FYI.  See comments on keeping the utilities out of bankruptcy and timing.

Jeff
----- Forwarded by Jeff Dasovich/NA/Enron on 01/09/2001 01:16 PM -----

	"Ronald Carroll" <rcarroll@bracepatt.com>
	01/09/2001 09:25 AM
		 
		 To: <rreilley@coral-energy.com>, <acomnes@enron.com>, <dfulton@enron.com>, 
<jdasovic@enron.com>, <jhartso@enron.com>, <jsteffe@enron.com>, 
<mary.hain@enron.com>, <smara@enron.com>, <snovose@enron.com>, 
<gackerman@wptf.org>
		 cc: 
		 Subject: Fwd: The New York Times - Governor Pledges to Save California From 
Power Crisis


----- Message from on -----

The New York Times
January 9, 2001 

Governor Pledges to Save California From Power Crisis
By JAMES STERNGOLD
 
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SACRAMENTO, Jan. 8 * Calling California's two-year experiment in electricity 
deregulation a "colossal and dangerous failure," Gov. Gray Davis proposed 
several major steps today to reassert the state's control over its power 
market, including the creation of a new state energy authority that could buy 
generating plants from private utilities and build new plants. 

In his annual address to the California legislature, Mr. Davis, a Democrat, 
also promised that he would not allow California's two largest private 
utilities to continue their recent slide toward bankruptcy, saying that he 
would use all the state's powers, including taking control of power plants 
and transmission grids if necessary, to keep the system working. 

"We will regain control over the power that's generated in California and 
commit it to the public good," he said in his speech this evening in the 
Assembly chambers here.

Mr. Davis's proposals will now be debated by a state legislature that has 
already been considering even stronger measures to tame soaring wholesale 
electricity prices and power shortages in many parts of the state.

The governor's plans represent a startling turnaround from the mood that 
existed four years ago when the deregulation plan passed the legislature 
unanimously on promises that market forces would bring power costs down * a 
drastic miscalculation, as it turned out. 

Mr. Davis's proposals are bolder than many political experts had anticipated 
from a centrist governor who has made his mark as a cautious pragmatist more 
likely to believe in market forces than state control. But some members of 
the state's heavily Democratic legislature said they were inclined to move 
even further than the creation of a state power authority that could become a 
major electricity generator.

"That's something we've already been pushing and we'll consider other 
measures, too," said John Burton, president of the State Senate. "Drastic 
times call for bold measures."

Governor Davis suggested that, if necessary, he would consider far stronger 
measures. "Everyone should understand that there are other, more drastic 
measures that I am prepared to take if I have to," he said.

In his speech, the governor left unstated precisely what he would do in the 
short term to prop up the state's two largest utilities, Pacific Gas and 
Electric and Southern California Edison.

But, as he has in the past, he focused most of his venom at the out- of-state 
companies that sell power into the deregulated market here, as well as the 
federal government, which last month lifted the cap on wholesale prices for 
electricity. 

"I reject the irresponsible notion that we can afford to allow our major 
utilities to go bankrupt," he said. "Our fate is tied to their fate."

The power utilities have been caught in a dangerous vise as they pay soaring 
prices for power on the wholesale market but can charge consumers far less 
than their costs because of state price caps.

The utilities have said that they have lost more than $11 billion already 
because of this situation, and that the gap will drive them into bankruptcy 
if they do not receive some government relief.

Governor Davis and other state officials are scheduled to meet at the White 
House Tuesday afternoon with top federal energy and economic officials in an 
effort to win federal help in creating a new cap on wholesale power prices. 

In his speech, the governor said he would push for new laws under which power 
generators that deliberately withheld supplies from the market to force 
prices up could be criminally prosecuted.

He also said he would seek to offer utilities and other institutions low- 
cost loans to finance the refurbishment of old power plants and the 
construction of new ones. In return, he said, the producers would guarantee 
that the power would be sold within the state. He even said that all state 
universities and community colleges would build co-generating facilities, and 
become energy independent. 

One measure not in the governor's speech was a proposal sought by the 
utilitiesto have the state float bonds and use the proceeds to help finance 
the losses the power companies have been sustaining. The governor's aides 
said that the measure might still be considered but that it was not near the 
top of Mr. Davis's agenda.

In the $1 billion overall energy plan, Governor Davis suggested two possible 
paths for a new state power authority. One would create a joint authority 
with the 30 municipal power authorities already operating around California; 
the other would create a stand-alone state authority. That agency would sell 
electricity only within the state and at a small margin above the cost of 
producing it. 

Governor Davis also proposed spending $250 million for a conservation program 
aimed at consumers that would, among other things, offer rebates to encourage 
people to replace old refrigerators, air conditioners and washers with 
energy-efficient models. 

The details of most of these issues are to be worked out in a special session 
of the legislature that the governor called several days ago.

Fred Keeley, a Democrat and the No. 2 official in the State Assembly, said 
that lawmakers have what they believe is about a two- or three-week window of 
opportunity to fashion a solution that calms the financial markets, brings 
some greater long- term order to the power business and pulls the utilities 
back from the brink of bankruptcy.

The power crisis comes as the state's fiscal health is already being affected 
by the slowing economy, somewhat limiting the governor's options.

Because of the vibrant economy of the past year, the state is expected to 
produce a surplus in the fiscal year that ends June 30 of roughly $12 
billion, an unprecedented windfall. The roughly $100 billion budget that Mr. 
Davis is scheduled to deliver on Wednesday is expected to include a surplus 
of perhaps $5 billion. 

Still, the governor proposed today new spending on his signature issue, 
education, and said he would push to improve middle schools by extending the 
school year for sixth, seventh and eight grades to 210 days, from 180 days.

He is also proposing a big increase in the amount of special training 
teachers receive every year, programs to increase the number of algebra 
teachers, an initiative focused on the demands of the high- technology 
economy, and more training for principals and vice principals. 

The energy crisis has created enormous risks for Mr. Davis, a politician who 
has built his long career in public service largely on risk-aversion. Since 
being elected governor two years ago, he has worked hard to construct an 
image as a roll-up-the- sleeves new Democrat and has shrewdly avoided steps 
that would permit Republicans to brand him a liberal, much like the tactic 
President Clinton employed.

In fact, Bill Campbell, the Republican leader in the Assembly, said, Governor 
Davis had co-opted part of his party's agenda, similar to the way President 
Clinton had, by taking the lead on conservative issues like law and order.

"He ran as a centrist and he's very much tried to stay that way," said Mr. 
Campbell. "When his opponents have tried to tag him with some label, it 
doesn't work."

Before tonight's speech, however, Mr. Campbell said that, if Mr. Davis did 
advocate strong state intervention in the energy market, Republicans would 
likely criticize the move as a liberal initiative. "Oh, absolutely you'll 
hear that," he said.

The Democrats, though, control both the Assembly and the Senate and, given 
the growing public anger over rising energy prices, political experts said at 
least some Republicans were bound to follow the governor's lead.

There were other signs that the crisis could be taking a political toll on 
the governor, who has been frequently mentioned as a possible presidential 
contender in 2004. 

A recent poll by The Los Angeles Times showed the governor's approval rating 
had slipped to 49 percent now from 67 percent in February, apparently in 
large part because of the power crisis.

Mark Baldassare, a senior fellow at the Public Policy Institute of California 
who regularly surveys voter attitudes, said Governor Davis's approval rating 
in his polls was at 66 percent as recently as September. But, Mr. Baldassare 
said, he had also detected signs it was declining because of public concerns 
over the rising prices and power shortages.

Two years into his four-year term, the power crisis could thus have a deep 
impact on Governor Davis's reputation and his future prospects. He has been 
perceived as largely reactive, as well as exceptionally deliberate and slow. 

"It would be hard to find someone better prepared, if you look at his 
r,sum,," Mr. Keeley, of the Assembly, said, referring to the fact that 
Governor Davis has spent virtually his entire career in public service, as 
everything from Gov. Jerry Brown's chief of staff to the state controller to 
lieutenant governor. 

"But," Mr. Keeley added, "this is a governor who doesn't expend political 
capital without a great deal of deliberation and anguish. Until this crisis, 
that has been fine. He has focused on issues that were best dealt with that 
way. But this is a genuine crisis and it will test his leadership skills as 
nothing before has. It will test whether he can transcend his natural 
inclination to be very cautious."

The rapid pace of events has also exposed holes in government policy and 
given other politicians an opportunity to take the lead. For instance, late 
last week, Philip Angelides, the state's ambitious treasurer, proposed the 
creation of a state authority to buy power generators and intercede in the 
marketplace.

"This is on one level a complicated issue and on another a simple issue," 
said Mr. Angelides, who stressed bold action in an interview today. "It would 
be fair to characterize the state's energy policy until now as hoping for 
mild weather. That isn't going to work."

What other lawmakers here stressed was that the crisis was going to require 
close cooperation between the legislature and the governor. While Mr. Davis 
has proven a strong-willed but effective partner, some lawmakers complain 
that he has been difficult to reach face to face and can thus appear remote.