-----Original Message-----
From: Beiser, Megan [mailto:Megan.Beiser@edelman.com]
Sent: Monday, October 22, 2001 9:29 AM
To: 'arem@electric.com'
Subject: Sacramento Bee: (10/20/2001) Davis hopes to rework power deals


Here's an article, with a negative angle on direct access and the long term
contracts, that appeared in Saturday's Sacramento Bee.  In the article,
Treasurer Angelides criticizes the PUC for delaying the decision on direct
access, while Loretta Lynch defends the action and notes that Angelides'
requested the delay.

Davis hopes to rework power deals: The long-term energy pacts are having a
big impact on the state's budget.
By Jim Sanders
Bee Capitol Bureau
(Published Oct. 20, 2001) 
With California holding billions in long-term energy contracts at
higher-than-market prices, Gov. Gray Davis' advisers said Friday that he
will try to renegotiate some of the pacts. 
But some large businesses aren't waiting -- they're cutting their own deals
with electricity suppliers and leaving homeowners and small businesses
holding the bag, state records show. 
"This stampede could shift over $8 billion in costs to these consumers in
coming years," said state Treasurer Phil Angelides. 
The developments reflect a new dilemma: The state's strategy of negotiating
long-term contracts helped end the electricity crisis but sparked a new set
of financial problems that could affect the state for the next decade. 
What began in January as the temporary purchase of emergency power for
debt-ridden Pacific Gas and Electric Co., Southern California Edison and San
Diego Gas & Electric Co. has shaken the state's budget and clouded future
spending. 
The signing of long-term contracts was vital and effective at a time when
electricity costs were spiraling out of control, but falling prices have
prompted a re-examination of some of them, Davis' advisers said Friday. 
The focus on long-term contracts overshadowed the disclosure that the state
expects its total electricity costs for the three utilities to be $17.2
billion by December 2002 -- less than the $21.4 billion originally estimated
and further evidence that the crisis has abated. 
Barry Goode, Davis' legal affairs secretary, declined to discuss how many of
the long-term contracts the governor wants to renegotiate. 
"Certainly we're not targeting every contract," he said. "Long-term
contracts have been extremely valuable in keeping the market stable. ... I
don't think you should expect some kind of wholesale effort on all these
contracts." 
Davis has signed more than 50 long-term contracts, with about two dozen
generators, for roughly $43 billion in electricity. Power purchased under
the pacts will average $69 per megawatt-hour over the next 10 years -- more
than double the current market rate. 
Goode and other Davis spokesmen declined to comment Friday on which
companies will be asked to resume negotiations, whether they already have
been approached, and what arguments will be used. 
"I'd rather not show my cards at this point," Goode said. 
Steve Stengel, a spokesman for Dynegy Inc., was noncommittal. 
"We have a legally binding agreement with the state, so therefore we don't
feel an obligation to renegotiate, he said. "But we would be willing to
consider renegotiation if it was mutually beneficial." 
Gary Ackerman of the Western Power Trading Forum, an association of
generators and traders, said the state would have to "give up something in
exchange" for any reworking of the deals. 
Possibilities include dropping lawsuits against generators or settling
disputes over previous electricity purchases, he said. 
Whether Davis ultimately is successful in reducing the burden, the state's
plan is to issue $12.5 billion in bonds to repay itself for current and
future purchases. That plan relies on repayment from utility customers,
including businesses. 
But in the past three months, some big electricity users have removed
themselves as ratepayers in the three investor-owned utility districts and
cut their own deals with generators for electricity, state records show. 
With every departure, utilities have fewer customers to repay the $12.5
billion bonds, increasing the financial burden on homeowners and small
businesses. 
"It isn't fair and it isn't right," Angelides said. 
He blamed the state Public Utilities Commission for not preventing such
departures sooner. Originally scheduled to act in June, the PUC delayed a
vote until September. 
Angelides wrote PUC President Loretta Lynch on Friday asking that the
agency's decision be made retroactive to July 1. 
Lynch labeled the request "amazing" and said the PUC delayed its decision in
June at the behest of Angelides and other state officials. 
She declined to comment on whether she would support a modification, saying
she wants to hear arguments from all sides. 
Lynch said the problem of shifting bond costs onto consumers could be eased
by renegotiating the state's long-term contracts. 

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