-----Original Message-----
From: Manuel, Erica [mailto:Erica.Manuel@edelman.com]
Sent: Wednesday, September 12, 2001 9:47 AM
To: Allen, Stevan; AReM; Douglas Oglesby (E-mail) (E-mail); Fairchild,
Tracy; Frank; Joseph Alamo (E-mail) (E-mail); Manuel, Erica; Megan
Beiser; Norm Plotkin; Warner, Jami
Subject: San Diego Union-Tribune: Rush to beat direct-access purchase
ban spurs fear


This article specifically mentions the threatened lawsuit by AREM as having
caused the PUC to drop its proposed order to ban direct access
retroactively.
Rush to beat direct-access purchase ban spurs fear
By Ed Mendel 
STAFF WRITER 
September 12, 2001 
SACRAMENTO -- Some utility customers, mainly businesses, are rushing to sign
contracts with generators for cheaper power before regulators enact a
long-delayed ban, raising concern that costs may go up for the remaining
customers. 
The state plans to ban "direct access" contracts with generators to keep
customers with utilities in order to help pay for power bought by the state
since January. Those state purchases will be covered in part by a $12.5
billion bond paid off by ratepayers over 15 years. 
But many businesses, which say they need cheaper power now to remain
competitive, are signing contracts to bypass the utilities before the Public
Utilities Commission bans direct-access pacts, an action that could come as
soon as tomorrow. 
"We have seen a significant increase in the last month," said Ed Van Herik,
a spokesman for San Diego Gas & Electric Co. 
He said the amount of the annual SDG&E power load shifted to direct-access
contracts with generators increased from 10 percent at the end of July to
17.4 percent at the end of last month. 
Allowing customers to shop around for cheaper power was the main promise of
the state's failed attempt to deregulate electricity. But when the utilities
ran up huge debts and could no longer borrow, the state began buying power
for utility customers in January. 
To avoid harming the economy with a massive rate increase, the state decided
to spread out payment of the soaring cost of wholesale power by obtaining
decade-long power contracts and issuing the $12.5 billion ratepayer bond. 
Now the state wants customers to remain with the utilities for two reasons:
paying their fair share of the state-subsidized power received earlier this
year and preserving a ratepayer base large enough to pay off the long-term
contracts and the bond. 
The power provided by the state to utility customers looked like a bargain
earlier this year, when prices on the wholesale market skyrocketed while the
state raised rates for the customers of Pacific Gas and Electric Co. and
Southern California Edison by about one-third. 
The state has not raised rates for SDG&E customers. But an increase
averaging 12 percent for SDG&E residential customers is on the PUC agenda
tomorrow, along with several other actions that may be taken to pave the way
for issuing the $12.5 billion ratepayer bond. 
PUC President Loretta Lynch said that before wholesale power prices began
soaring last year, about 16 percent of the power provided by the three
investor-owned utilities was being bought through direct-access contracts.
By last March, she said, the amount dropped to 1 percent. 
"Certainly, the direct access tanked because the marketers dumped their
customers back on the utilities when the price rose last year," Lynch said. 
But as wholesale power prices dropped in June, direct-access contracts began
to look like a better deal, and a number of customers have left the
utilities to get cheaper power. 
At Southern California Edison, the number of customers with direct-access
contracts grew from 32,547 on June 21 to 37,718 by the end of last month --
an increase of 5,171, said Steve Hansen, an Edison spokesman. 
"Now that the market has turned, everyone is bailing as fast as they can,"
said Mike Florio of The Utility Reform Network, a San Francisco-based
consumer group. 
Most of the electricity obtained through direct-access contracts in recent
months apparently has been bought by businesses that use large amounts of
electricity. 
"Most of the providers which serve small customers have simply stopped doing
business in the state," said PUC Commissioner Carl Wood, who with Lynch
outlined the PUC's proposed actions at a Capitol news conference late last
month. 
The PUC delayed action to ban direct-access contracts, waiting for the
Legislature to act on proposals that would have allowed businesses to bypass
the utilities if they paid an "exit fee" to cover their share of
state-subsidized power. 
The ban on direct-access contracts originally proposed by the PUC would have
been retroactive to July 1. But the retroactive provision was reportedly
dropped after a lawsuit was threatened by the Alliance for Retail Energy
Markets, a group of power marketers. 
In the Legislature, a provision allowing utility customers to obtain
direct-access contracts beginning in 2003, if they pay exit fees, was added
to the Assembly version of a plan passed last week to keep Edison from
joining PG&E in bankruptcy. 
The addition of the direct-access provision is one reason that the Assembly
version of the Edison plan is supported by the California Chamber of
Commerce. But the Assembly plan pushed by Gov. Gray Davis faces opposition
in the Senate. 
Senate President Pro Tempore John Burton, D-San Francisco, said the Senate
would send an Edison bill back to the Assembly after making it a
"less-egregious giveaway" to the utility. 
The main provision in the Assembly plan would allow Edison to eliminate most
of its debt by issuing $2.9 billion in bonds that would be paid off by
ratepayers. 
The Foundation for Consumer and Taxpayer Rights, a consumer group in Santa
Monica, calls the Edison plan a "bailout" and is threatening to place a
measure on the ballot that would ask voters to overturn the plan should it
be approved by the Legislature and governor. 
And TURN, the San Francisco consumer group, says the Assembly version of the
Edison rescue plan is more generous to the utility than a tougher plan
approved by the Senate in July and giving Edison an additional $1.8 billion.

The consumer group also says the direct-access provision in the Assembly's
Edison plan has "major loopholes" that would allow large customers to leave
the utilities without paying their fair share of state power costs. 
"TURN opposes the reintroduction of direct access, because any 'savings'
that are claimed to occur are really nothing more than the result of cost
shifting to those who do not or cannot abandon utility service," the
consumer group said in a statement. 
Copyright 2001 Union-Tribune Publishing Co. 

Erica Manuel
Edelman Worldwide / Sacramento 
916/442-2331 phone
916/447-8509 fax
erica.manuel@edelman.com