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SourceBook Weekly December 4, 2000 Issue: 
http://www.consultrci.com/web/rciweb.nsf/Web+Pages/SBEntrance.html
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MISO: WHAT IS THE FUTURE OF THE MIDWESTERN TRANSMISSION GRID?
The Midwest Independent Transmission System Operator (MISO) has been in
a state of flux as of late, as its expansion efforts have taken some dramatic
turns with major players announcing to withdraw from membership.
http://www.consultrci.com/web/rciweb.nsf/Web+Pages/SBEntrance.html
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FERC UNDER FIRE: CALIFORNIA IOUS RESPOND TO PROPOSED ORDER WITH SHARP 
CRITICISM
The Federal Energy Regulatory Commission's (FERC's) concession that the
market rules and structure for wholesale of electricity in California are
"flawed" resulted in a 77-page proposal early in November to repair the
situation. The reaction from California's three investor-owned utilities
(IOUs) was immediate and overwhelmingly critical.
http://www.consultrci.com/web/rciweb.nsf/Web+Pages/SBEntrance.html
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ESSENTIAL.COM PARTNERS WITH SHELL: ALLIANCE MAY PROVIDE EDGE OVER UTILITY.COM

In a small step forward for its Internet energy services, Essential.com
has partnered up with Shell Energy to offer a lower-cost natural-gas choice
to customers of Atlanta Gas Light. It appears that both companies will
benefit immensely from the partnership, but in very different ways.
http://www.consultrci.com/web/rciweb.nsf/Web+Pages/SBEntrance.html
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ALLEGHENY ENERGY: FORGING AHEAD IN GENERATION DEAL WITH ENRON
Allegheny Energy's recently announced purchase of three gas-fired merchant
plants from Enron North America reaffirms its strategy of expanding its
geographic footprint and strengthening its unregulated generation capability.
From Enron's point of view, the sale confirms its stated policy of pursuing
"contractual" rather than "physical" assets.
http://www.consultrci.com/web/rciweb.nsf/Web+Pages/SBEntrance.html
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ENERGY PRIVATIZATION IN MEXICO: THE FUTURE RESTS IN THE HANDS OF A NEW
ADMINISTRATION
Energy privatization and the future of electric supply and demand are issues
to be dealt with by Mexico's new president, Vicente Fox, as took over the
helm of the country on Dec. 1.
http://www.consultrci.com/web/rciweb.nsf/Web+Pages/SBEntrance.html
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WILLIAMS COMMUNICATIONS CONTINUES SPIN-OFF TREND
Williams is planning a spin-off of its Williams Communications (NYSE: WCG)
subsidiary, which should take effect the first part of next year.
http://www.consultrci.com/web/rciweb.nsf/Web+Pages/SBEntrance.html
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===============================================================
SCIENTECH IssueAlert, December 6, 2000
LADWP Continues to Shine Despite California's Dark Period
By: Will McNamara, Director, Electric Industry Analysis
===============================================================

Reduced electricity supplies across the state forced the California 
Independent
System Operator (Cal-ISO) on Tuesday to declare a Stage One Power Emergency
for the second consecutive day. The Cal-ISO is calling on all California
electricity customers to increase their energy-conservation efforts, and
urging them to delay turning on holiday lights until after 8 p.m. Responsible
for the reliability of California's electricity grid, the Cal-ISO declares
a Stage One emergency when the state's power reserves drop to 7 percent.
In contrast, the Los Angeles Department of Water and Power (LADWP), the
municipal utility that primarily serves the greater Los Angeles metro area,
announced that its more than 3.7 million businesses and residences are
enjoying stable electricity prices and a plentiful supply heading into
the holiday season.

ANALYSIS: What a sweet irony this must be for David Freeman, LADWP's general
manager. Just two years ago the municipal utility*the largest city-owned
utility in the United States*was ridden with massive debts and faced an
uncertain future. Now, LADWP in many ways can be seen as the only success
story on a landscape that is marked by one IOU maelstrom after another.


Let's take a step back and assess how LADWP was able to insulate itself
from the California crisis. Back in 1997, Freeman was brought on board
at LADWP (from the Cal-ISO, no less) to essentially save what was thought
to be a sinking ship. Straddled with $7.9 billion in debt, the need to
cut about 1,500 jobs and a likelihood of increasing rates for both residential
and industrial customers, Freeman's decision to take on the role of managing
LADWP seemed like many to be a herculean task. Yet Freeman arrived at LADWP
with an aggressive reorganization in mind, including the primary goal of
lowering rates and becoming debt-free by 2003.

Early on, Freeman made a critical decision*one that in hindsight appears
to be flawless*for LADWP to opt out of deregulation while the state's three
IOUs (PG&E, SCE and SDG&E) continued down the treacherous path of 
restructuring.
While the IOUs began divesting themselves of generating facilities as means
of averting market power issues (due to agreements established with the
CPUC) LADWP was a prime example of public power throughout the United States
electing to keep the integrated utility model. In addition, Freeman blocked
ongoing attempts by a consortium led by Duke Energy to buy LADWP's trading
unit, and thus maintained control over the muni's generation assets.

Enter the summer of California's discontent. With demand on an unexpected
increase and supplies in questionable availability, LADWP found itself
having the upper hand. The wholesale market over the last year or so clearly
has favored generators, and LADWP was one of an elite group of companies
that capitalized on the disparity between supply and demand. Critics accused
LADWP of "profiteering," but Freeman contended that the utility was just
taking advantage of California's flawed market. The truth is that LADWP
was in the right place at the right time, and maximized its ability to
generate cash via power trading, which it used to drive down its debt.
A shrewd move by any estimation.

The utility ran its plants flat out for most of the hot season, illustrated
by the fact that it got fined for violating emission standards. Some reports
indicate that LADWP earned about $45 million just from surplus power over
the course of the summer. These profits only added to what LADWP had made
in the previous year. Fiscal year 1999 wholesale energy marketing and 
transmission
services generated $98 million, which, along with other sources of wholesale
revenue, marked a growth of 118-percent over 1998.

The problems that were so well documented last summer have not stopped
with the onset of cooler temperatures. Ongoing structural problems within
the state of California continue to result in concerns about supply and
warnings of sudden increases in prices. As noted, the state continues to
face new challenges as generation that had been expected to be online has
been forced off, including a substantial amount from plants that had expired
air emissions credits. A squeeze on imports from the Pacific Northwest*another
carry over problem from the summer*also has complicated the situation in
California.

And, while the state IOUs evaluate long-terms contracts with energy providers
(based on today's high prices), LADWP is free to continue with an aggressive
generation plan. Among its objectives are to add 2,900 MW of power generation
within its service territory in the Los Angeles basin. The end result of
this would be less dependence on external sources for power and instant
supply available at times of peak demand. Also high on the list of Freeman's
priorities is the development of generation from renewable or alternative
energy sources. Already demonstrating a good record for green power, LADWP
wants to cut its NOx  emissions at its in-basin plants by 65 percent by
2010. Toward that end, just this week LADWP announced that it has contracted
for two additional fuel cell power plants that it will install in the Los
Angeles area. The first 250 kW Direct FuelCell power plant is to be delivered
in the fourth quarter of 2001, and the second in the first quarter of 2002.
A previously ordered 250 kW fuel cell power plant, announced last year,
is to be installed at the LADWP headquarters in the second quarter of 2001.


Along with having no worries about supply, LADWP customers also can look
forward to a 5-percent rate reduction that should take effect by 2002,
followed by a 10-percent rate reduction that has been proposed for 2003.
As criticism continues to mount against California's competitive wholesale
market, it certainly appears that LADWP took a prudent route by opting
out of competition and retaining its integrated model three years ago.
===============================================================
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