used to stabilize the grid by slightly increasing or decreasing 
output when demand doesn't match forecasts. 
Generally, the highest-cost power plants should be the ones cutting back, a 
process the industry calls "decking." 
But since May, on ISO orders, Southern California Edison has repeatedly 
throttled back on the Mohave Generating Station, which produces some of the 
cheapest power available to California today, costing as little as $10 to $20 
a megawatt-hour. 
Edison, which owns a majority share of Mohave, has cut its output by 5,660 
megawatt-hours between May and July, about one-half of 1 percent, at the 
ISO's behest, according to data Edison provided to The Bee. 
The ISO could probably have saved the state's consumers $370,000 at one plant 
if it had asked a higher-cost gas-burning plant to cut back instead of 
Mohave, a coal-burning workhorse in Laughlin, Nev., Florio said. 
The amount sounds like "small potatoes," but in some ways it is more alarming 
than the $14 million the state lost recently by selling excess power for less 
than it paid, he said. 
Industry experts agree that such below-cost sales are common in a business 
where power needs fluctuate dramatically based on the weather. 
By contrast, "this is a dead weight loss. Higher costs are being incurred for 
no good reason," Florio said. 
"The question is, why is the ISO calling on Mohave and not (cheaper) gas 
plants? The answer is, the gas plants aren't bidding ... probably because 
they're contracted with DWR," he said. 
Four Corners, another low-cost coal plant partly owned by Edison, has also 
been throttled back at ISO request, Edison officials said. 
In addition, so few bidders have shown up at ISO auctions to ease stress on 
transmission lines that the system has fallen into disarray, with the ISO 
instead ordering across-the-board power production cuts that are boosting 
costs, Florio said. 
For its part, the ISO will say only that "we are making the most economical 
decisions we can based on the bids available," said spokeswoman Stephanie 
McCorkle. 
DWR's Garris said the state and the ISO have been meeting repeatedly on 
bidding and other coordination issues, and he hopes to have a 
smoother-running system in place by next summer. 


The Bee's Carrie Peyton can be reached at (916) 321-1086 or 
cpeyton@sacbee.com <mailto:cpeyton@sacbee.com>.







Davis: FERC excluding $5 billion of owed refunds 
By Jim Sanders
Bee Capitol Bureau
(Published July 31, 2001) 
A ruling by the Federal Energy Regulatory Commission last week could cost 
Californians $5 billion in energy refunds, according to Gov. Gray Davis, who 
filed a formal request Monday for a rehearing in the case. 
Although the commission's order suggested that California is owed refunds 
because of exorbitant electricity prices during the recent energy crisis, the 
order's fine print placed severe limits on such refunds, Davis said. 
"FERC is up to its old tricks again," he said. "They talk about refunds for 
California. But in this case, talk really is cheap: The details of its latest 
order show it has no intention of making California whole." 
Tamara Young-Allen, a FERC spokeswoman, declined comment Monday and said the 
agency does not discuss pending cases. 
California is seeking $8.9 billion in alleged overcharges for electricity 
purchased from May 2000 to June 19, when FERC imposed new rules to prevent 
price gouging. 
On Wednesday, FERC ordered hearings to determine precisely how much money 
electricity generators would have to pay in refunds to California. 
At the time, Davis applauded FERC's ruling, saying it validates California's 
claim that "significant refunds are due" and that the agency's action "gets 
us closer to realizing that refund." 
But after poring over details of the 40-page order, state officials said 
Monday that it excludes from consideration more than half the amount sought 
by the state -- leaving $3.9 billion in dispute. 
Attorney Barry Goode and Nancy McFadden, key members of Davis' energy team, 
said the FERC order would not allow refunds: 
For about $2 billion in alleged overcharges stemming from electricity 
purchased by Californians between May and October of last year. 
For electricity bought by the state Department of Water Resources from 
private companies this year. The state says it is owed about $3 billion from 
such purchases. 
The FERC ruling means that only DWR's purchases through the state's 
now-defunct Power Exchange or through the operator of a statewide electricity 
transmission grid will be considered for refunds, officials said. 
Such limitations by the regulatory agency are impractical because the market 
was dysfunctional, leaving DWR with few options, when the state began buying 
electricity for debt-strapped private utilities in January, Goode said. 
"Now FERC says Californians are not entitled to refunds even though they 
determined the prices were excessively high," Davis said. "It's time for FERC 
to decide who they are working for: the greedy out-of-state generators or the 
people of California." 
The motion filed Monday sets the stage for a possible lawsuit. 
"We are calling on FERC to change its order," Davis said. "If it doesn't, we 
will be in court." 


The Bee's Jim Sanders can be reached at (916) 326-5538 or jsanders@sacbee.com 
<mailto:jsanders@sacbee.com>.








Bill would streamline the path to local power: More cities, including Davis, 
are taking a look at creating municipal utility districts. 
By Ed Fletcher
Bee Capitol Bureau
(Published July 31, 2001) 
With the future of California's investor-owned utilities clouded by the 
state's energy crisis, more and more cities, including Davis, are looking to 
control their own power destinies. 
Cities, public-power advocates and state Sen. Nell Soto, D-Pomona, are 
pushing a bill through the state Legislature that would make it easier to 
create municipal utility districts. 
"My solution to the power crisis is to reassert our interests and declare our 
independence from out-of-state gougers and in-state irresponsible utility 
companies," said Soto, who is carrying the bill, SB 23xx. 
The Senate approved the bill earlier this month. The Assembly is expected to 
take it up when the Legislature reconvenes in mid-August. The state's three 
investor-owned utilities are fighting the proposal. 
Davis and other cities look longingly at the Sacramento Municipal Utility 
District's success in sheltering ratepayers from the brunt of rate increases. 
Given the cloudy financial future of Davis' power provider, Pacific Gas and 
Electric Co., public power supporters say it's easy to understand why cities 
want local control. If run well, public power can be cheaper and more stable 
than that supplied by investor-owned utility companies, they say. 
"You get to choose the type of energy you want. ... I can't think of a bad 
reason" to have public power, said Robert Milbrodt, a Davis resident active 
in the drive. 
After Yolo County officials last year denied an effort to form a public power 
authority in Davis, the city is ready to take a fresh look. The city, which 
did not formally support last year's attempt, this week is expected to name 
members to a public power task force. It is also hiring a consultant to help 
evaluate the pros and cons of a Davis version of SMUD. 
Soto's bill would create a path to public power that takes county local 
agency formation commissions out of the process. Under the bill, if all the 
cities and counties affected by the proposed municipal utility district sign 
on, the plan bypasses the local LAFCO, goes directly to the California Pubic 
Utilities Commission for analysis and then to the voters of the affected 
areas. 
It was the Yolo County Local Agency Formation Commission that turned down the 
Davis request a year ago, saying critical issues were unresolved. Davis 
public power activists said their plan would have put the basic formation 
question before the voters, leaving the details to be worked out later. 
Public power boosters said lobbying by PG&E doomed their plans. 
SB 23xx also simplifies the approval process, allowing a simple majority of 
voters in the proposed district to create the new power district. 
Seizing transformers, power lines and other utility company infrastructure 
through eminent domain would become much easier for agencies starting 
municipal utility districts under the bill. A utility company would not be 
able to challenge the taking of property based on the merits, but could only 
fight over price. 
The utility companies say the provision would take away a key protection 
against abuse. 
Surveys show Californians like the idea of local officials controlling their 
power, in part because they blame investor-owned utilities for the state's 
electricity mess. 
Nearly two-thirds say local governments taking the place of investor-owned 
utilities would be a good thing, according to a poll released earlier this 
month by the Public Policy Institute of California. 
There are those that warn, however, that pubic power is not without risk. 
"This bill does not address generation," said Dale Hunter, a PG&E lobbyist, 
and municipal utility districts that can't generate their own power will be 
"exposing ratepayers to the volatility of the (power purchasing) market." 
In Los Angeles, the Department of Water and Power has been highly successful 
because it has surplus power to sell, Hunter said. SMUD has only recently 
been forced to raise its rates largely because it generates some of its 
power, Hunter said. 
By creating a way around LAFCOs, shifting the Public Utilities Commission to 
an advisory role and stripping the right of utility companies to fight in 
court, the bill would be removing important public safeguards, Hunter said. 


The Bee's Ed Fletcher can be reached at (916) 326-5548 or 
efletcher@sacbee.com <mailto:efletcher@sacbee.com>.







SDG&E denies it deceived ratepayers about debt  


\
objattph 
Company calls gain on sales, debts 'separate transactions' By Craig D. Rose  
UNION-TRIBUNE STAFF WRITER  July 31, 2001  San Diego Gas & Electric yesterday 
denied allegations that it systematically lied about the debt it racked up 
during the power crisis, despite revelations that the company earned hundreds 
of millions from some power sales.  SDG&E and its parent company, Sempra 
Energy, acknowledged making profits from selling electricity but insisted 
those gains have no bearing on the $750 million debt the utility claims to be 
owed by customers for power purchases during the energy crisis.  "Those are 
completely separate transactions," said Ed Van Herik, a spokesman for SDG&E. 
The company's effort to seal a deal with the state to clear the $750 million 
debt has come under attack by the Utility Consumers' Action Network. The San 
Diego-based consumer group says SDG&E's claimed debt is the result of 
selective bookkeeping, bordering on fraud.  The bottom line, says UCAN, is 
that SDG&E engaged in deception and probably owes its customers money.  
SDG&E, which claimed to have sold customers electricity without markups, 
actually "was buying electricity at a low price and selling it at a higher 
price to us," said Shames. "SDG&E customers have been systematically lied to 
over the past year about this balancing account."  UCAN says that SDG&E 
earned an estimated $450 million from its power sales to the state, while 
publicly declaring that it was posting only losses from buying power.  Shames 
said much of the information leading to UCAN's conclusion came from a 
detailed analysis of documents made available in recent weeks.  The state 
Office of Ratepayer Advocates, meanwhile, yesterday said a new filing by 
SDG&E that claims its power-sales profits belong to stockholders, not 
consumers, is "specious" and "without merit."  Van Herik insisted the company 
had not been misleading. The spokesman noted that the company earlier was 
required to buy electricity from the Power Exchange, a now-defunct 
marketplace established by the state as part of its deregulation plan.  "What 
we said is that we were buying electricity for our customers and passing 
along the cost without markup," said Van Herik.  What SDG&E failed to 
publicly announce was that it was simultaneously selling electricity to the 
Power Exchange for an apparently healthy profit.  Under certain contracts, 
SDG&E had locked in electricity at prices substantially below going rates 
during the ongoing power crisis. The company declined yesterday to reveal 
terms of the contracts. But UCAN estimates the contracts provided electricity 
to the utility at no more than 5 cents per kilowatt-hour.  SDG&E then sold 
that relatively cheap power to the Power Exchange for a higher price and 
pocketed the profit, which it also declined to disclose.  As it profited from 
the power sales, SDG&E bought power at higher prices from the exchange and 
billed customers for what it paid.  Whenever SDG&E's costs to buy electricity 
exceeded what state regulators would allow the utility to charge customers, 
it recorded the amounts in balancing accounts. That account grew to $750 
million.  But SDG&E never offset its losses from electricity purchases with 
its profit from sales.  Van Herik said the practice was appropriate because 
the lucrative contracts for cheap power were owned by the company's 
shareholders, not its customers. The practice of keeping profits and losses 
entirely separate, he said, was endorsed by a California Public Utilities 
Commission audit.  But the first formal ruling on that matter came in June, 
when the full commission ruled that all profits from SDG&E's contractual 
power deals belong to its customers.  SDG&E went to court to overturn the 
commission's ruling, but put the legal effort on hold shortly before Sempra 
reached a tentative agreement with the state to clear the $750 million debt. 
The proposal with the state would reverse the utilities commission ruling and 
award the company's shareholders ownership of the profits SDG&E made from 
selling power.  Van Herik said yesterday that the state made the concession 
because it recognized that SDG&E had a strong legal case.  But Shames says 
the state had a strong case and noted that the Office of Ratepayer Advocates 
agreed. He is asking the utilities commission to reject the deal.  State Sen. 
Steve Peace, D-El Cajon, said he believes that consumer objections to the 
balancing account deal are aimed at getting ratepayers a better deal -- and 
that's something he supports.  "If Michael Shames can improve on the 
balancing account deal I'm in full support as long as we don't lose any of 
the gains we've already gotten," he said.  A spokesman for Gov. Gray Davis 
did not return a telephone call seeking reaction to the UCAN allegations.  
Outside UCAN's office in Little Italy yesterday, a group of trade unionists 
demonstrated in support of SDG&E's position. Dave Moore, a business manager 
for the International Brotherhood of Electrical Workers Local 465, said SDG&E 
has handled its power purchases in accordance with utilities commission 
rulings.  But Shames said the company sought to shield its actions from the 
scrutiny of consumer groups and the public.  "They consistently said they 
were not making money from this," said the consumer advocate. "For them to 
split hairs and say, 'We didn't make money from purchases, we made it from 
sales,' is disingenuous."  Staff writer Bill Ainsworth contributed to this 
report. 







Sempra set to unveil plans for new plant, business park  


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objattph 
By Jonathan Heller  UNION-TRIBUNE STAFF WRITER  July 31, 2001  ESCONDIDO -- 
City officials are expecting to get their first look today at long-awaited 
plans to build the largest power plant in North County since the Encina plant 
came on line more than 30 years ago.  Sempra Energy Resources will file a 
200-page application with the city Planning Department for a 550-megawatt, 
natural gas-fired power plant and roughly 100-acre business park in southwest 
Escondido, Sempra spokesman Tom Murnane said.  "It (the application) is very 
detailed," Murnane said. "We have not done an application of this sort 
before. This is the first time Sempra Energy Resources has been involved in 
the development of a business park."  Sempra is building the project in 
partnership with JRM Real Estate, a Carlsbad-based developer.  The California 
Energy Commission will have final say on the power plant, which could take 
three to four years to get on line. The City Council will decide on the 
industrial park.  City officials have awaited Sempra's bid ever since the 
idea was broached in January. The project addresses two needs: The power 
plant would provide enough energy to power almost a half-million homes, and 
the business park would bring higher-paying jobs to a city with the lowest 
median income in North County.  "I'm awaiting with great anticipation to see 
what they have planned," said City Councilwoman June Rady. "I have met with 
Sempra officials several times in the past and what they have shared with me 
I've been very excited about."  Sempra has promised that its proposed plant 
would have lower emission levels than any plant now in the state. The company 
also has said the plant would not have a tall smokestack, or a visible vapor 
plume such as the one produced by the city's Iceoplex generating plant.  The 
plant and park are slated for Quail Hills, the last large parcel of vacant 
industrial land in the city. Several previous plans by other developers have 
failed after they discovered the high costs involved with building on the 
hilly terrain.  Neighbors near the area have voiced concerns about noise, 
traffic and dust associated with rock crushing, which would be needed to 
create level foundations for the project.






Davis press secretary confirms buying energy company stock  


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objattph 
ASSOCIATED PRESS  July 31, 2001  SACRAMENTO ) Gov. Gray Davis' press 
secretary recently purchased the same energy stock as five consultants the 
governor fired last week, he disclosed Monday.  Steve Maviglio confirmed that 
on June 20, he bought 300 shares of stock in Calpine Corp., a San Jose-based 
power generator that has received about $13 billion in state contracts to 
supply electricity for up to 20 years.  Maviglio's disclosure comes after 
Davis' office hastily ended the contracts of five consultants who helped 
negotiate state power contracts and held stock in energy companies.  In a 
related development, an anonymous source told the Los Angeles Times on Monday 
that the Securities and Exchange Commission has launched a preliminary 
inquiry into whether the consultants used inside information to trade the 
energy stocks.  About two dozen Davis energy consultants were required to 
fill out financial disclosure statements after complaints of conflict of 
interest by Republicans and consumer groups.  "When we reviewed them, we 
found possible violations of the law and took swift action," Maviglio said 
Monday before Secretary of State Bill Jones issued a press release calling 
for his termination.  Jones, a Republican, is a candidate for the GOP 
nomination to challenge Davis in November 2002.  Maviglio defended his 
purchase, saying that he "owns several stocks in companies in all fields that 
are growing and are based in California."  Maviglio said Monday that he 
requested on May 31 to purchase the stock if it dipped to $40 a share, which 
it did two days after a June 18 ruling by federal energy regulators 
restricting wholesale electricity prices in California and 10 other states.  
Maviglio served as Davis' chief spokesman urging the Federal Energy 
Regulatory Commission to impose price ceilings on electricity wholesalers.  
He also said he owns between $10,000 and $100,000 stock in Houston-based 
Enron Corp. He said he purchased the stock in 1997 and has reported it on 
financial disclosure forms. He said that it is "closer to $10,000."  
Meanwhile, two energy consultants to Davis have agreed to forgo more than 
$50,000 in work they did for the state.  Chris Lehane and Mark Fabiani will 
forgo the payments as part of a settlement with a Sacramento-area resident 
who filed a lawsuit objecting to their hiring, calling it a conflict of 
interest.  Fabiani could not be reached for comment Monday. In the 
settlement, they admitted no wrongdoing.  Lehane issued a statement through 
the governor's office, calling it "simply not worth the bother to challenge 
the controller in court."  Davis has come under fire for his May hiring of 
Lehane, former press secretary for Vice President Al Gore, and Fabiani, a 
deputy campaign manager for Gore's presidential run.  They were hired to help 
shape Davis' response to the energy crisis, and helped craft Davis' 
aggressive attack on Texas-based energy companies and President Bush.  Both 
also have advised Southern California Edison, which is negotiating for state 
help in avoiding bankruptcy. Financial disclosure forms showed they have each 
received at least $10,000 from Edison in the past year.  Davis announced at 
the end of June that Fabiani terminated his contract, and Davis scaled back 
Lehane's role with the state.  State Controller Kathleen Connell then said 
she would not pay Lehane and Fabiani for any of their work and now the two 
have agreed they will not fight her decision, Maviglio said.  Lewis K. Uhler, 
the Placer County man who filed the lawsuit, said the settlement 
"accomplished our objectives."  "We wanted to block the egregious use of 
taxpayer funds for essentially political spinmeisters," he said. Uhler is 
president of the Roseville-based National Tax Limitation Committee.  Maviglio 
said that Fabiani and Lehane "did good work for the state" and helped the 
state win victories with federal regulators. 






THE STATE
Davis' Energy Advisors Draw SEC Attention
Probe: Under review is the possible use of inside information to buy power 
company stocks. GOP rival of governor requested the inquiry.
By WALTER HAMILTON JEFFERY L. RABIN and DARYL KELLEY
TIMES STAFF WRITERS

July 31 2001

The Securities and Exchange Commission has launched a preliminary inquiry 
into whether energy consultants advising Gov. Gray Davis used inside 
information to trade stocks of power companies doing business with the state, 
a source with knowledge of the matter said Monday.

The federal agency began its review late last week, the source said, in 
response to a request from California Secretary of State Bill Jones. A 
Republican rival of Davis, Jones charged that stock trading by consultants 
may have violated federal laws barring buying and selling based on 
information not available to the public.

On Friday, top aides to the governor disclosed that five consultants had been 
fired for possible conflicts of interest between their official positions and 
their personal finances. As news of the SEC inquiry spread through the 
capital Monday, Davis officials were confronted by a flurry of questions 
about who in the administration owns energy stocks.

Financial disclosure records filed by the governor's spokesman, Steve 
Maviglio, show that he owns between $10,000 and $100,000 in a Texas company 
he and his boss have accused of making "obscene" profits while California has 
been "on its knees." Maviglio said he bought the shares in Houston-based 
Enron Corp. in 1996.

"It's not a crime to own energy stock," Maviglio said.

He also owns 300 shares of San Jose-based Calpine Corp., which has the 
largest share of the $43 billion in long-term state power contracts.

Maviglio placed the order for the stock on May 31, one day after San Jose's 
mayor dropped his opposition to a controversial Calpine plant favored by the 
governor and others. Under the terms of Maviglio's purchase, the transaction 
was completed about three weeks later when the stock reached $40 a share, a 
value of $12,000. It has since fallen in value.

"I viewed it as a good long-term investment," Maviglio said, adding that he 
purchased the shares for his retirement account based on publicly available 
information.

The Davis administration has spared Calpine the kind of fierce criticisms 
that it has leveled at other electricity suppliers, such as Enron. But 
California's grid operator has identified the company as one of many energy 
merchants to overcharge the state millions of dollars.

The fired consultants also owned shares in Calpine, ranging in value from 
several thousand dollars to more than $100,000, records show.

Another top Davis administration official, legal affairs secretary Barry 
Goode, disclosed in his economic interest statement that he recently held 
between $100,000 and $1 million in another out-of-state company accused of 
multimillion-dollar price gouging.

In a statement, Goode said he sold his stock in Williams Co's. a month after 
he began working for the governor in February. Goode said the shares were 
supposed to be sold before he went on the state payroll, but his broker 
failed to do so.

In light of the recent disclosures, Secretary of State Jones said the 
governor must do more to ensure the public that its interest comes first.

"The governor should direct all of his staff to immediately file updated 
conflict of interest statements that reflect current holdings and any 
activity since their last statement of economic interest was filed," said 
Jones, who is seeking the GOP nomination for governor.

Word of the SEC's entry into California's energy problems comes as the 
governor faces harsh criticism from lawmakers and others for the quick and 
broad hiring of highly paid private consultants to guide him through the 
crisis.

In his written request to the SEC, Jones said that recently filed disclosure 
documents showed that at least one consultant bought and sold shares of two 
energy companies within the same month, raising "a red flag" about the 
possibility of insider trading.

State law prohibits officials from participating in decisions involving their 
personal financial interests.

The five consultants fired last week were among 11 named in Jones' letter, 
delivered to the San Francisco office of the SEC last Wednesday. It was not 
clear which individuals are the focus of the SEC's inquiry, or whether the 
agency's review would result in any charges.

Two of the former traders said Monday that they had not been contacted by 
federal investigators and knew nothing of an inquiry into possible insider 
trading.

But William Mead, fired Thursday, said it is no mystery why so many of his 
colleagues owned Calpine stock.

Mead said he bought it 2 1/2 years ago and made so much money he recommended 
it to his colleagues last year, while they all still worked for the 
now-defunct California Power Exchange in Alhambra. Calpine power was not 
traded on that exchange, so there was no conflict of interest, he said.

Mead and three other energy traders--hired by the state in February and 
March--were terminated by the Davis administration for allegedly buying power 
for the state from Calpine while owning the company's stock. Fired traders 
Herman Leung, Peggy Cheng and Constantine Louie did not list the date of 
their Calpine purchases on financial statements that the state required to be 
filed only two weeks ago.

"But I'm sure they bought it while they were still at the power exchange, 
because that's when we discussed it," Mead said. "It was kind of like a 
hobby. I'm sure it wasn't done with the intent to manipulate."

Former trader Elaine Griffin, who also owned Calpine stock and resigned two 
weeks ago to take another job, said she didn't know she owned energy 
securities until she checked with her financial advisor July 13, just before 
leaving her state job.

Griffin said she and her husband own about $10,000 worth of Calpine stock in 
individual retirement accounts managed by their advisor, who bought the stock 
Feb. 1 without their knowledge, she said, after research found it to be a 
good investment.

"I kind of feel like we've been used for political reasons," Griffin said. 
"We would have disclosed anything right at first, but they never asked."

As a trader, Griffin said she occasionally bought Calpine power for the 
state, but only at market prices.

Meanwhile, two Democratic political consultants, who helped Davis polish his 
image after the ongoing energy crisis caused his poll numbers to plummet, 
have agreed to accept no payment for their work as part of an out-of-court 
settlement of a taxpayer lawsuit.

Tom Hiltachk, a lawyer for conservative anti-tax activist Lewis Uhler, said 
the settlement was reached last Friday after negotiations with lawyers for 
communications consultants Mark Fabiani and Chris Lehane.

"Now they will not receive one red cent," said Hiltachk. "Very simply Mr. 
Fabiani and Mr. Lehane have agreed to cease all activities for the governor, 
to accept no payments for their services and to basically get out of the 
consulting business with the governor."

As his part of the agreement, Hiltachk said, Uhler withdrew his lawsuit 
Monday morning.

Uhler had filed a lawsuit against the two consultants and Controller Kathleen 
Connell in June contending that they should not receive any payments because 
of a conflict of interest. The two men also did consulting work for 
financially troubled Southern California Edison, which was seeking help from 
Davis and the Legislature.

Connell, a former Los Angeles mayoral candidate who has been at odds with 
Davis since he endorsed an opponent, had held up the payments pending the 
outcome of the lawsuit.

Under an agreement with Davis, the men were to have been paid $30,000 a month 
for six months.

Fabiani and Lehane could not be reached for comment.

*

Times staff writers Nancy Vogel and Virginia Ellis in Sacramento and Robert 
J. Lopez in Los Angeles contributed to this story. 
Copyright 2001, Los Angeles Times <http://www.latimes.com> 







California governor's press secretary confirms buying energy company stock 
ALEXA HAUSSLER, Associated Press Writer
Tuesday, July 31, 2001 
,2001 Associated Press 
URL: <
http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2001/07/31/nation
al1023EDT0543.DTL>
(07-31) 07:23 PDT SACRAMENTO, Calif. (AP) -- 
Gov. Gray Davis' press secretary says he owns stock in the same energy 
company as five state consultants who were fired because of possible conflict 
of interest. 
Steve Maviglio confirmed Monday that on June 20 he bought 300 shares of stock 
in Calpine Corp., a San Jose-based power generator that has received about 
$13 billion in state contracts to supply electricity for up to 20 years. 
Secretary of State Bill Jones called for Maviglio's termination. Jones is a 
candidate for the GOP nomination to challenge Davis in November 2002. 
The five energy consultants were fired last week because they owned shares in 
Calpine and also had helped the state buy electricity from the company. "We 
did not want them making governmental decisions and holding these stocks," 
said Barry Goode, the governor's legal affairs secretary. 
An anonymous source told the Los Angeles Times on Monday that the Securities 
and Exchange Commission has launched a preliminary inquiry into whether the 
consultants used inside information to trade energy stocks. 
Maviglio defended his investment, saying that he "owns several stocks in 
companies in all fields that are growing and are based in California." 
He said he had arranged to buy Calpine stock if it dipped to $40 a share, 
which it did two days after a June 18 ruling by federal energy regulators 
restricting wholesale electricity prices in California and 10 other states. 
Calpine stock closed Monday at $37.13. 
Maviglio had served as Davis' chief spokesman urging the Federal Energy 
Regulatory Commission to impose price ceilings on electricity wholesalers. 
He also said he owns stock worth $10,000 to $100,000 in Houston-based Enron 
Corp., the nation's largest power wholesaler. He said he bought the stock in 
1997 and has reported it on financial disclosure forms. He said his holding 
is "closer to $10,000." 
,2001 Associated Press 







PG&E's $500,000,000 second-quarter surprise 
Verne Kopytoff, Chronicle Staff Writer <mailto:vkopytoff@sfchronicle.com>
Tuesday, July 31, 2001 
,2001 San Francisco Chronicle </chronicle/info/copyright> 
URL: <
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/07/31/B
U213760.DTL>
PG&E Corp. said yesterday that it will earn $500 million to $600 million more 
than anticipated in the second quarter because its bankrupt utility was able 
to buy cheaper electricity in March as wholesale prices dropped. 
As a consequence, PG&E reduced the amount of money it says the utility, 
Pacific Gas and Electric Co., lost during California's energy crisis from 
$5.2 billion to between $4.6 billion and $4.7 billion. 
"Its a good thing for PG&E," said Paul Fremont, an energy industry analyst 
with Jefferies & Co., an investment bank in New York. "But it clearly does 
not get them to the level where they are able to emerge from bankruptcy and 
make all of their creditors whole." 
The disclosure by PG&E Corp. yesterday adds a modest boost to its quarterly 
earnings report, set for tomorrow morning. The company is expected to report 
an operating profit of 71 cents per share, according to analysts polled by 
Thomson Financial/First Call, an investment research firm. 
PG&E Corp. is the owner of Pacific Gas & Electric Co., which filed for 
Chapter 11 bankruptcy protection in April after electricity prices soared 
this year. The utility had previously estimated that it lost $1.1 billion in 
the first quarter and $4.1 billion in the fourth because it was prohibited by 
the state Public Utilities Commission from passing higher costs on to 
consumers. 
PG&E Corp. also includes a energy producing unit, which generally makes 
money, and a venture capital arm. Neither of those divisions is affected by 
the utility's bankruptcy. 
The utility said it got a small break in March as the price it was paying to 
the California Independent System Operator for energy declined sharply. The 
unanticipated drop was attributed to declining demand because of energy 
conservation, low tempera- 
tures and the opening of new power plants in the state. 
The utility also benefited from the cancellation of power contracts by 
companies that did not want to do business with a bankrupt partner. Those 
contracts were for selling power at below cost. 
What is the utility's gain, though, may be a negative for PG&E's power- 
producing division. The lower prices could mean the energy-producing group 
will make less money from its sales, analysts said. 
E-mail Verne Kopytoff at vkopytoff@sfchronicle.com 
<mailto:vkopytoff@sfchronicle.com>. 
,2001 San Francisco Chronicle </chronicle/info/copyright> Page E - 1 







Power and 'juice' 
 <mailto:chronfeedback@sfchronicle.com>
Tuesday, July 31, 2001 
,2001 San Francisco Chronicle </chronicle/info/copyright> 
URL: <
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/07/31/E
D133454.DTL>
GOV. GRAY DAVIS seems to have an ethical blind spot when it comes to the 
hiring of outsiders to help manage California's energy crisis. 
Throughout the crisis, Davis has been intolerably slow in responding to 
questions about whether certain members of his inner circle -- drawing big 
checks off the public payroll -- might have possible financial conflicts. 
As of yesterday, the governor's office still has not required 16 contractors 
to file public disclosure documents that would reveal whether they have any 
financial stake in companies affected by policies they help develop. 
Steve Maviglio, the governor's press secretary, said 42 energy "consultants" 
have filed their economic disclosure statements. But he said the other 16 
were "contractors" -- without actual decisionmaking authority -- and were 
thus not required to fill out the forms. 
Maviglio's "contractor versus consultant" distinctions are technical and 
semantic. His spin simply doesn't wash. 
The bottom line is that "contractors" who are making big decisions involving 
big dollars for the state are not playing by the same rules as others in the 
public trust. 
For example, Davis has exempted two Wall Street executives, Joseph Fichera 
and Michael Hoffman, who are putting together a rescue plan that involves a 
$12.5 billion bond issue. They are getting $275,000 a month for their advice. 
Yet they have not been required to fill out disclosure forms, which would 
allow the governor -- and any other Californian -- to assess whether a 
potential conflict exists. 
"They told us they don't have any conflicts," said Maviglio, who, 
incidentally, confirmed yesterday that in June he bought $12,000 worth of 
stock in the Calpine Corp., the generating company with the largest chunk of 
state power contracts. On July 2, Davis publicly praised Calpine as "the most 
responsible of the generators." 
Davis should have finally learned his lesson last week after having to fire 
five consultants -- all involved in energy trading -- when their belatedly 
filed disclosure forms showed serious potential conflicts. A sixth consultant 
quit. Four of those traders owned Calpine shares. 
A week earlier, the Davis administration was forced to order a group of 
consultants to hastily unload their power-company holdings or lose their 
contracts. 
The governor's office also has been stung by revelations that political 
consultants Chris Lehane and Mark Fabiani, hired at $30,000 a month to 
develop energy-related "communications strategies," also had a contract with 
Southern California Edison. 
Moreover, some of the disclosure forms that have been filed to date have been 
less than complete, especially regarding the timing of the buying and selling 
of energy stocks. 
How many scandals will it take for Davis to insist on full disclosure -- and 
the highest ethical standards -- of everyone who is working for him on the 
energy crisis? 
,2001 San Francisco Chronicle </chronicle/info/copyright> Page A - 16 







S.F. to vote on electric power to the people 
Measures would start public utility districts 
Rachel Gordon, Chronicle Staff Writer <mailto:rgordon@sfchronicle.com>
Tuesday, July 31, 2001 
,2001 San Francisco Chronicle </chronicle/info/copyright> 
URL: <
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/07/31/M
NW145417.DTL>
San Francisco -- After decades of trying to persuade San Francisco to take 
control of its electrical system, advocates of public power now have the 
issue before city voters. 
"The timing couldn't be better," said consumer advocate Medea Benjamin, co- 
director of San Francisco's Global Exchange. 
"It's not just the threat of blackouts or the highest rate hikes in history. 
It's the fact that PG&E is in bankruptcy. It's the depletion of the state 
budget," she said. "This is a hell of an opportunity." 
The opportunity she is talking about centers on two November ballot measures 
that would pave the way for creating a public power system and taking Pacific 
Gas and Electric Co. out of the city's electricity market. 
Under the proposed measures, an elected board of directors would set the 
rates and have control over everything from the terms for buying electricity 
to whether to use more renewable energy sources, such as wind, hydroelectric 
and solar power. 
Public power would base policies "on a more localized basis, where the values 
of an individual community can be put into practice," said Ed Smeloff, a 
longtime public power advocate who was recently hired as an assistant general 
manager at the San Francisco Public Utilities Commission. 
One proposal, an initiative placed on the ballot by residents, calls for 
setting up a municipal utility district in San Francisco and neighboring 
Brisbane. The district would be governed by an elected board of directors. 
The other measure, placed on the ballot last week by the Board of 
Supervisors, would create a municipal water and power agency and would affect 
only San Francisco. 
PG&E has mounted a campaign to defeat the measures, so far pumping more than 
$200,000 into the effort. 
"We think the (ballot proposals) are a bad idea," said Frank Gallagher, 
spokesman for the Coalition for Affordable Public Services, the PG&E-financed 
group fighting the measures. "They're confusing and do nothing to address the 
problem." 
The company has a history of opposing public power proposals, derailing a 
plan in Davis in the 1990s and using a legal challenge to stall the start of 
Sacramento's Municipal Utility District for two decades. 
For years, private utilities have enjoyed a powerful hold on state and local 
politicians. But the energy crisis has caused widespread public anger and 
concern, forcing city and state officials to take another look at public 
power. 
A poll conducted this month by the Public Policy Institute of California, a 
nonpartisan think tank in San Francisco, found that nearly two-thirds of 
Californians support the replacement of private electric companies with 
municipal power authorities formed by local governments. 
San Francisco already owns a power system, Hetch Hetchy, which provides power 
for city departments. PG&E provides power to residents and businesses. 
The San Francisco Charter amendment placed on the ballot by the supervisors 
calls for abolishing the city's existing Public Utilities Commission, which 
is run by commissioners and a director appointed by the mayor. The proposed 
public power board would have seven elected directors, but the agency still 
would retain some ties to City Hall. 
The supervisors' plan is intended to be used as a backup to the municipal 
utility district -- commonly known as a MUD -- which is considered to be more 
vulnerable to the expected legal challenges from PG&E. 
"It's a great marriage, and will ensure that we get public power in San 
Francisco," said Board of Supervisors President Tom Ammiano, chief sponsor of 
the board's measure. 
San Francisco is not alone in looking at public power. San Diego, the first 
city to feel the hard pinch of the energy crisis, wants to establish a 
regional public power system in an attempt to pool resources and bring down 
energy costs. 
The East Bay Municipal Utility District, which provides water and sewer 
service, is considering expanding its reach to power. In the Bay Area, the 
cities of Alameda and Palo Alto already have public power. The two largest 
public power agencies in the state serve Los Angeles and Sacramento. 
In San Francisco, the pro-public power forces are going to tout the promised 
virtues of turning the electric utility over to a public authority that by 
law cannot turn a profit. That, they contend, means lower rates. 
"It's an expectation, but it's also tried and true," said Ross Mirkarimi, 
campaign director of MUD Now, the group sponsoring the ballot initiative. 
On average, consumers pay 18 percent less for power from public utilities, he 
said. 
Gallagher, spokesman for the opposition campaign, said ratepayers shouldn't 
assume that public power means lower energy bills. "There's no way the rates 
are going down," he said. 
He blamed the energy crisis not on deregulation but on a shortage of 
electricity, which jacked up prices and undercut reliability. 
"The measures do nothing about supply," Gallagher said. "All this will do is 
cost people money. You can't just take PG&E's assets. You have to pay for 
them." 
E-mail Rachel Gordon at rgordon@sfchronicle.com 
<mailto:rgordon@sfchronicle.com>. 
,2001 San Francisco Chronicle </chronicle/info/copyright> Page A - 11 






Davis' advisers probed by SEC 
Published Tuesday, July 31, 2001, in the San Jose Mercury News 
BY WALTER HAMILTON, JEFFERY L. RABIN AND DARYL KELLEY 

Los Angeles Times 


The Securities and Exchange Commission has launched a preliminary inquiry 
into whether energy consultants advising California Gov. Gray Davis used 
inside information to trade stocks of power companies doing business with the 
state, a source with knowledge of the matter said Monday. 
The federal agency began its review late last week, the source said, in 
response to a request from California Secretary of State Bill Jones, who is 
seeking the GOP nomination for governor. Jones charged that stock trading by 
consultants may have violated federal laws barring buying and selling based 
on information not available to the public. 
On Friday, top aides to the governor disclosed that five consultants had been 
fired for possible conflicts of interest between their official positions and 
their personal finances. 
In addition, financial disclosure records filed by the governor's spokesman, 
Steve Maviglio, show that he owns between $10,000 and $100,000 in a Texas 
company he and his boss have accused of making ``obscene'' profits while 
California has been ``on its knees.'' Maviglio said he bought the shares in 
Houston-based Enron Corp. in 1996. 
``It's not a crime to own energy stock,'' Maviglio said. 
Calpine purchase 
He also owns 300 shares of San Jose-based Calpine Corp., which has the 
largest share of the $43 billion in long-term state power contracts. 
Maviglio placed an order for the stock with an electronic broker May 31, one 
day after San Jose Mayor Ron Gonzales dropped his opposition to a 
controversial Calpine plant under pressure from the governor and others. 
Under the terms of Maviglio's instructions, the stock was automatically 
purchased on his behalf when Calpine fell to $40 a share, according Hilary 
McLean, a spokeswoman for the governor. It has since fallen in value. 
``I viewed it as a good long-term investment,'' Maviglio said, adding that he 
purchased the shares for his retirement account based on publicly available 
information. 
The Davis administration has spared Calpine the kind of fierce criticisms it 
has leveled at other electricity suppliers, such as Enron. But California's 
grid operator has identified the company as one of many energy merchants to 
overcharge the state millions of dollars. 
The fired consultants also owned shares in Calpine, ranging in value from 
several thousand dollars to more than $100,000, records show. 
Another top Davis administration official, legal affairs secretary Barry 
Goode, disclosed in his economic interest statement that he recently held 
between $100,000 and $1 million in another out-of-state company accused of 
multimillion-dollar price gouging. 
In a statement, Goode said he sold his stock in Williams Co's. a month after 
he began working for the governor in February. Goode said the shares were 
supposed to be sold before he went on the state payroll but his broker failed 
to do so. 
In light of the recent disclosures, the secretary of state said the governor 
must do more to assure the public that its interest comes first. 
``The governor should direct all of his staff to immediately file updated 
conflict of interest statements that reflect current holdings and any 
activity since their last statement of economic interest was filed,'' Jones 
said. 
Word of the SEC's entry into California's energy problems comes as the 
governor faces harsh criticism from lawmakers and others for the quick and 
broad hiring of highly paid private consultants to guide him through the 
crisis. 
In his written request to the SEC, Jones said that recently filed disclosure 
documents showed that at least one consultant bought and sold shares of two 
energy companies within the same month, raising ``a red flag'' about the 
possibility of insider trading. 
State law prohibits officials from participating in decisions involving their 
personal financial interests. 
The five consultants fired last week were among 11 named in Jones' letter, 
delivered to the San Francisco office of the SEC last Wednesday. It was not 
clear which individuals are the focus of the SEC's inquiry, or whether the 
agency's review would result in any charges. 
Two of the former traders said Monday that they had not been contacted by 
federal investigators and knew nothing of an inquiry into possible insider 
trading. 
But William Mead, fired Thursday, said it's no mystery why so many of his 
colleagues owned Calpine stock. 
Mead said he bought it 2 1/2 years ago and made so much money he recommended 
it to his colleagues last year, while they all still worked for the 
now-defunct California Power Exchange in Alhambra. Calpine was not traded on 
that exchange, so there was no conflict of interest, he said. 
Traders fired 
Mead and three other energy traders -- hired by the state in February and 
March -- were terminated by the Davis administration for allegedly buying 
power from Calpine while owning the company's stock. Fired traders Herman 
Leung, Peggy Cheng and Constantine Louie did not list the date of their 
Calpine purchases on financial statements that the state required to be filed 
only two weeks ago. 
``But I'm sure they bought it while they were still at the power exchange, 
because that's when we discussed it,'' Mead said. ``It was kind of like a 
hobby. I'm sure it wasn't done with the intent to manipulate.''


Mercury News Staff Writer Noam Levey contributed to this report. 







Ethics issue in stock buy? 
A top Davis aide bought shares in a power company dealing with the state. 
July 31, 2001 
By JOHN HOWARD
The Orange County Register 
SACRAMENTO A top aide to Gov. Gray Davis bought stock in a power company that 
received a long-term contract with the state, the latest in a series of 
energy investments that have cast an ethical cloud over the state's 
electricity purchases. 
Steven Maviglio, Davis' press secretary and acting communications director, 
ordered through his broker 300 shares of San Jose-based Calpine Corp. stock 
May 31, to take effect when it dropped to $40 per share. It dropped below 
that June 20 and Maviglio purchased $12,000 worth, he said. 
Two days earlier, federal regulators had placed a cap on what Calpine and 
other energy producers could charge for energy -- a cap Maviglio had touted 
on behalf of Davis. 
Monday's disclosure of Maviglio's transaction comes just days after Davis 
fired five consultants who were purchasing energy for the state from a 
company whose stock they owned. At the time, Maviglio said it "appeared to us 
there was a possible violation of the law, or very close to it." 
He said his own situation was different, "because they (the five) were 
committing state resources and timing their purchases." The disclosure of his 
transaction, he said, was "clearly a political smear by a desperate 
candidate," referring to Secretary of State Bill Jones, a Republican 
gubernatorial hopeful and rival of Davis. 
Jones said Maviglio "should be fired immediately" and that Davis should order 
all of his staff to immediately file updated conflict-of-interest statements 
to reflect current holdings. 
Maviglio said he would sell the Calpine stock - which closed at $37.13 a 
share Monday - if requested by Davis' legal staff. He said he spoke with 
those lawyers Monday and they had not made that request, nor had he been 
asked to resign. 
A Davis aide, Hilary McLean, said, "Absolutely, the governor has confidence 
in Steve."







Aide denies stock deal was improper 
Maviglio says the June 20 purchase, submitted online, was in the hands of 
others. 
July 31, 2001 
By JOHN HOWARD
The Orange County Register 
SACRAMENTO The governor's chief spokesman denies he committed any impropriety 
by buying Calpine Corp. stock June 20, saying the purchase was actually in 
the hands of others. 
Steven Maviglio said he submitted on May 31 a purchase order through his 
online brokerage to buy 300 shares of Calpine, a San Jose-based power 
generator that has a long-term energy contract with the state. 
"It could have happened an hour after later (after the purchase order), a 
month later or five years later," he said. "Or never." 
But Sherry Bebitch Jeffe, a political scientist at Clare mont Graduate 
University, questioned the wisdom of Maviglio's stock transaction. 
"What I find puzzling is that he moved to change the dynamic of his stock in 
the middle of this energy problem, in the middle of the governor's attacks 
and the governor's negotiations," she said. "There ought to have been an 
understanding that even if not illegal, there should have been a perception 
that he shouldn't be involved in playing with stocks." 
The disclosure of the transaction couldn't have come at a worse time for the 
administration, or Maviglio: On Friday, five state energy consultants with 
stock-firm stock were summarily fired and a state lawyer was reassigned to 
another job. Another consultant with similar investments quit July 14 to take 
a private job. 
All were involved in the energy-purchasing program that was launched under an 
emergency order Jan. 17, in which the state began buying power on behalf of 
the strapped utilities, which did not credit to purchase power on their own. 
Dozens of people were directly involved in the energy purchases. 
Earlier in the day Monday, in a separate issue, the governor's office 
disclosed that two key consultants who had been hired to help Davis with his 
public relations had decided to forgo $50,000 in contract fees as part of a 
legal settlement with Davis' critics. 
The two consultants, Chris Lehane and Mark Fabiani, both veterans of the 
Clinton-Gore White House and political campaigns, had been hired in May under 
a $30,000-a month state contract. 
Republicans complained that Davis was using state money to finance political 
operatives. Fabiani left the payroll earlier under pressure; Lehane left this 
month.







Power firms amp up lobbying 
Politics: Edison spends $5.5 million to gain support for bailout to prevent 
bankruptcy. 
July 31, 2001 
By KIMBERLY KINDY
and HANH KIM QUACH
The Orange County Register 
SACRAMENTO Edison International has spent more than $5.5 million this year to 
enlist residents and stockholders to lobby the Legislature to bail out its 
subsidiary Southern California Edison and save it from bankruptcy, reports 
released Monday show. 
The latest financial disclosure statements show that energy companies 
continue to spend millions of dollars to influence the Legislature. Meals, 
campaign contributions and tickets to sporting events continue to flow to 
lawmakers and their staffs. 
Overall, the amount spent on direct lobbying of the Legislature rose slightly 
over last quarter, but gifts and contributions to candidates continued to 
fall. The deadline for statements is today, but many companies and candidates 
filed early. 
Edison's $5.5 million is so far the largest expenditure directed toward an 
orchestrated campaign to influence Capitol politicians. Spokesman Brian 
Bennett said Edison spent the money on television commercials to reach all 
Californians and on a telephone appeal directly to stockholders. 
"This was to educate the public about the dangers of bankruptcy to the 
state's economy and to solicit their support in conveying a message to the 
Legislature that bankruptcy is not an option for the Edison company," Bennett 
said. 
The telephone work involved telling stockholders that the company's value 
would drop if lawmakers did not support a bill to save Edison. Then they 
offered to directly connect the stockholders to lawmakers' offices, asking 
that they tell the lawmakers directly to support the bailout. 
Consumer advocate Doug Heller said Edison's spending - which totaled $5.7 
million for the three-month reporting period and jumped from $318,802 from 
the prior quarter - is out of line. 
"It's amazing that a company teetering on the edge of bankruptcy has millions 
of dollars to throw around to politicians and to create phony grass-roots 
campaigns to influence legislators," said Heller, of the Foundation for 
Taxpayer and Consumer Rights. 
Edison said no contributions were made directly to anyone running for office 
or re-election for this quarter. 
In all, lawmakers sitting on energy committees and who had reported by Monday 
night accepted nearly $61,000 from energy-related companies. 
As of late Monday, Assemblyman Dean Florez, D-Shafter, who sits on the 
Assembly Energy Committee, had received the largest contribution from energy 
companies this quarter, $21,000. 
Seven of the largest power producers that sell electricity to the state spent 
a total of $546,488 on lobbying and other efforts to influence the 
Legislature. 
Topping the list was Calpine Corp., which spent $141,204. Duke Energy came in 
second at $99,735.44 - a $20,000 leap over the prior quarter. Most of Duke's 
money was spent on consultants who worked overtime building a defense for the 
company against accusations of price gouging made by former employees. 
"Overall, our consultants spent more time setting the record straight against 
some blatantly false and misleading statements, regarding our rates and plant 
operations, which the state's own documents proved were false," said Duke 
spokesman Pat Mullen. Some lawmakers and energy experts say the state 
documents do not clear Duke of wrongdoing, and the accusations are still 
being investigated by a Senate committee.






Gouger Gray Davis 
California's petulant governor ignores reality as he overpays for electricity

LANCE T. IZUMI Mr. Izumi is a senior fellow in California Studies at the San 
Francisco- based Pacific Research Institute.
On the surface, things seem to be going pretty good for Gov. Gray Davis with 
regard to California's electricity crisis. The governor has scored some nice 
publicity by switching on some new power plants. The weather has been 
unseasonably cool. His poll numbers are edging back up. Yet beneath this 
optimistic picture lie troubling problems. For example, Davis's argument that 
out-of-state power generators are responsible for the electricity crisis has 
been falling apart. For months, Davis has been claiming that private 
generators have overcharged California by $8.9 billion and demanded that this 
amount be refunded to the state. However, after a two-week mediation between 
state officials and the generators, Curtis Wagner, the federal government's 
chief energy regulatory judge, rebuked Davis's claim saying that such a huge 
overcharge "has not and cannot be substantiated." Further, while the 
generators may be liable to refund a much smaller amount to the state, 
perhaps $1 billion, Wagner said that generators are owed more money by the 
state than they owe the state in refunds: "Can a cash refund be required 
where a much larger amount is due the seller? The chief judge thinks not." 
Davis reacted to the judge's ruling by calling it a "raw deal" and by urging 
the Federal Energy Regulatory Commission to ignore the lack of evidence and 
the judge's conclusions and to "step up and provide the refunds we've asked 
for." Davis's position, as usual, is motivated purely by politics. Indeed, 
Dan Walters of the Sacramento Bee says that Davis is operating in a 
"melodramatic virtual world" de-linked from reality. 
Davis's blame-the-generators argument took another body blow when newly 
released documents showed that, on average, major out-of-state power 
companies such as Enron, Duke, Dynergy and Mirant charged less than the 
average prices paid by the state during the first three months of the year. 
California government utilities, on the other hand, such as the Los Angeles 
Department of Water and Power and the Sacramento Municipal Utility District 
(SMUD), charged the state much more for electricity than the out-of-state 
generators. For example, while Texas-based Enron, a favorite Davis whipping 
boy, charged an average $181 per megawatt hour, SMUD charged an average $330 
per megawatt hour. 
Davis responded to this revelation in typical political fashion. A Davis 
spokesman said that the governor had expressed his anger at "the generators 
who wear cowboy hats" and that "just because there are other entities that 
are charging us more doesn't change the fact that we are getting ripped off 
by companies from Houston, Tulsa, Atlanta or Charlotte." 
Yet, for all Davis' feigned indignation about consumers being ripped off, it 
turns out that he and his regulators are poised to ensure that business 
consumers are ripped off by state government. Davis has signed $43 billion in 
ill-advised long-term purchase contracts at rates above-market-price. The 
state must, therefore, ensure that enough business customers remain in the 
current state-controlled distribution system to pay for high-priced state 
power purchases. This is especially important to Davis since the high prices 
are borne disproportionately by business. Thus, Davis' regulators are set to 
eliminate "direct access," which allows businesses to shop for cheaper power. 
Who's the real gouger? No matter how much Davis points the finger, 
Californians are paying dearly for his political opportunism and bad 
policies. 







Turning Coal into a tradable commodity
By Rick Stouffer
rstouffer@ftenergy.com <mailto:rstouffer@ftenergy.com>
With the California power debacle offering a neck-snapping jolt, a number of 
states have determined they must offer more than lip service to ensure that 
residents and businesses have enough power to function.

While deregulation's brakes may have been applied in some locales, it doesn't 
mean that development incentives likewise have been scaled back. 

"There is no question that California was the wake-up call for these states," 
said Craig Goodman, president of the National Energy Marketers Association. 

Midwest a hotbed for incentives
Many of the states that have already passed legislation to entice new plant 
development are located in the Midwest, an area that, while not yet suffering 
from a lack of power, slowly, inexorably is heading in that direction. 

"Iowa, Illinois and Ohio are located in ECAR (the East Central Area of the 
North American Electric Reliability Council, or NERC), which is not yet in a 
crisis situation when it comes to sufficient power, but is only a year or two 
away from that crisis," said Robert Burns, senior research associate with the 
National Regulatory Research Institute at Ohio State University in Columbus, 
Ohio. 

In its latest self-assessment presented as part of NERC's most recent 10-year 
projection, 2000-2009, ECAR said that if 10,400 MW of new capacity is not 
added within ECAR as planned, capacity margins within the region will go 
negative in 2005. 

PPAs a no-no in Iowa
No plant of any significant size has been built in Iowa since 1983, but 
legislators, during a one-day special session in June, put in place what they 
hope will spur additional development. 

The Iowa measure allows utilities to see how their costs will be incorporated 
into rates prior to plant investment, and also permits municipal systems to 
band together to finance new facilities. 

One item the Iowa legislature could not get past a veto that Gov. Tom Vilsack 
promised was allowing utilities to purchase power via power purchase 
contracts from unregulated affiliates. 

The governor said such a measure would lock in profits for utilities and 
preclude potential rate cuts. Proponents say the governor effectively locked 
out millions of dollars of investment in Iowa by Madison, Wis.-based Alliant 
Energy Corp., which reportedly wanted to build as much as 1,200 MW of 
capacity in Iowa. 

Wisconsin Energy likes the tune
Northeast of Iowa, Wisconsin appears to be heading off a problem nearly all 
power plant developers have these days: a bad case of "not in my backyard." 

"Even if a state approves a new power supply, you still have to deal with 
local siting officials and NIMBYism," said Goodman. 

One Wisconsin proposal given serious consideration is to double the impact 
plants have on shared revenue payments, to $250 million from $125 million. 

Changing shared revenue payments to provide additional compensation to local 
governments that favor plant construction on existing plant sites also has 
been introduced in Wisconsin. 

Wisconsin Gov. Scott McCallum also has proposed lowering the state's gross 
receipts tax on wholesale power to 1.59% from the current 3.19%.

Many of the proposals floating around the Badger State are music to the ears 
of Wisconsin Energy, which is looking to spend some $7 billion over the next 
decade to construct five new power plants. 

Not everyone likes the look of incentive legislation in Iowa, Wisconsin and 
other states. Many of the new laws are geared toward assisting incumbent 
utilities*effectively snubbing independent power producers, the IPPs say. 

"I would not call many of these incentive packages incentives for merchant 
power producers," said Samantha Slater, manager of state and regional affairs 
for the Electric Power Supply Association. "Utilities only building new 
plants definitely is not the way to go." 

Big doings in Illinois
Perhaps the biggest, most all-encompassing incentive package passed by a 
state in recent memory isn't specifically about promoting plant development. 

Illinois Gov. George H. Ryan in late June signed legislation that provides up 
to $3.5 billion in incentives designed, industry watchers say, to preserve 
and promote the state's $1 billion coal industry*and keep 25,000 coal-related 
jobs intact.

"Illinois in part wanted to protects its coal jobs with this legislation," 
said Paul Cetevich, director of energy services at the Utility Research 
Center at the University of Florida's Warrington College of Business in 
Gainesville. "Illinois has been trying to do similar things for a number of 
years." 

The Illinois plan includes sales (6.5%) and utility tax exemptions, along 
with an investment tax credit, millions for a financial assistance program 
for coal-fired facilities, bond funds set aside to be used for transmission 
upgrades and to finance renewable energy projects, even a review by the state 
Environmental Protection Agency to determine if new regulations concerning 
older coal-fired plant emissions are warranted.

Highlights of Illinois energy incentive legislation  Designates new baseload 
plants, the mines that fuel them or firms that construct new or upgrade 
existing transmission lines as so-called high-impact businesses. These 
businesses are provided sales tax exemptions on building materials and 
equipment, utility tax exemptions and investment tax credits. (Natural 
gas-fired plants are only eligible for sales tax exemption.)  Creates a $500 
million financial assistance program for coal-fired plants equal to the 
amount of general obligation bond funding that can be repaid by coal tax 
revenues gained on new Illinois coal purchases.  Provides up to $1.7 billion 
in revenue bond authorization to provide financing for electric plants 
generating Illinois coal mining jobs, including mine-mouth plants and plants 
that use clean-coal technology, repayable by the developers.  Provides up to 
$300 million in revenue bond authorization designed to spur upgrades to the 
transmission grid in Illinois, repayable by the wires' owner.  Provides up to 
$500 million in revenue bond authorization to finance renewable energy 
projects, and $500 million for existing coal-fired plants to add scrubbers, 
both repayable by the developers.  Mandates a review by the Illinois 
Environmental Protection Agency of the need for new state regulations 
governing emissions by older coal-fired plants not subject to stricter air 
quality restrictions imposed on new units.  Creation of additional local 
options for property tax abatement.  In addition, Illinois Gov. George H. 
Ryan amended an earlier executive order creating the Governor's Energy 
Cabinet. Under the revised order, the Energy Cabinet will have responsibility 
for siting new generation, overseeing implementation of environmental 
regulations on new plant developers and streamlining the state's permitting 
process for new generation. 

"When the legislative session began in January, you had all the publicity 
about California, the price of natural gas had spiked, there was talk of $3 a 
gallon gasoline, so there were probably three or four versions of coal 
legislation floating around at one time," said Brian Reardon, a spokesman for 
the Illinois Department of Commerce and Community Affairs. 

Ryan convened a coal summit in March, took ideas from all invited and put 
together what became the state's $3.5 billion incentive package. 

"I'm very impressed with what Illinois has put in place," the energy 
marketers' Goodman said. "I'm not aware of any other state with as 
comprehensive a package." 

A newly created Governor's Energy Cabinet in Illinois would seem to put 
NIMBYism to bed, if not totally to rest, by assuming responsibility for 
siting new generation, overseeing environmental regulation implementation and 
streamlining state permitting. 

"We were able to develop a comprehensive strategy that addresses our state's 
energy needs while providing for a long overdue boost to our coal industry," 
Gov. Ryan said in a statement. 

Looking at the broader picture
Illinois is preserving the coal industry, but also looking at the broader 
picture, according to the University of Florida's Cetevich. Illinois, and 
many other states, have determined that natural gas-fired plants may not be 
the saviors the country should rely upon. 

"I believe the No. 1 overriding factor, while some states are putting 
incentive packages together, is that the states and public utility 
commissions have realized that with the numerous natural gas price spikes, 
coal is not such a bad option after all." 

"Having all our eggs in the natural gas basket could be a bad thing," agreed 
the National Regulatory Research Institute's Burns. "It cannot have good 
implications." 







Debt Pitch:
California's Next Test
In Electricity Crisis:
Selling Power Bonds
---
The $12.5 Billion Offering,
Crucial to State Finances,
Faces Skeptical Investors
---
The Risk of Big Budget Cuts 
By Mitchel Benson and Gregory Zuckerman 

07/31/2001 
The Wall Street Journal 
Page A1 
(Copyright (c) 2001, Dow Jones & Company, Inc.) 
SACRAMENTO, Calif. -- For the past seven months, Gov. Gray Davis has begged, 
cajoled and even threatened legislators and regulators, to lay the groundwork 
for a $12.5 billion bond issue California needs to cover the cost of keeping 
its lights on. 
Now comes the tough part: persuading investors that the bond is an attractive 
investment. On that score, Mr. Davis's team, whose credibility has been 
battered by California's months-long electricity crisis, is hoping to bounce 
back from a rocky start. 
This week, a delegation headed by state Treasurer Philip Angelides is 
scheduled to visit Wall Street to pitch the municipal debt offering, which 
would be the largest in U.S. history by a factor of nearly four. To succeed, 
Mr. Angelides will have to allay investors' fears of the kind of political 
infighting that already has delayed the issue several times. He will have to 
satisfy bond-rating agencies that the bond is safe enough to merit a top-tier 
investment-grade rating. And he'll have to make investors want to buy it 
without demanding costly inducements that would give California financial 
headaches for decades to come. 
"This isn't building the Panama Canal. It's not Apollo 11," says Mr. 
Angelides. But, he concedes, the bond sale will be "uniquely challenging." 
That is because this giant bond issue won't be backed by the full faith and 
credit of the state or by tax dollars -- the types of guarantees public-debt 
investors often prefer. Instead, the bonds, which will have maturities of as 
long as 15 years, are to be paid off by the state's electricity ratepayers 
from their monthly bills, which some view as a riskier source of cash flow. 
Moreover, there is still a question as to whether the issue's proceeds will 
be adequate to repay the bonds, restore the state's financially troubled 
private utilities to health and finance future electricity purchases. 
Despite these hurdles, many analysts predict California will eventually 
succeed in pulling off the bond deal, though at a cost far higher than 
originally anticipated. In fact, the apparent easing of the state's energy 
crunch may make its marketing job a bit less difficult. A recent drop in the 
price of natural gas, which fuels many California power plants, a mild summer 
in the West and a June decision by the Federal Energy Regulatory Commission 
to impose electricity price caps in the region have helped avert the rolling 
blackouts that roiled the state earlier this year. 
Still, the specter of history overhangs the bond offering. Rating agencies 
are haunted by having failed to warn investors of such public-finance 
disasters as the 1983 default of the Washington Public Power Supply System 
and the 1994 bankruptcy of Orange County, Calif. Moreover, Moody's Investors 
Service and Standard & Poor's assigned investment-grade ratings as recently 
as early January to debt issued by Pacific Gas & Electric Co., just three 
months before the California utility sought Chapter 11 bankruptcy-court 
protection. 
By the time California hopes to sell its bonds, in October or early November, 
the state's electrical-power purchases are expected to leave it owing a total 
of about $10 billion to its lenders and its own general fund. If the bond 
issue is delayed beyond that, or canceled, or if the offering flops, 
California could be forced to make billions of dollars in spending cuts, 
raise taxes or increase electricity rates for the third time in the past year 
to pay back what it owes. 
If the bond sale fails "the state of California will be in deep trouble," 
says Mr. Angelides. "The state general fund must be repaid so money for 
education, health care and children's services can be safe." 
California's need for the bonds -- like most of the state's energy woes -- 
stems from its troubled 1996 electricity-deregulation plan. Under the plan, 
the state's investor-owned utilities were obliged to sell many of their power 
plants to other companies and purchase electricity through a state-sponsored 
power auction. Consumer rates were frozen, but wholesale rates weren't. 
The system worked fairly well until May 2000, when wholesale rates began 
soaring amid tight electricity supplies and stronger-than-expected demand. 
Last year, the state's cost of wholesale power climbed to $27 billion from $7 
billion in 1999. In the first six months of this year, that sum hit $20 
billion. 
With retail rates frozen, Pacific Gas & Electric, a unit of PG&E Corp., and 
Edison International's Southern California Edison racked up billions of 
dollars of debts. In January, after power generators stopped doing business 
with the utilities, the state began buying power on their behalf. It borrowed 
the money from its general fund, normally used to pay for everything from 
public safety and environmental programs to social services and education, at 
a pace of more than $1 billion a month. 
In February, Mr. Davis's allies in the state Legislature helped him pass a 
bill authorizing the state to sell bonds to replenish the fund and to 
continue making power purchases. But legislators cautiously capped the size 
of the borrowing, using a complex formula. Under the new law, the formula 
would allow only for a bond sale of less than $1 billion. 
Realizing that wasn't sufficient, the governor and the assembly drafted 
another bill that scrapped the formula and allowed the state to sell up to 
$13.4 billion of bonds. But, in a setback for Mr. Davis, Republican lawmakers 
banded together to deny him the two-thirds majority needed for the bill to 
immediately become law. As a result, the law won't take effect until 
mid-August, when the public-finance market is all but moribund. 
In the meantime, Mr. Angelides moved to hire underwriters. After receiving 
four dozen bids from Wall Street investment bankers in February, he retained 
a team led by J.P. Morgan Chase & Co. But under pressure to get the financing 
moving, the treasurer didn't negotiate firm underwriting fees on the deal. 
At the time, Mr. Angelides said he expected the underwriters to "skinny down" 
their fees given the enormous size of the offering. But Morgan, representing 
a team of underwriters that includes Lehman Brothers Holdings Inc., Citgroup 
Inc.'s Salomon Smith Barney unit and Bear, Stearns & Co., says it expects to 
charge standard fees, given the significant challenges presented by the 
issue's size. In the case of a $12.5 billion sale, that amounts to around $56 
million. J.P. Morgan and the California treasurer's office now say the fees 
won't be decided until they determine the bond issue's final size and 
structure. 
From the start, relations between California officials and Wall Street seemed 
fraught with miscommunication. In February, Mr. Davis called a meeting to 
explain to institutional investors, analysts and rating-agency executives his 
blueprint for getting a grip on California's energy crisis. The session, his 
only face-to-face meeting with investors to date, was held at Manhattan's 
Cornell Club. Attendees say the governor kept them waiting for 20 minutes 
before breezing into the room and giving them only a general overview of the 
state's energy plan, which left investors grumbling. 
During the discussion, Mr. Davis, a Bronx, N.Y., native, made light of a 
conversation he had had with Richard Cortright Jr., a Standard & Poor's 
director. "I told him: `You're from Indiana, that explains why you're not 
getting it,'" the governor said, according to several people present. 
"It was intended as a joke, but no one was laughing," says A.J. Sabatelle, a 
Moody's vice president. A spokesman for Mr. Davis says the governor doesn't 
recall the exchange; Mr. Davis is frequently late for public engagements. A 
spokesman for Mr. Cortright wouldn't comment. 
Then, in March, the governor's office set up a conference call to update 
investors. Figuring they wouldn't get a big turnout, they used an open-mike 
system that allowed each investor's comments to be heard by everyone else. 
But with around 100 investors taking part, the presentation by Joseph 
Fichera, a paid consultant who is one of Mr. Davis's top financial advisers, 
turned into a free-for-all, with one caller cursing Mr. Fichera in response 
to one of his answers. 
Infighting among California politicians hasn't helped. Earlier this year, for 
example, state Controller Kathleen Connell criticized the way her fellow 
Democrats, Messrs. Davis and Angelides, were handling the bond sale. Unless 
it was far bigger, she warned, the state would face a "cash-flow crunch" by 
February or March of 2002. The governor's office fired back, calling her 
claims "completely" political. 
California policy makers have "spent most of the year bickering and finger 
pointing," Standard & Poor's director Peter Rigby said in a recent report, 
"and that will raise some uncertainty among lenders." Moreover, investors 
know the state needs the money, and so "it's a buyer's market," Mr. Rigby 
added. 
Aware that it needed a financial pro to make its case to Wall Street, the 
Davis Administration pushed Mr. Fichera to the forefront. Since May, the 
former Prudential Securities investment banker has spent hours on conference 
calls with Wall Street explaining the state's strategy. That and a sense that 
California has gotten a better grip on its electricity woes indicates that 
"the governor's staff is far higher on the learning curve than just a few 
months ago," says Paul Patterson, an electric-power analyst at ABN Amro Inc. 
Critical barriers remain. The state's Public Utilities Commission has yet to 
make key decisions intended to ensure that there's enough ratepayer revenue 
set aside to guarantee that bondholders get paid. On Aug. 23, for example, 
the PUC is expected to take up a rate agreement giving the state's power 
purchaser, the Department of Water Resources, unprecedented authority to 
raise rates without a public hearing. The commission also is expected to 
decide how to divvy up current ratepayer revenue among state and private 
utilities and to take up a measure that would prohibit large industrial 
consumers from, in effect, bypassing the utilities and buying their juice 
directly from generators or traders. 
But opponents of those controversial measures are expected to put up a fight. 
Businesses and consumer groups are particularly upset that the state might 
get carte blanche to raise rates and are threatening to sue to block the PUC 
decision before the state Supreme Court. 
California already has some of the highest electricity rates in the nation. 
Residential consumers in San Francisco, for instance, pay around 14 cents per 
kilowatt hour for power, up from about 10 cents in December. That compares 
with around seven cents per kilowatt hour in Atlanta and 10 cents in Chicago, 
but it is still lower than the nearly 23 cents charged in New York City. 
High costs are a big reason businesses think they ought to be free to buy 
electricity directly. It's not "in the best interest of consumers to 
eliminate direct access in order to market bonds that will keep the price of 
electricity in California higher than necessary for at least 10 years," says 
Allan Zaremberg, president of the California Chamber of Commerce. 
The state's three largest investor-owned utilities, PG&E, SoCalEd and Sempra 
Energy's San Diego Gas & Electric Co., are expected to demand the largest 
possible share of the revenues they collect from ratepayers. PG&E, for 
example, has already asked for a public hearing to examine the state's claim 
that it needs so much money. The pressure to allocate more cash to the 
utilities could also rise if a state-sponsored bailout plan for SoCalEd fails 
and the utility joins PG&E in bankruptcy proceedings. 
Sorting all these issues out before the PUC may lead to legal challenges that 
could delay the bond issuance for months. And potential investors face 
another nagging concern: Under a $43 billion series of long-term power 
contracts signed by the state, electricity generators and traders involved 
get first call on revenue from ratepayers. Only then would bondholders, who 
are accustomed to being first in line, get paid. 
In fact, some investors who were initially enthusiastic about a bond that is 
expected to pay more than half a percentage point above other municipal 
issues in the market are starting to have doubts. Marilyn Cohen, president of 
Envision Capital in Los Angeles, a firm that manages bond portfolios for 
individual investors, says she spent several months setting aside money to 
participate in the deal. Now, she says, she is starting to look elsewhere. "I 
don't have confidence that it will get done," she adds. 
Many investors are concerned the state hasn't proved it can overcome its 
energy crisis. "These are the same guys who told us energy prices were going 
south five years ago, they're trying to gloss over the potential problems," 
says Kelly Mainelli, a portfolio manager at Montgomery Asset Management in 
San Francisco, who is considering investing in the bonds. He says he also 
worries about a spike in natural gas prices ahead of the offering. 
To reassure potential investors, the state now is offering to amass a $3 
billion reserve -- from bond proceeds and ratepayer revenues -- to ensure 
that bondholders would get paid in the event of any unforeseen developments 
in the power market. In addition, California lawmakers are moving a bill 
through the Legislature that would set aside a specific portion of revenues 
from ratepayers solely to pay bondholders. Such an approach could help the 
bond issue "to get a higher rating," says David Hitchcock, director of 
Standard & Poor's state and local government group. 
It might not, however. It isn't clear whether bankruptcy courts can overrule 
state government. So, some investors worry that PG&E's bankruptcy judge could 
rule that money collected by the utility should go to the company's 
creditors, and not to paying investors in the coming bond deal, throwing a 
wrench into the offering. The same would be true in the case of SoCalEd if it 
ended up filing for Chapter 11 protection. 
Underwriters are moving to broaden the appeal of the planned issue by 
chopping it into small slices aimed at different types of investors. There 
will be taxable, tax-free, variable-interest, fixed-interest, short-term and 
long-term bonds. State Finance Director Tim Gage says the state is assuming a 
rating "in the range of single-A" on the power bonds and thus expects to pay 
an average annual interest rate of 5.77% on the tax-exempt issue and 7.77% on 
the taxable bonds. 
Investors and analysts "may think we're crazy," says Guy Phillips, one of the 
state's top legislative aides on energy matters, "But in the end, the 
decision for them is: `Do we see a path to get our money.'" 
--- 
Journal Link: Would you purchase California bonds that are backed by utility 
payments? Participate in the Question of the Day, in the online Journal at 
WSJ.com/Question. 

     (Graph)





California ; Op Ed Desk 
Commentary The State Will Pay for Davis' Panic
KATHLEEN CONNELL; PETER NAVARRO

07/31/2001 
Los Angeles Times 
Home Edition 
Page B-13 
Copyright 2001 / The Times Mirror Company 
The five-to-20-year power contracts signed in a panic by the Davis 
administration have saddled California with billions of dollars of "stranded 
costs" that will burden our economy and state budget for years to come. 
Now, Gov. Gray Davis' spin doctors want us to believe that these $43-billion 
long-term contracts were both necessary and the impetus for a moderating 
energy market. Here's the real story: 
Last summer, under a flawed deregulation, a handful of large out-of-state 
generators effectively cornered California 's wholesale electricity market. 
This "sellers cartel" first drained our electric utilities dry. In November, 
it became the taxpayers' turn to be victimized, when the Davis administration 
gave carte blanche authority to the Department of Water Resources for energy 
purchases. Between November and July, the department burned through $8 
billion in short-term energy purchases, devouring almost the entire state 
budget surplus. This required the state Public Utilities Commission to pass 
the largest rate hike in California history and will require the state to 
issue $12.4 billion in bonds this fall to service this debt. 
In February, with spot market prices at all-time highs and rolling blackouts 
rippling through the state, the governor's representatives began to negotiate 
long-term contracts with the sellers cartel. This was an ill-advised 
long-term strategy to fight a short-run crisis. To understand why, look at 
the negotiating chessboard from the electricity cartel's perspective. The 
cartel's negotiators knew that within 18 to 24 months, there would be a huge 
glut of power on the market as many power plants were already under 
construction in California and throughout the West. Once the new energy 
resources were available, the cartel would no longer be able to manipulate 
the market. This supply glut would drive prices back to the 1999 range of 
three to five cents per kilowatt-hour, far lower than the prices now set in 
the long-term energy contracts. 
To the cartel members, this looming power glut was a recipe for heavy losses. 
Locking the state into long-term contracts at lucrative rates was their 
redemption. The Davis administration walked into this market inferno, 
bargaining from extreme weakness at the top of the market, signing contracts 
that were too expensive. The administration also capitulated on two highly 
objectionable clauses. The first requires the state to absorb all costs of 
environmental protection for many of the generators. The second holds the 
generators "harmless" for any increase in taxes imposed on the generators by 
the state. This provision essentially freezes taxes on the generators over 
the next several years, requiring taxpayers to pick up the tab. 
Notwithstanding the administration's spin, the current improvement in our 
energy situation may be traced to at least four other factors: This summer 
has been unusually cool, Californians have increased their conservation, 
recessionary forces have reduced demand and, most important, the Federal 
Energy Regulatory Commission finally imposed price caps on the sellers 
cartel, dampening market manipulation. 
The bottom line is this: Long after the rolling blackouts stop, California 
still will be saddled with billions of dollars of unnecessary electricity 
costs and high bond debt. These higher costs will hurt consumers and 
businesses, put heavy pressure on the state budget for years and inhibit the 
state's economic growth. 
There are two lessons from this multibillion-dollar mistake. The first is to 
have full public review of major energy decisions. Equally important, the 
Public Utilities Commission must be allowed to retain its rate-making 
authority so that problems are not hidden in a state bureaucracy.





Electrical Switch: Now, Cheaper Power
Is Causing Hefty Losses for California 
By Rebecca Smith

07/31/2001 
The Wall Street Journal 
Page A3 
(Copyright (c) 2001, Dow Jones & Company, Inc.) 
Mild weather means that California is escaping blackouts, but it also means 
that the state is amassing power-trading losses that are adding to the cost 
of an energy mess now in its 15th month. 
Internal documents show that so far in July, California has resold the 
equivalent of 8% of the power it bought under short-term and long-term 
contracts that were designed to reduce the state's reliance on the volatile 
and costly spot market. The problem is, the state has had a surfeit of power, 
and it has been selling the juice into the market at a fraction of the price 
it paid, leading to losses from July 1 through Thursday of about $30 million 
to $35 million. 
The losses illustrate the difficulties dogging the state's new energy czar, 
the California Department of Water Resources, despite a softening of 
electricity prices and demand. The department got into the power-purchasing 
business in a big way in January, when the state's biggest investor-owned 
utilities quit buying power because they were no longer creditworthy. Since 
then, the state has signed $43 billion worth of contracts, one for as much as 
20 years, in a bid to tamp down high spot-market prices. Critics now say it 
was a mistake to lock in so much power at such a high cost. 
Power officials say the state has been in the odd position since last month 
of having too much power contracted for off-peak hours. "It's something you'd 
expect when you first get into a new business and you'd hope to reduce it," 
said Pete Garris, chief of operations for the power-purchasing agency. 
Internal numbers from the DWR, which the agency has confirmed, show that on 
average the state paid, from July 1 to Thursday, $123 per megawatt hour for 
some 1.8 million megawatts of power purchased under long-term contracts, and 
$148 per megawatt hour for some 2.2 million megawatt hours of power purchased 
under short-term contracts. In the same period, the records show it sold 
excess power amounting to 320,000 megawatt hours at an average price of $27 
per megawatt hour, less than what it costs to fuel many plants. At times, the 
DWR sold the juice for as little as $2 per megawatt hour. 
This, ironically, has offered an opportunity to power traders that the state 
was seeking to hem in through its contract program. They have been able at 
times to substitute cheap power they buy from the state for the more costly 
power they otherwise would have to generate to meet their contract 
obligations. 
Despite the agency's power-trading losses, total market costs still are down 
substantially from previous months, partly due to price limits set June 19 by 
the Federal Energy Regulatory Commission. Slacker demand also has been a 
factor. In June, Southern California Edison, a unit of Edison International, 
sold 11.8% less electricity to its customers than in June 2000, reflecting 
energy conservation and reduced demand for air conditioning. 
Since January the state has spent $9.5 billion buying power at an average 
cost of $237 per megawatt hour, according to internal DWR documents. That is 
more than double the price of wholesale electricity last year, when prices 
averaged $114. The state's cash-strapped utilities have reimbursed the agency 
$1.53 billion of the $9.5 billion it has spent so far. As a result of the 
huge shortfall, the state has tapped California 's general fund and now is 
pursuing a plan to sell $12.5 billion worth of revenue bonds to replenish its 
coffers. 
The state signed dozens of long-term power contracts after January, pushed by 
federal energy regulators to protect itself against spot-market volatility. 
So far this year, it has spent $851 million under long-term contracts, $2.36 
billion under short-term arrangements and $5.54 billion on spot-market 
purchases, according to the DWR documents. 
But the state's "long" position in July, in which it had too much power, has 
at times given power-trading companies an arbitrage opportunity. Last 
Wednesday, for example, the state sold electricity for as little as $2 per 
megawatt hour on the same day that it was paying $22 to $75 on the spot 
market, presumably because its advance purchases did not exactly match the 
actual shape of demand. 
John Stout, senior vice president for Houston-based Reliant Energy Inc., a 
big energy supplier to California , said a trader can double or triple his 
company's profit by substituting cheap market power from the water-resources 
agency for power the company otherwise would generate. It is also free to 
resell the natural gas it might have used to fuel its plants. "That's what 
the trader is there to do and not leave money on the table," said Mr. Stout. 
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