DWP Far Exceeded Profit It Reported						LA Times		9/10/2001
State Faces Crunch Time to Deal With Electricity Costs				LA Times		9/10/2001
Green energy sources seen as ripe for growth					Sac. Bee		9/10/2001
Dan Walters: As Davis and Burton spar, big Capitol agenda remains unsettled 	Sac. Bee		9/10/2001
Cal-ISO Violating Fed Law By Making Utils Buy State Pwr			Dow Jones		9/10/2001
POWER TO THE PEOPLE -- Blackouts shed light on UPS Advantage		 Computer Reseller 	9/10/2001
FERC Hearing Ends On $2B In NW Power Sales Refund Claims			Dow Jones		9/10/2001
Report: L.A. power agency made big profit during energy crisis			AP			9/10/2001
Natural Gas Bills Will Decrease for California Utility Customers			KRTBN 		9/10/2001
Scottish Power Sets $300 Million Charge for Excess-Power Costs at U.S. Unit	Dow Jones		9/10/2001
Calif DWR Hasn't Received Any Invoice From ISO For Power			Dow Jones		9/10/2001
Shocking facts about deregulation							Nat'l Post		9/10/2001
Commentary Bailout Scheme for Edison Fails Tests Again 			LA Times		9/10/2001
PG&E DISPUTES COST SHIFT							Costa Times 		9/10/2001
CALIFORNIA OFFICIAL SEEKS PROBE OF POWER CUTBACK		AZ Republic		9/10/2001
The State Davis Upbeat on $2.9-Billion Edison Plan 				LA Times		9/10/2001
Power Politics in the Senate								New York Times	9/10/2001
A Self-Inflicted Wound Aggravates Angst Over Enron				New York Times	9/09/2001

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DWP Far Exceeded Profit It Reported
* Energy: An independent audit finds the utility's return was double the 15% the agency said it made selling power during the crisis. Officials deny price gouging.

	
By DOUG SMITH and RICH CONNELL and ROBERT J. LOPEZ, TIMES STAFF WRITERS


During the peak of California's power crisis, the Los Angeles Department of Water and Power earned far greater profits selling electricity to the rest of the state than agency officials have previously acknowledged, according to a newly completed independent audit.

The document, obtained by The Times under the California Public Records Act, seems sure to reinforce charges by some consumer advocates that the public power company effectively helped its customers at the expense of those suffering blackouts and rate hikes.

The audit also undercuts efforts by Gov. Gray Davis and others to pin the blame for rising energy costs mainly on private, out-of-state generating companies. For months, DWP officials have deflected questions about their prices by insisting that the agency sold power for just 15% above its costs.

As recently as July, former DWP chief S. David Freeman, who now heads Davis' new statewide power authority, repeated that assurance in a letter to U.S. senators probing the energy meltdown.

But the audit findings show that DWP's profits from electricity sales to power-starved areas of the state averaged 56% last year under Freeman's stewardship.

Overall, during the worst 13 months of the crisis ending in May, records show that the DWP profited $200 million on sales of $680 million. It says it is still owed $180 million.

Beyond those higher profits, the DWP included expenses in its cost component that have little to do with generating electricity.

They include a $34-million cut for the city's general fund--essentially a bonus for the utility's owner--and an additional $42 million in overhead for such things as debt payment and return on the agency's capital investments.

These overhead charges are three times higher than the amount considered reasonable by federal regulators.

In effect, unsuspecting ratepayers across the state, whose utilities have been battered by debt, are helping to pick up the tab for services that DWP consumers and city taxpayers would otherwise have to pay.

In an interview late last week, Freeman defended those costs and DWP's profits, saying the agency went out of its way to help the state avert blackouts by cranking up its output from costly plants.

He insisted that he had issued "standing orders" to sell power at a profit of no more than 15%.

"We made a fair amount of money. It was not price gouging," said Freeman, who contends that he led efforts to cap spiraling wholesale prices last year.

Freeman said he has not seen the audit but if profits were higher than 15%, then "I'm not embarrassed about it. It says nothing more than there's enterprise at [the] DWP."

The DWP's new general manager, David Wiggs, said that his staff had found no documentation as of Friday to confirm the existence of a strict pricing policy within the agency during Freeman's tenure.

"Maybe in hindsight," Wiggs said, "it would have been better not to be so specific, but to say, 'Look we're gonna limit our recovery to a reasonable return for our customers.' "

Still, Wiggs said, even if the profit margin was higher than publicly stated, it was not excessive. "We charged just and reasonable rates," he said, adding that the DWP now offers the state electricity with no profit margin.

Wiggs ordered the audit in May as questions intensified about the role of the DWP and other public power agencies in driving up the price of wholesale electricity during periods of scarcity.

Conducted by the auditing firm of PricewaterhouseCoopers, the study targeted a 13-month period beginning in May 2000. The results have provided critics with new ammunition.

"Taking advantage of residents in one part of the state to benefit residents in another part is not fair," said Harry Snyder, senior advocate for Consumers Union. "This kind of behavior is what we expect from banks, savings and loans and insurance companies--not a public agency."

Sen. Fred Thompson of Tennessee, the ranking Republican on the Governmental Affairs Committee, which is investigating the crisis, was one of those recently assured by Freeman in writing that DWP's profits were limited to 15%.

"This is a cause for concern and deserves greater scrutiny," he said after learning of the audit. "It would be ironic if it turns out that the L.A. Department of Water and Power was charging more than Gov. Davis' 'Texas Pirates,' " said Thompson.

The DWP became a key player in the energy crisis last year when the state's deregulation of electricity began to backfire, with supply from the private generators contracting and wholesale prices exploding.

To keep the power flowing, the DWP--which had opted out of deregulation--cranked up its generating capacity and sold the extra electricity into the California market.

This helped avert even more extensive blackouts than the state experienced.

At the same time, however, the DWP and other publicly owned utilities in California and elsewhere charged some of the highest prices during the crisis, official reports would later show. Freeman repeatedly said the utility's prices were high because it was forced to use its most costly, inefficient plants.

But the audit raises such serious questions about the DWP's behavior that the matter has spilled into the 2002 gubernatorial contest.

Former Los Angeles Mayor Richard Riordan, a possible Republican challenger to Davis, last week moved to distance himself from the profits racked up by the DWP during his City Hall tenure.

In a letter to his successor, James K. Hahn, the former mayor said he only recently learned that the agency may have exceeded its stated profit ceiling.

If so, he said, the city should consider cutting a deal with the utilities and the state to reduce the estimated $180 million the city says it is still owed from earlier sales.

A Riordan spokesman said the former mayor deferred to the DWP to set prices for its electricity.

"The mayor never directed them to generate a profit from these sales," said Jaime de la Vega, a senior advisor to Riordan's campaign committee.

Freeman, now squarely in the Davis camp, disputes Riordan's account. He said the mayor repeatedly questioned the agency's pricing strategy.

He wanted to charge more, according to Freeman, in case the city only got a partial payment from Pacific Gas & Electric and Southern California Edison, which were slipping into insolvency.

Freeman described Riordan's view as: "If we're gonna continue to sell it to them, we ought to get a lot of money. He was thinking of it the way a good businessman thinks of it."

For the most part, the Davis administration has gone light on public agencies that have profited in California's haywire energy market. Freeman contends that other suppliers drove prices higher through aggressive bidding practices that lifted the entire market, including his agency.

But according to a report by the state's grid operator, DWP was one of the most aggressive, along with the trading arm of BC Hydro, the government-owned utility in British Columbia.

Yet another report--this one by the state's power-buying agency--found that the DWP and some other public utilities charged higher than average prices during the first quarter of this year.

The report said DWP charged an average of $292 per megawatt hour, asking more than many private generators.

It could not be determined how much the utility was charging per megawatt hour last year when its profit margin was even higher.

Even after the market problems cited by Freeman were corrected earlier this year, the DWP collected profits more than 40% higher than it claimed to have netted, records show.

Overall, during the 13-month period audited, profits averaged 29%, double the return the agency has publicly stated it was receiving.

Although Davis and his aides have tried to keep the focus on Texas-based energy suppliers, Republican lawmakers in Sacramento and Washington have been broadening the debate to include the conduct of government-owned utilities.

One key question is whether those agencies, like private suppliers, should be forced to refund excess profits.

The primary venue for refund orders has been the Federal Energy Regulatory Commission, which is expected to rule in December on whether the state should receive the billions of dollars it claims to have been overcharged.

DWP insists it is outside the commission's jurisdiction. But some California legislators argue that state law may give them authority to demand refunds from public utilities.

The leading proponent of that course is state Sen. Ray Haynes (R-Riverside).

In a letter to a Senate investigating committee last month, he said he fears that the continuing disclosures about the DWP and others are "merely the tip of the iceberg relating to greed of in-state public utility agencies."

The chairman of that committee, Sen. Joe Dunn (D-Santa Ana), said his panel will examine the activities of these agencies in the months ahead.


 State Faces Crunch Time to Deal With Electricity Costs
* Energy: With one week left in the legislative session, lawmakers and regulators want to resolve questions on how California will recoup its expenditures during power crisis.

After a summer of delays, California regulators and legislators are aiming in one final week to resolve issues crucial to millions of electricity customers and the financial stability of the state and its utilities.

The energy crisis that caused blackouts early this year has receded, but it has left behind a potential fiscal crisis. The state needs to recoup more than $8 billion that it has spent on power, and it has signed $43 billion in long-term electricity contracts.

Final plans for meeting these financial obligations--and spreading the pain of paying them off--have been debated for months. But the decision time has come: Legislators are scheduled to recess for the year on Friday, and the state Public Utilities Commission is under pressure to act on several long-pending measures at a meeting on Thursday. "What's before the state, both at the PUC and the Legislature, is how are we going to provide power to people in the years to come," PUC President Loretta M. Lynch said in an interview. "Are we going to have a healthy utility to provide the power, or are we going to rely on the state?"

The PUC, which approved the biggest rate increase in history earlier this year, now faces another tough choice: Should it surrender its formerly ironclad authority over electricity rates to the state Department of Water Resources, an agency that has come under fire for alleged conflicts of interest and the cost of its contracts? Or should it balk and jeopardize the state's planned sale of bonds to replenish the treasury and repay loans?

Legislation on Related Issues

Legislators are grappling with two complicated and highly contested bills on related issues. One seeks to repair the finances of Southern California Edison through a $2.9-billion aid plan backed by Gov. Gray Davis. The other would limit the powers of the Department of Water Resources, which has been buying electricity for 10 million customers of Edison, Pacific Gas & Electric Co. and San Diego Gas & Electric since January.

The state law that authorized the Department of Water Resources to buy power exempted the purchases from PUC reviews designed to protect consumers from unreasonable charges.

Now, the department is seeking a formal agreement with the PUC that would guarantee that its cost of supplying power to utility customers will be fully covered. Critics say the accord is a blank check for future rate increases, but the department says no increases will be necessary in the foreseeable future.

State officials say the PUC has little choice but to sign the agreement, which they see as necessary to reassure Wall Street bankers that the Department of Water Resources will be able to repay $12.5 billion in bonds the state plans to sell to cover power costs. The money from those bonds will go, in part, to repay the state treasury for money laid out for power.

Top state officials, including the governor and treasurer, want the bond sale to go without a hitch, but the date of the sale already has been pushed back several months, and threatened litigation could further delay it.

The urgency over the bonds comes about because the state already has used $6 billion from the treasury and has taken out a $4.3-billion loan to cover power costs.

State Treasurer Phil Angelides said that if the bonds are unsold and the economy slows down next year, the state could be revisiting the fiscal crisis of the early 1990s.

"People ought to be laying down their arms over their energy agendas and asking the question: What is the best and fastest way to repay the state general fund to ensure critical programs such as education and health get their funding?" he said.

Lynch, one of three Davis appointees on the five-member PUC, finds herself in a particularly difficult position. She sees the value of PUC reviews of the reasonableness of power purchases. But, Lynch said, "If we do not enter into a rate agreement, the bonds do not issue and that could affect the state general fund."

"The thing I care about most," she added, "is ensuring the general fund is repaid."

Earlier this month, Lynch issued a draft decision that would have the PUC essentially rubber-stamp any future revenue requests or rate increases sought by the Department of Water Resources. But she also has publicly endorsed a bill by state Sen. John Burton (D-San Francisco) that the Davis administration opposes.

The bill would ensure that the PUC has the right to scrutinize the revenue needs of the Department of Water Resources and hold public hearings. It would not, however, give the PUC the power to disallow department expenses. To reassure Wall Street, the bill would dedicate a portion of the money that utilities collect from their customers to repaying the bonds.

At a PUC meeting last Thursday, PUC commissioners Richard Bilas and Henry Duque, appointees of former Gov. Pete Wilson, voiced support for the Burton bill, saying it would let the PUC shed additional light on the Department of Water Resources' power-related expenditures.

The Davis administration opposes the bill's present form but is seeking amendments. One concern is that energy providers would sue out of fear that if money runs short, bondholders would be paid before they are.

The bill's passage could be a "deal breaker" for the bond sales, said contractor Joseph Fichera, a financial advisor to Davis.

At the least, contentious debate surrounding energy-related issues could drive up the price of floating bonds, Fichera said.

"Wall Street does not like risk. Conflict implies risk. So the more we create, the more we are costing ratepayers," he said.

The Legislature also is considering a bill that would allow Edison to sell bonds to pay off about three-quarters of the debt it accrued during the energy crisis. The utility would have to handle on its own about $1 billion owed to large energy companies. Consumer activists have threatened a ballot initiative to block the bill, which they call a bailout.

The PUC on Thursday is scheduled to vote on several items designed to ease the sale of the Department of Water Resources' bonds. One is a rate increase for SDG&E customers. Another measure would suspend the right of businesses and other electricity customers to stop buying electricity from their local utility and choose their own power provider.

The Alliance for Retail Energy Markets, an organization that includes many large California businesses, said its members would be forced to sue if the PUC goes ahead with plans to retroactively void the right of customers to choose their own energy providers.

But the most controversial item has been the proposed PUC agreement with the Department of Water Resources. Consumer groups and utilities alike have called for public examinations of the department's contracts and revenue requirements.

"The plan would allow a state agency to operate behind closed doors while it negotiates with ratepayers' money," said Douglas Heller of the Foundation for Taxpayer and Consumer Rights in Santa Monica. "Secrecy in DWR leads to conflicts of interest and that leads to higher rates."

Concerns about the Department of Water Resources' lack of independent oversight have been heightened by recent developments:

Energy experts have questioned the qualifications of the trading team the department assembled, and several traders were fired for alleged conflicts of interest.

Critics seized on reports that the department sold surplus power at a loss of $46 million in July, although officials say surpluses are bound to occur with long-term power contracts.

And the department's projections of its revenue needs for future power purchases have been updated and amended twice, prompting utilities and others to question the reliability of the figures.

PG&E Threatens to Sue Over Revenue

The utilities want the department to be subject to the sort of reviews that have rankled them for years. If the PUC does not provide for that, lawsuits could be coming.

PG&E, which already is in bankruptcy, has threatened to sue if the Department of Water Resources' revenue requirement doesn't leave the utility a sufficient share of the rate increase adopted by state regulators in March.

PG&E recently asked a Sacramento County Superior Court judge to require the Department of Water Resources to hold public hearings on its revenue requirements. The company has reacted angrily to a draft PUC decision to shift $600 million of the state's cost of buying power from Edison to PG&E, saying the plan was illegal and discriminates against PG&E customers.

Davis aides have defended the Department of Water Resources and its power purchases, saying the department's long-term contracts helped cool the energy crisis.

"They look overpriced now," Fichera said. "But four months ago they were underpriced [compared with the spot market]. They are an insurance policy" against market volatility.

Having the PUC review actions of another state agency would be redundant and would serve no purpose, Fichera said, because the contracts already are in place.

"You can't break contracts," he said. "You've got to pay them."

Even some critics acknowledge it is difficult to evaluate the Department of Water Resources' performance to date. One reason is that the department has closely guarded details about its contracts and its spot purchases, arguing that release of too much information would place it at a competitive disadvantage.

Another reason is that market conditions have changed and natural gas prices have declined since the department entered into contracts amid the energy crisis.

"We all have 20-20 hindsight," said PUC Commissioner Bilas. "When DWR entered into contracts, the state was over the barrel. Now we can say that they are not as good as [the department] thought . . . and that DWR does a lousy job of negotiating contracts. But that's unfair." 


Green energy sources seen as ripe for growth
By Carrie Peyton
Bee Staff Writer
(Published Sept. 10, 2001) 
Wind and hot water, sunshine and rotting garbage. 
They all could keep California's lights on -- for a price. 
Around the state, more people are beginning to suggest that price is worth paying to help smooth out the ride on the state's power roller coaster. 
This week, Sacramento's municipal utility will begin hearings on an ambitious 10-year plan that would nearly triple its reliance on non-hydroelectric sources of renewable electric power, such as wind farms and solar panels. 
In the Legislature, a hotly debated bill would require every power seller in the state to provide increasing amounts of "green" power, rising to 20 percent of their portfolios by 2010. That would roughly double current supplies. 
"This may be the silver lining of the energy crisis if we can get this passed," said state Sen. Byron Sher, D-Palo Alto, author of SB 532. 
More than a dozen states and many nations already have "portfolio standards" that require each utility or other power venders to provide a set share of electricity from renewable sources. The amounts can be as low as 2 percent or 3 percent, or as high as 30, partly depending on what gets called "renewable." 
Environmental and some consumer groups have embraced the idea, saying it would bring a constellation of advantages. 
The air would be cleaner, they say. Finite resources such as coal, natural gas and other fossil fuels would be used more sparingly. And in California, the state would be a little less vulnerable next time prices sail through the stratosphere for natural gas, the chosen fuel for virtually all new power plants. 
But free-market advocates and some utilities are dubious. 
They worry that a state-mandated portfolio standard would drive up prices. It could reward inefficiencies in energy sources that are otherwise too expensive to stand on their own. And in the push to diversify from natural gas, critics of such standards don't want to see the state turn its back on potentially lower cost power sources, including coal, nuclear power and new large dams. 
"Ignoring hydroelectric power is shortsighted, and I think not considering nuclear options within the state, at least giving it some public hearing, is shortsighted," said Karal Cottrell, a Sacramento Municipal Utility District director. 
It is a debate that will help shape California's power future, and it comes as the state has begun loading up on natural gas plants. 
Just over half of in-state electricity production now is fueled by natural gas, but that could rise to 65 percent by 2010 if all currently proposed gas-fired plants are built, said Mark Bernstein, an energy analyst at RAND. 
Long viewed as relatively cheap and comparatively clean, natural gas still could pose risks if it dominates the state's power picture. 
"We have a very hard time predicting the price of anything, particularly energy these days," said Bernstein. "What happens if the pressures on price are so great that they go way up?" 
That fear has been sobering for the Sacramento Municipal Utility District, whose officials worry the utility might be becoming too dependent on two mainstays: hydro power, with its risks of short supplies in dry years, and natural gas. 
Already considered a leader in renewable power, SMUD gets about 7 percent of its electricity from non-hydro renewables. In a series of workshops beginning Tuesday , it will seek public feedback on a proposed 10-year plan that would raise that amount to 10 percent by 2006 and 20 percent by 2011. 
"If we commit to this, this will be the largest renewable commitment, I believe, in the state right now," General Manager Jan Schori told directors. 
Renewable power would cost more, but the benefits in diversification and price stability should be worth it, said SMUD planning chief Jim Tracy. His proposal calls for spending no more than an extra penny per kilowatt-hour for renewables. 
At first, SMUD plans to expand its Solano County wind farm, continue subsidizing solar panels and consider working with the county to expand the Kiefer landfill plant, which runs on methane seeping out of rotting garbage. That should get the utility close to 10 percent. 
By 2003, staffers would return to the board with a study on how to reach the far more challenging second phase: boosting green power another 10 percent at a livable price. 
The likeliest cost-effective sources so far look like wind and geothermal power, said Tracy. 
That's also the consensus among those who hope the state will pass its own portfolio standard before the Legislature adjourns Friday. 
Wind turbines -- once disparaged as generating more tax breaks than electricity -- have become bigger, more powerful and far more dependable in the past decade. Aided by a federal tax credit, they now can supply power at between 3 cents and 6 cents a kilowatt-hour, depending on location, according to the American Wind Energy Association. At its lower end, that makes wind nearly competitive with a new natural gas plant. 
Geothermal power, tapped by drilling into underground beds of hot steam or water, runs between 4.5 cents and 7 cents a kilowatt-hour, and could go lower if it, too, qualifies for the next round of federal credits, plant developers say. 
Both sources of power are plentiful in California. 
The state is the 13th best source of wind in the nation, with untapped wind resources along mountain ridges running almost the length of the state. 
Geothermal power already makes up 5 percent of the state's supply and could rise by thousands of megawatts, with rich beds in the Imperial Valley and elsewhere still not fully tapped. 
By comparison, solar power costs more than 10 cents a kilowatt-hour, although it can have special appeal to homeowners living far from power lines or those who want to produce their own electricity. 
Both wind and geothermal could be "a shoo-in" economically if natural gas prices float higher, said Matt Freedman of the Utility Reform Network, a consumer group that usually advocates for lower power costs. 
Today, it's also one of the biggest lobbyists for a renewable portfolio standard. 
"We think the standard is going to save consumers money, or in the worst case, it's like an insurance policy," said Freedman. "I think consumers are willing for that to be part of the mix these days." 
But with only a week left to go, Freedman said, "the enemy of (Sher's) bill is time." 
That's actually just one of the enemies. 
Others include Sempra Energy, parent company of San Diego Gas & Electric Co., and the California Manufacturers Association, which fear it would boost electric rates. 
"When a major thrust of the state is to reduce prices as much as possible, is this really a good time for this?" asked Sempra spokesman Ed Van Herik. 
Both Sempra and the Assembly's Republican caucus point out that more than $100 million a year already is collected from consumers' electric bills and funneled into a fund that supports renewable energy. 
The portfolio standard could have Californians paying again -- up to the 1.5 cents per kilowatt-hour cap in the bill -- for power that they've already helped subsidize, they say. 
"Renewable energies are becoming more efficient on their own," said Assemblyman Dennis Hollingsworth, R-Temecula. "To artificially prop them up will stifle that innovation." 
California already gets about 9 percent of its total energy supply, including imports, from non-hydro renewables, and an additional 3 percent from small hydro. The state Energy Commission predicts that current programs could boost that to 17 percent by 2006. 
So to Sher, author of the renewables bill, raising that amount to 20 percent by 2010 is actually a modest goal. 
"We're well on our way there," he said.

Dan Walters: As Davis and Burton spar, big Capitol agenda remains unsettled 


(Published Sept. 10, 2001) 
There's no scientifically objective method of measuring such things -- the world still awaits the invention of a procrastimeter -- but it's evident that as the final week of the 2001 legislative session begins, there are an extraordinary number of pithy issues left to be resolved. 
Although procrastination is a Capitol perennial, what's different his year is that so many of them are significant matters of public policy that cannot simply roll over into 2002, including major pieces of the energy crisis puzzle such as Gov. Gray Davis' bailout of Southern California Edison. 
Also on the pending agenda are redrawing legislative and congressional district boundaries, multibillion-dollar bond issues for schools and colleges, a slew of labor benefit bills that business leaders call "job killers," a drive by trial lawyers to make it easier to open up confidential lawsuit settlements, consumer protection measures that include those affecting privacy and "predatory lending," expansion of rights for gays and undocumented immigrants, community college support and a potentially sweeping measure to expand health care access for the state's huge uninsured population. 
Why has so much been left to the final hours? Some of it is human nature compounded by political skittishness. But the extraordinary amount of serious legislating left to the last minute this year reflects both the unusual circumstances of this year's session, especially the energy crisis, and an escalating conflict between the Capitol's two most powerful Democrats, Gov. Gray Davis and Senate President Pro Tem John Burton. 
The first half of the year was utterly dominated by the energy situation and then by a partisan conflict over the state budget as California's economy softened and revenues dipped sharply. Other legislative matters drifted until summer's heat enveloped the Capitol. 
The more important factor may be the Davis-Burton feud which manifests itself in many ways, but particularly on the two most important pieces of late-session business, the Davis-sponsored Edison bailout and a multibillion-dollar boost in benefits for workers with job-related illnesses and injuries, carried personally by Burton. 
As it happens, the price tag on each is similar. The Edison measure would authorize the utility to issue $2.9 billion in bonds to repay its debts and, at least in theory, step back from the brink of bankruptcy. The workers' compensation bill, sent to Davis' desk last week, would boost benefits by a similar amount each year. Burton has denounced the Edison bill as a raid on ratepayers while Davis has in the past vetoed similar workers' compensation measures, and is being urged to do it again by employers, who list it at the top of their "job killer" bills. 
The two politicians have so much prestige on the line with the two measures that there have been recurrent rumors of a squeeze play in which Davis would have to agree to sign the workers' comp bill to get his much-cherished Edison bailout, although no one will say so publicly. 
The Burton-Davis conflict, however, is far broader than these two bills. They represent, in effect, the two faces of the Democratic Party -- Davis the cool, business-friendly centrist and Burton the passionate, labor-oriented liberal -- and their personal relationship is practically nil. Burton openly despises Davis as a betrayer of party principle and trashes him to anyone within earshot. Davis is more circumspect, but those around him contend, in effect, that if liberals like Burton had their way, the Democratic Party would again become anathema to moderate voters and Republicans would regain their prominence in the state. 
One reason for this year's delays is that a huge wad of liberal legislation -- including many bills that Davis doesn't want to see on his desk -- is backed up and Burton could, if he wishes, dump it on the governor and make him decide whether to offend business or Democratic interest groups. 
It is, therefore, a game of chicken. Will Burton protect Davis from being caught in the middle by holding up the key bills and/or agreeing to modifications, or will he let the governor sweat?

Cal-ISO Violating Fed Law By Making Utils Buy State Pwr

09/10/2001 
Dow Jones Energy Service 
(Copyright (c) 2001, Dow Jones & Company, Inc.) 
   (This item was first published late Friday) 
 
   By Jason Leopold 
   Of DOW JONES NEWSWIRES 
   
LOS ANGELES -(Dow Jones)- California 's grid operator may be in violation of federal regulations by forcing utilities to buy expensive power the state secured under long- and short-term contracts in place of electricity that is available from their own low-cost power plants. 
The California Independent System Operator, the agency that operates the real-time electricity market and maintains reliability of the grid in the state, has given priority during the past three months to power the state Department of Water Resources locked in under the $43 billion of long-term contracts before utilizing electricity from low-cost power plants, according to several executives at the agency. 
Greg Fishman, an ISO spokesman, said "there are times, this doesn't happen much, when because of varying ramp rates, we take a bid out of sequence, meaning when one plant has a bid of let's say $50 a megawatt-hour and another has a $60 bid, we may take the $60 bid because it would take longer to deliver the $50 power." 
Fishman said the "market is not working as it is designed to." 
"Since the demise of the California Power Exchange, we, the industry, have been forced to make the market function given the tools that we have," Fishman said. "The PX was a major portion of the market. Without it, we are left trying to put the market back into shape given the current players in the market." 
However, the ISO's federal tariff states that the agency must use the cheapest electricity available in the wholesale market before dispatching the more expensive electricity to generators and retail customers. 
"The ISO shall dispatch generating units...to meet its imbalance energy requirements based on order of energy bid prices," reads a section of the rules approved by the Federal Energy Regulatory Commission. "The ISO shall not discriminate between generating units, system units, loads and system resources other than based on price and the effectiveness (location and ramp rate) of the resource concerned to respond to the fluctuation in demand or generation." 
Fishman acknowledged that the "market is not working as it is designed to," but he said the ISO would not respond to specific questions related to the possibility that the agency has violated its federal tariff or other issues related to the operation of the ISO market. 
"We are looking into a variety of issues surrounding that dysfunction and in due course we will answer those issues," he said. 
 
   Agency Fails To Reveal Price Data For DWR Power 
   
Moreover, the ISO has failed to disclose on its web site the price of the DWR power, which is also required under federal regulations. 
Jan Smutny-Jones, executive director of the Independent Energy Producers Association, a trade group representing large and small power producers, said there is "absolutely no transparency in the ISO market. No one knows what they're paying for." 
The DWR, which started buying power in lieu of California 's ailing utilities in January, signed $43 billion in long-term supply contracts over the past six months at prices that now exceed the spot market price for electricity . 
The DWR at times has had a surplus of electricity and has sold some of it into the spot market at a $115 million loss over the last three months. As a result, the ISO has ordered the Mohave Generating Station, a coal-fired power plant in Nevada capable of producing electricity at roughly 2 cents a kilowatt-hour, to reduce output at the facility, Fishman said. 
The 1,500-megawatt Mohave unit is majority owned by Edison International (EIX) unit Southern California Edison. 
Fishman said last week that the ISO is investigating the circumstances that led the grid operator to order the units to "ramp down." 

POWER TO THE PEOPLE -- BLACKOUTS SHED LIGHT ON UPS ADVANTAGE 
Scott Campbell

09/10/2001 
Computer Reseller News 
Page 78 
Copyright (c) 2001 CMP Media LLC 
So much for the California power crisis. 
Solution providers spent much of last winter and spring installing uninterruptible power supplies (UPSes) because of anticipated rolling blackouts. But a mild summer on the West Coast put those fears to rest. 
In fact, power companies in California even sold excess energy to neighboring states. Still, heightened awareness of the earlier energy crisis helped solution providers, say executives. 
"Everybody's got blackout scares. That's where we position ourselves," says Henry Ngo, marketing manager at e-Systems Design, a Brea, Calif.-based solution provider. "We go out to enterprise-level accounts and we talk about rolling blackouts, power surges and the backup power they need. They're worried about losing data and jeopardizing their whole network infrastructure." 
Although major outages haven't occurred recently in California , the power-protection business remains steady. In many cases, UPS-driven leads have translated into profitable service opportunities, Ngo says. 
"[Selling UPSes gives us a chance] to fish for the integration portion-maintenance services, design, network assessment-for future projects," Ngo says. In the past two months, e-Systems has taken on about 10 UPS deployments in enterprise accounts, he says. 
Sources at the Energy Information Administration say demand for electricity is expected to increase 2.4 percent nationwide this year over last, while generating capability will increase only 1.4 percent. In California , energy consumption is expected to increase 3.1 percent this year, according to the government agency. 
While other regions don't face the same problems as California , solution providers see plenty of opportunity to deliver UPS solutions across the United States. 
The combination of daily thunderstorms, old buildings and Louisiana heat and humidity led Software & Stuff to include UPS solutions in every recent project, says Gary Shurman, president of the Metairie, La.-based solution provider. 
"We do a lot of accounting software solutions, and we won't install a network without a UPS on every server, workstation, hub and router," says Shurman. "When we get a severe thunderstorm roll through here, many times power will be out from a few minutes to a few hours. You really get some equipment damage from that." 
Implementing UPS solutions up front reduces Software & Stuff's maintenance and warranty costs, Shurman says. "You don't have to [make] service calls or replace equipment because of intermittent failures," he says. 
Adds Chris Boaglio, senior channel manager for VARs and computer distribution at MGE UPS Systems, a Costa Mesa, Calif.-based UPS vendor: "The power issue will be on the minds of solution providers and customers for the next six months to a year. In some instances, a UPS is considered a necessary peripheral. Most customers need backup that is fail-safe, but the pain level is not there to spend money." 
While customers aren't clamoring for power protection now as they were when the California outages were at the top of the news, there's still money to be made, says Joe Wolf, president of CompuSystems, a Washington, Mo.-based solution provider. 
"We have seen a lot of thunderstorms in our area, and we've replaced more than 200 modems in the last three weeks," Wolf says. "But we still have to keep up the fight. It's an ongoing thing. You need to remind [the customers] every single time." 
CompuSystems doesn't include UPS solutions when bidding projects, he says, but it reminds customers, before any contracts are signed, how important power protection can be for their business systems. 
Meanwhile, UPS vendors are using Web seminars and other training methods to ensure that solution providers can deliver an effective message about UPSes to end users. 
"We're working hard to make sure solution providers are armed with tools to help their customers, whether they're dealing with an existing power-protection solution or the end user doesn't have anything at all," says John Donovan, director of reseller strategy at American Power Conversion, West Kingston, R.I. 
Businesses in the United States lose about $50 billion annually because of power outages, according to a recent report issued by the Electrical Power Research Institute. Such statistics can be used to sell UPS solutions, say solution providers. 
"Even in a small business, the first time you have an outage, you could put 50 employees out of business for a day. That could cost you up to $20,000 plus lost sales. Compare that [loss] to the [cost of] an inexpensive battery," says Software & Stuff's Shurman. 
But end users are growing accustomed to having UPSes installed in new networks, he says. 
"It's usually pretty painless with a new sale. For existing customers [that don't have UPSes], we go in with power-measuring equipment and prove to them what's happening with their power," says Shurman. "When you show them what the spikes and drops look like for a 24-hour period, they get the picture. 
"But without that, UPSes can be a hard sell," he says. "The customer would call an electrician, who would use a meter reader and say, 'you've got 120 volts, so you're fine.' " 
The global UPS market is expected to generate $6.4 billion in sales this year and will see a compounded annual growth rate of 8.3 percent between 2000 and 2007, says Farah Saeed, an industry analyst with Frost and Sullivan. 
"In 1999 and 2000 we saw double-digit growth, but the sluggish economy and pricing pressure are factors in the market now," Saeed says. "It's a very mature market, and there's a lot of competition with inexpensive products coming from abroad." 
The median price of a 500-volt-ampere desktop UPS has fallen 20 percent in the past year, says Dave Slotten, director of product management at Tripp Lite, a Chicago-based UPS vendor. 
"For well under $100, you're picking up a fine UPS for desktop protection with serial or USB connectivity," Slotten says. "There's no excuse not to have one. The payback on them is so obvious." 
Margins on UPS products have decreased, along with margins on other hardware products, but power-protection equipment brings in supplemental revenue from service opportunities, says e-Systems' Ngo. 
UPS sales growth in the enterprise has been tempered by the slowdown in data center expansion. Fewer new data centers translates into fewer UPSes sold and deployed in that space. 
But UPS vendors remain bullish on long-term opportunities that may arise from power-related issues. 
"In California , fundamental fixes aren't in place," Slotten says. "There's still a trend to consume more and more power. Then you've got [the Bush] administration talking about [building more power plants], but that's a decade off." 
--- 
Smaller, Lighter, Faster 
It's been said that good things come in small packages. Well, it seems that folks in the UPS business are warming up to the old adage. 
For a while, the UPS earned itself a reputation as the PC's ball and chain-a clunky add-on that always seemed to get in the way. But thanks to technology advances, power-protection systems are becoming lighter, more compact and less expensive, say vendor executives. 
"One thing that's been a hindrance in the UPS market is the size and weight of the products because of transformers and batteries," says Chris Boaglio, senior channel manager for VARs and computer distribution at MGE UPS Systems, a Costa Mesa, Calif.-based UPS manufacturer. "Transformers are extremely heavy components that add shipping costs and size to a product." 
But some newer UPSes weigh up to 30 percent less than their predecessors and don't compromise on reliability, says Boaglio. 
The combination of market maturation and new technology is appealing to end users, says Henry Ngo, marketing manager at e-Systems Design, Brea, Calif. "Products are getting better and smaller, and you can do more with less investment," he says. 
The two dominant UPS platforms today are online and line-interactive. Online products-the newer and more expensive of the two-run continuously off a charging battery to provide clean, consistent power. Line-interactive batteries start only if the incoming source is interrupted, say executives. 
While line-interactive solutions still dominate the UPS market, the online variety is catching up as its pricing goes down, they say. 
"It's like getting a Cadillac at a Chevy price," says Dave Slotten, director of product management at Chicago-based Tripp Lite. Online UPSes regenerate perfect power for computing equipment, not the spikes and dips that sometimes plague other power-protection systems, he says. 
Spurring demand is the fact that UPS prices have fallen more than 10 percent in the past year, says Gary Shurman, president of Software & Stuff, Metairie, La. 
Also, the boom in networking and storage solutions has led to the penetration of UPSes beyond desktops and servers, say solution providers. 
"Network surge protection is an increasing opportunity as wireless components get installed," says Joe Wolf, president of CompuSystems, Washington, Mo. "That's opening up some doors." 

FERC Hearing Ends On $2B In NW Power Sales Refund Claims
By Bryan Lee

09/10/2001 
Dow Jones Energy Service 
(Copyright (c) 2001, Dow Jones & Company, Inc.) 
OF DOW JONES NEWSWIRES 
 
   (This article was originally published Friday.) 
   
WASHINGTON -(Dow Jones)- An expedited Federal Energy Regulatory Commission administrative hearing on claims for $2 billion in refunds on electricity sales in the Pacific Northwest concluded Thursday after three days of legal wrangling. 
The proceeding, which FERC spun off from a high-profile controversial case involving California 's power-refund claims, poses a legal and logistical hornet's nest for the commission, according to attorneys involved. 
Power sellers subject to a possible FERC refund order themselves potentially could seek refunds for power they purchased in the region. 
Untold billions of dollars of these so-called "ripple" refund claims were held in abeyance by the FERC administrative law judge presiding in the case. But if FERC orders refunds, these power sellers have reserved the right to seek refunds, which in some cases could amount to more than they ultimately owe. 
But that's a long-term issue. More immediate is the power sellers' constitutional due-process concerns about the expedited proceeding, which allowed limited evidence and cross-examination of witnesses. 
Then there's the problem of defining what is a spot-market sale in what is largely a bilateral contracts market. Various refund claims address not only sales of 24-hours duration, but month-long blocks and, in some cases, longer than a year. 
Meanwhile, municipal utility sellers, technically not subject to FERC regulatory jurisdiction under the Federal Power Act, are challenging the commission's assertion of authority to order them to make refunds. Municipal utilities make up roughly half of the Pacific Northwest market. 
And finally, the case has turned into a second bite of the apple for California in its effort to obtain refunds. 
Roughly $1.5 billion of the total claims is being sought by California , with the remainder representing claims from a handful of municipal utilities in the region, according to attorneys involved in the proceeding. 
Of California 's total claim, more than $556 million is sought from Powerex, the U.S. marketing arm of British Columbia Hydro, a provincially owned utility, for sales under contracts with the California Department of Water Resources this year. 
"I think it's completely outrageous that California 's asking for money," said an attorney involved in the case. "We wouldn't be here if they hadn't screwed this thing up in the first place." 
Most parties in the proceeding have asked the judge to throw out California 's claims, another attorney noted. 
 
  Five Municipal Northwest Utilities Seeking Refunds 
   
Only five municipal utilities in the Northwest are seeking refunds: Seattle, Wash., $278 million; Tacoma, Wash., $65.4 million; Clark (Wash.) Public Utilities, $64 million; Eugene (Ore.) Water & Electric Board, $39.7 million; the Port of Seattle, Wash., $9.3 million; and Northern Wasco County (Ore.) People's Utility District, $4 million. 
"The vast majority of those involved in the market are due refunds, but only a minority are seeking refunds," said one attorney in the case, among a handful contacted by Dow Jones Newswires who spoke freely on condition they not be identified. 
"We've made clear if refunds are awarded we are going to come in and demand ours as well," said an attorney representing a power marketer. "When the agency sees that, it will be clear that they have opened a can of worms that they don't want to get into." 
With the expedited hearing concluded, parties in the proceeding must file position briefs by Sept. 14 with the administrative law judge hearing the case, who is scheduled to forward her proposed findings of fact to the commission by Sept. 24. 
Jeff Goltz, an attorney with the Washington state attorney general's office, described the power sellers' concerns about due process as misplaced. 
Power sellers were concerned that the fate of billions of dollars hinged on a proceeding lasting a few days, Goltz said. But the proceeding actually was "a vehicle to decide if FERC will proceed to a larger, well-defined proceeding," he said. 
"I wouldn't expect the FERC to take this and issue a refund decision," Goltz said. 
Attorneys representing power providers expressed the hope that FERC won't pursue refunds in the region. 
"We could get a refund," said an attorney representing an investor-owned utility in the region. 
"But our hope is the whole thing goes away, which it should," he said. "The whole thing's just too complicated. I don't know how the judge is going to make a decision in this case." 
The case represents a "Pandora's box" for the commission, said an attorney representing a municipal utility in the region opposed to refunds. 
"This case has the potential to be far bigger than the California refund case because it involves essentially the entire Western United States," the lawyer said. 
If FERC "pulls the strings" and orders refunds, it will trigger "ripple" refund claims involving hundreds of thousands of bilateral wholesale power sales contracts throughout the West, he said. "Where it stops, nobody knows." 
"If you start trying to unravel this market for the period in question (December 2000 through June 2001), it's not going to end for the foreseeable future," said another attorney. 
"Each successive ripple will trigger more ripples. If they do, it's going to keep the rest of us (attorneys) employed for a long time," he said. 
"The only beneficiaries so far in this proceeding are the attorneys," said another lawyer. "Any refunds are likely to much less than the attorney fees." 

Report: L.A. power agency made big profit during energy crisis

09/10/2001 
Associated Press Newswires 
Copyright 2001. The Associated Press. All Rights Reserved. 
LOS ANGELES (AP) - During the peak of the state's power crisis, the Los Angeles Department of Water and Power earned far greater profits selling electricity to the rest of the state than agency officials previously acknowledged, it was reported Monday. 
DWP officials have insisted for months that the agency sold power for just 15 percent above its costs. In fact, the DWP's profits from electricity sales to power-starved areas of the state averaged 56 percent last year, according to a newly completed audit obtained by the Los Angeles Times under the California Public Records Act. 
The finding will likely reinforce charges by some consumer advocates that the public power company effectively helped its customers at the expense of those suffering blackouts and rate hikes. The audit may also undercut efforts by Gov. Gray Davis and others to blame rising energy costs on private, out-of-state generating companies. 
The audit was ordered in May by the DWP's new general manager, David Wiggs. It was conducted by PricewaterhouseCoopers and targeted a 13-month period beginning in May 2000. 
The DWP became a key player in the energy crisis last year when the state's deregulation of electricity began to backfire, with supply from private generators contracting and wholesale prices skyrocketing. 
The DWP - which had opted out of deregulation - cranked up its generating capacity and sold the extra electricity into the California market, helping to avert even more blackouts. 
At the same time, though, the DWP and other publicly owned utilities charged some of the highest prices during the crisis, official reports later showed. 
Records show that during the worst 13 months of the crisis ending in May, the DWP profited $200 million on sales of $680 million, the Times said. The agency says it is still owed $180 million. 
In an interview with the Times last week, former DWP chief S. David Freeman, who now heads Davis' new statewide power authority, insisted that he had issued "standing orders" to sell power at a profit of no more than 15 percent. 
Freeman made the same assurance in July in a letter to U.S. senators probing the energy meltdown. 
He told the Times he has not seen the audit, but said if profits were higher than 15 percent, then "I'm not embarrassed about it. It says nothing more than there's enterprise at (the) DWP." 
Wiggs said that his staff had found no documentation as of Friday to confirm the existence of a strict pricing policy during Freeman's tenure, but he said that even if the profit margin was higher than publicly stated, it was not excessive. 
"We charged just and reasonable rates," Wiggs told the Times, adding that the DWP now offers the state electricity with no profit margin. 
But for consumers'-rights activists, the findings were new ammunition. 
"Taking advantage of residents in one part of the state to benefit residents in another part is not fair," said Harry Snyder, senior advocate for Consumers Union, the nonprofit that publishes Consumer Reports. "This kind of behavior is what we expect from banks, savings and loans and insurance companies - not a public agency." 

Natural Gas Bills Will Decrease for California Utility Customers
Bruce Spence

09/08/2001 
KRTBN Knight-Ridder Tribune Business News: The Record - Stockton, California 
Copyright (C) 2001 KRTBN Knight Ridder Tribune Business News; Source: World Reporter (TM) 
PG&E residential customers will see this month's natural gas bills drop on average by nearly a third from a year ago, when supplies were short and market prices were zooming. 
Supplies are up and prices are down now because drillers went at it last winter trying to take advantage of high market prices. After a January price spike, prices have since declined nearly to the level of two winters ago, said Christy Dennis, Pacific Gas & Electric spokeswoman. 
Although there was such a shortage of natural gas last winter that there were threats of service cuts, supplies for this winter should be ample, she said. 
"We are in much better shape this year than we were last year," Dennis said. 
The natural-gas industry reports that falling prices promise to push some drillers out of the market again. 
"But if you're talking about this winter, it's a sunny picture," said 
Laurie Cramer, spokeswoman for the Natural Gas Supply Association in Washington, D.C. "Production is up even if prices are down." 
Perhaps most important, she added: "We don't expect the kind of volatile market we had last year." 
From August 1999, gas prices rose from less than $3 per thousand cubic feet to $11 by the beginning of this and have since fallen to under $2.50. 
Dennis said that in September 2000, the average PG&E residential natural gas customer, using 30 therms of gas during a 30-day cycle, paid $26.11 for the natural gas portion of the gas bill. 
This month, that same 30 therms will cost $17.87, a nearly 32 percent drop from a year ago, she said. 
The big question, of course, is the outlook for the heart of winter. 
The utility isn't speculating because demand and thus supplies can be unsettled by an unusually cold winter. 
But the gas market trend points to only a slight increase from now through the heavy cold months as natural-gas consumption rises, Dennis said. 
In January, residential customers use about 70 therms of gas. In January 2000, the bill for that was about $50. Last January, averaged $122.30, Dennis said. 
Elizabeth Field has both a gas stove and water heater in her Stockton home, and, she said, she was delighted to hear that her gas bill should be down from last winter. 
"My natural gas bill doubled over the winter," she said. "Between gasoline prices for the car and my PG&E bill, it was a big deal." 
Sam Baygi, owner of El Dorado Florist, 1439 N. El Dorado St., said that higher gas prices didn't really seem to hit him hard over the winter. The important factor at his shop is to keep the flowers cool, anyway. 
And at home, his gas costs seemed up maybe slightly, he recalled, but all in all, he didn't feel pounded. 
"I don't think it was so big of a deal." 
Dennis said supplies should be sufficient for PG&E's 3.7 million natural gas customers, despite that many of the usual suppliers quit doing business with PG&E because of the utility's bankruptcy proceedings and credit poundinge . 
The utility's financial woes began last summer when spot-market spikes for electricity produced high power prices that PG&E had to pay to try to keep the power on in California . 
The national natural-gas association is three weeks away from finishing its tabulation of production numbers and forecasting winter supplies. 
But Cramer said natural-gas producers still face many of the same challenges they faced last year, such as a shortage of workers and equipment. 
Also, some of the biggest discovered natural-gas reserves, in the Rocky Mountains region and in the Gulf of Mexico, remain untapped because of government restrictions. 
"There's still a lot off-limits to producers," Cramer said. 
Also, about two-thirds of drillers are small "mom-and-pop" type operations that can be driven out of production by low prices, she said. 
"It's a capital-intense industry, and they usually don't have a lot of capital." 


Scottish Power Sets $300 Million Charge for Excess-Power Costs at U.S. Unit

09/10/2001 
Dow Jones Business News 
(Copyright (c) 2001, Dow Jones & Company, Inc.) 
Dow Jones Newswires 
LONDON -- Scottish Power PLC faced a new setback Monday after the company said it will take a $300 million charge in the second quarter for additional excess-power costs at its PacifiCorp unit in the U.S. 
The United Kingdom-based utility said the charge will reduce the contribution of PacifiCorp to Scottish Power's earnings for the year to March 2002 by around nine pence (13.1 U.S. cents or 14.6 European cents) a share, or 25%. 
The announcement of the charge, which Scottish Power (SPI) said was linked to extreme volatility in U.S. forward electricity markets, knocked the company's shares. In midday trading in London, Scottish Power declined 12% to 424 pence. 
The news couldn't have come at a worse time for the beleaguered U.K. utility, which was just beginning to recover from the effects of last year's six-month outage at its Utah Hunter power plant. The outage, which forced Scottish Power to buy power on western U.S. wholesale markets overheated by the California energy crisis, contributed to $400 million in excess-power costs the company reported for its latest fiscal year, which ended March 31. 
In an effort to avoid exposing itself anew to unprecedented price spikes, which were forecast to continue through the end of 2001, Scottish Power overcompensated in its forward contracts, leading to the new $300 million charge, the company said. 
"All we are doing is making sure PacifiCorp has sufficient power to meet its regulatory obligations," Chief Executive Ian Russell said Monday. "The difficult thing is that when we bought that power to meet regulatory supply obligations, we were buying at a price that is over ten times what it is today." 
A combination of lower demand, more capacity, price caps and cooler-than-expected summer weather have led to a collapse in U.S. prices to around $30 per megawatt-hour currently, from an average of more than $200 per megawatt-hour in the first quarter, the company said. 
Scottish Power will seek recovery of the excess charges from U.S. regulators in the months to come, Mr. Russell said. The company is also reviewing its risk-management policies. 
The new charges "draw a line under the episode that started last winter with this spike in prices," Mr. Russell said. 
ABN Amro analyst Alistair Buchanan said market was "shocked" by the announcement and that investors will want to know why they weren't warned earlier. 
On the brighter side, Mr. Russell and Chief Financial Officer David Nish noted that the company last week won a $64.4 million revenue increase from regulators in the state of Oregon, most of which is related to increased power costs. 
Although the tariff increase was only 60% of the $103 million the company was seeking, Mr. Nish said the company was encouraged by the regulator's agreement to allow PacifiCorp to defer compliance with the new Oregon baseline power cost in tariffs until May 2002. The agreement also allows PacifiCorp to propose a permanent power-cost recovery mechanism, he added. 
The company is expecting a decision from Utah regulators on a separate $100 million tariff-increase request in the next couple of days. 
The Oregon rate decision is a positive one for Scottish Power, analysts said, but several said it will be overshadowed by the $300 million charge which is far higher than the $190 million in excess costs some were expecting this year. 
"The most important thing, is that the time at which they said they will get acceptable rates of interest from this business [PacifiCorp] hasn't changed," said Gareth Lewis-Davies, utilities analyst at Lehman Brothers in London. 
Copyright (c) 2001 Dow Jones & Company, Inc. 
All Rights Reserved.

Calif DWR Hasn't Received Any Invoice From ISO For Power

09/10/2001 
Dow Jones Energy Service 
(Copyright (c) 2001, Dow Jones & Company, Inc.) 
(This article was originally published Friday) 
 
   By Mark Golden 
   Of DOW JONES NEWSWIRES 
   
NEW YORK -(Dow Jones)- The California Department of Water Resources has never received an invoice from the California Independent System Operator for power purchased on behalf of the state's insolvent utilities, DWR spokesman Oscar Hidalgo said Friday. 
Between the middle of January, when Gov. Gray Davis ordered the DWR to start paying for ISO power purchases and May 31, the ISO has procured about $3.3 billion in power on behalf of California 's cash-strapped utilities, PG&E Corp.'s (PCG) Pacific Gas & Electric Co. and Edison International's (EIX) Southern California Edison, according to the ISO. 
None of that power has been paid for, according to the ISO, as previously reported. The ISO and DWR have been negotiating the procedure for settling the accounts, but sellers to the ISO have been complaining that it shouldn't take eight months for the state agencies to get payments flowing. 
"Until we get a bill that we can account for, we can't write a blank check and send it out. We haven't even received an improper bill," said Hidalgo. 
The ISO was unable to comment immediately on whether it has sent a bill to the DWR for power purchased on behalf of the utilities. The ISO has said previously that it can't supply all the information the DWR wants without violating its own confidentiality rules. 
The Independent Energy Producers Association, which represents many of the suppliers to the ISO, said this week the ISO market is on the verge of collapsing. Merchant power companies in California , such as Dynegy Inc. (DYN) and Mirant Corp. (MIR) continue to sell to the ISO, as ordered by the Federal Energy Regulatory Commission. 
The ISO, which has ultimate responsibility for avoiding blackouts, ensures there is exactly the right amount of power on the state's transmission lines to meet demand at all times, which requires constant buying and selling of electricity . 
In mid-January, after the state's two main utilities ran out of cash, an executive order from Davis - backed by state law passed in February - authorized the DWR to pay for any purchases the ISO needed to make for the utilities. 
"There is no bill. I don't know as a government agency how the process of payment for a significant amount of money - over $1 billion - would be in anybody's mind as a possibility," Hidalgo said. 
The DWR, which has paid more than $9 billion for power it has bought from suppliers directly since January, has set aside money to pay for the ISO's last-minute purchases. 
The ISO considers the entire $3.3 billion unpaid, though DWR operations chief Pete Garris said earlier this week that DWR may have paid a majority of that bill directly to power suppliers. The DWR has set aside about $1.25 billion to pay suppliers once it receives a detailed bill from the ISO that meets DWR requirements. Other procedural problems have prevented the DWR from making payment. The DWR wants to pay suppliers directly, which Garris said the ISO is uncomfortable with. 
The ISO declined to discuss this direct-payment issue. ISO market rules require that buyers pay the ISO, which, in turn, pays sellers. 
The FERC has ordered the ISO to stop buying power on behalf on parties that aren't creditworthy, specifically Pacific Gas & Electric Co. and Edison. PG&E has said that it continues to receive bills from the ISO, and has been told the bills are for informational purposes only. 
-By Mark Golden, Dow Jones Newswires; 201-938-4604; mark.golden@dowjones.com 

Shocking facts about deregulation
Linda McQuaig

09/10/2001 
National Post 
National 
Page C14 
(c) National Post 2001. All Rights Reserved. 
Among the many things one might want to do in the privacy of one's own home late at night, checking out electricity prices may not be high on the list. 
Yet oddly enough, this appears to be one of the main selling features of the Harris government's plan to deregulate the Ontario electricity market next year. 
Once electricity is deregulated, the price of a kilowatt of energy will change by the minute, with prices posted on the Internet every hour. Really keen consumers who don't want to wait a whole agonizing hour can have meters installed right in their homes. So, for instance, if the price per kilowatt hour hits rock bottom at 4:36 a.m., these well-equipped folk won't have to wait until the top of the hour to shove the laundry into the washing machine, turn on the dishwasher and get out the vacuum cleaner. 
This is all part of what deregulation enthusiasts like John Grant, an economist who has been involved in the provincial deregulation plans, see as the "empowerment" consumers will enjoy under deregulation. 
Well, I certainly wouldn't want to underestimate the pleasure of being able to select the perfect time to maximize one's electricity consumption -- but will it be enough to compensate for the higher prices that will almost certainly accompany this deregulation? 
We know deregulation produced dramatically higher electricity prices in Alberta and California . In Alberta, prices rose to five times previous levels last winter; in California , power costs surged at times to levels 5,000% above normal. 
Supporters of deregulation prefer to look at what has happened elsewhere. Michael Trebilcock, a University of Toronto law professor and long-time pusher of electricity deregulation, points to deregulation in Australia and the U.K., where, he says, electricity prices fell by 10% to 15%. 
Maybe I'm missing something here, but it sounds like what we're faced with is a best-case scenario under which deregulation saves us possibly 10% to 15% off our power bills. (Wow.) The worst-case scenario, however, involves us paying amounts that are potentially staggering. If we do things as badly as California , we could see increases from time to time in the 5,000% range. Vacuuming could become not only an exclusively late-night pleasure, but a luxury we can only dream of. 
Don't the odds seem to be stacked against us on this one? It seems a bit like agreeing to a coin toss -- Heads, you win 10 cents; tails, you lose $50. But let's go for it! 
And in case it sounds like I'm distorting things, it should be noted that this is essentially the picture presented by advocates of deregulation. Trebilcock, for instance, doesn't argue that the savings will be big, only that there may be some savings, as there were in Australia and the U.K. 
In a recent presentation to the Institute for Policy Analysis in Toronto, Trebilcock acknowledged that the "adverse experiences" in jurisdictions like California and Alberta made him "nervous." But, in any event, he wasn't sure it was possible, at this stage in Ontario, to put the genie back in the bottle. How's that for a ringing endorsement from one of deregulation's leading proponents? 
Meanwhile, Myron Gordon, a professor of finance at U of T's Rotman School of Management, argues that the Ontario deregulation will be a "complete disaster," not just for consumers but for the Canadian business community. Gordon insists that surging, unpredictable electricity costs will strip Ontario industries of the competitive advantage they've long enjoyed over their counterparts in neighbouring U.S. states. 
Gordon scoffs at the notion that there might be price savings. He notes that, once our electricity is deregulated, it will be subject to the rules of NAFTA. Under NAFTA, we can't withhold energy supplies from U.S. customers, or charge them more than we charge ourselves, so electricity shortages in the United States will push our prices here up to U.S. levels. Better do the vacuuming now. 
What makes all this infuriating is that Gordon insists that if we just left things as they are -- with a regulated price in a regulated market -- we could keep our prices below the United States, while covering the full cost of generating the electricity we need, and having some supply left over for profitable export. This is pretty much what B.C. has opted to do. 
It's not surprising, then, that deregulation aficionados are pushing things other than price savings to get the public excited about this bold venture into the new economy. 
John Grant likes to emphasize the huge array of consumer choice that lies ahead. Consumers will be able to choose electricity packages that also include long distance telephone and Internet service; they'll be free to choose between "Standard Supply" (where the wholesale price of energy will be passed through to them and they may be entitled to a rebate) or instead opt for whatever deal is offered by their distributor. Or they can choose to deal directly with a retailer who offers fixed prices for a year or more, or another who will install a meter in their home so they can track minute-by-minute price fluctuations. 
Not that life will be problem-free in this consumer nirvana. Grant poses the question: "If consumers sign up to a retailer's fixed price offer and sign away their right to [a possible] rebate, do they know what they have given up?" Clearly, lots to talk about around the water cooler or over a cold beer after work. 
It's hard to imagine what people did late at night before there was a new economy

Commentary Bailout Scheme for Edison Fails Tests Again ...
WILLIAM BRADLEY

09/10/2001 
Los Angeles Times 
Home Edition 
Page B-11 
Copyright 2001 / The Times Mirror Company 
At a late night session Thursday, the California Assembly emulated its deregulation forebears, narrowly adopting another complex, half-understood energy bill from the back rooms. 
There are many problems with the proposed state bailout of Southern California Edison. Here are the most fundamental: 
* The bailout is much bigger than advertised . Backers, including Gov. Gray Davis, parent company Edison International and some Los Angeles progressives, advertise it as a $2.9-billion deal. In reality, when interest on bonds and other benefits are added in, it will cost closer to twice as much. 
* Tangible assets for the public, once central to the deal, have been stripped from it. The Edison rescue was to center on the state's acquisition of the utility's transmission lines. Ownership of the grid would have given the state leverage it has lacked over power generators, and state ownership would make critically needed upgrades cheaper to finance. This fell away when Pacific Gas & Electric declared bankruptcy this spring, taking a huge chunk of the private grid off the market. While some Sierra lands receive protection from development, the state gains no ownership. Coastal and desert lands are unprotected. 
* Edison already has received three state bailouts. First it, along with the other big private utilities, received billions in a bailout of "stranded assets," most notably nuclear, that was part of the 1996 deregulation deal. It received billions more as part of the above-market consumer rates locked in by the deregulation deal--until companies that bought the power plants Edison cleverly sold them turned the screws last year. These funds enabled Edison International to run a high-flying global merchant power operation. Then Edison received a third bailout earlier this year, when the state spent $1 billion to replace power lost from the troubled San Onofre nuclear plant. 
Edison is hypocritical in coming to the Capitol with its hand out yet again, especially given its central role in pushing through the deregulation scheme from which it now wants to be rescued. Edison International CEO John E. Bryson trades on his past progressive status as a Natural Resources Defense Council co-founder to distract from reality. When Gov. Pete Wilson signed deregulation into law, Bryson called it "a great day for us." 
Yet even with the billions Edison has gotten in previous bailouts, a state rescue effort might be justified were the process not so remarkably compromised. Davis sent Michael R. Peevey, a former Southern California Edison president, to represent the state in negotiations with Edison. Not surprisingly, this led to a generous deal for the company, with the state negotiating for things that the state Public Utilities Commission could have required the company to do anyway. Although that deal died, what is now on the table is fatally flawed by the sweetheart deal template from which it sprang. 
So eager is Davis to bail out Edison that he would allow big business customers to cut their own private power contracts. This could leave the rest of us holding the bag on his hugely expensive long-term power contracts. 
Perhaps worst of all is the tremendous distraction caused by the months of maneuvering to save Edison from its own miscalculations. As we emerge from panic mode, California has serious problems, including a new crazy-quilt of state energy agencies and long-term power contracts that perpetrate a "green" blackout, ignoring renewable energy in favor of a new generation of fossil fuel plants. 
The situation would have been far more rational and efficient had everyone involved not had to waste inordinate amounts of time dealing with the special pleadings of one privileged corporation. 
Enough.

PG&E DISPUTES COST SHIFT 
THE AGENCY THAT BUYS STATE UTILITIES' ELECTRICITY HAD ASKED REGULATORS TO APPROVE UNIFORM RATES, BUT PLAN IS UNDER REVIEW
MIKE TAUGHER 
TIMES STAFF WRITER

09/06/2001 
Contra Costa Times (Walnut Creek, CA) 
Final 
Page a01 
(c) Copyright 2001, Contra Costa Times. All Rights Reserved. 
SAN FRANCISCO -- A plan to shift $600 million in electricity costs from Southern California to Pacific Gas & Electric Co. came under heavy fire Wednesday when the San Francisco-based utility launched a media campaign to oppose the plan and Northern California lawmakers blasted it as potentially illegal. 
Even if it costs the state more to buy power in the north, it is doubtful that the differences are enough to justify such a large transfer of costs, according to a letter signed by 30 of the 31 Northern California members of the Assembly. 
At issue is how the state Department of Water Resources, which has been buying electricity for financially strapped utilities since January, will be repaid for its electricity purchases this year and next. The agency had asked state regulators to approve a uniform price tag of 11.4 cents for each kilowatt-hour it sells to utility customers. 
But under the plan now being considered by the Public Utilities Commission, PG&E customers would pay 14 cents per kilowatt-hour through next May, while customers of Southern California Edison and San Diego Gas & Electric would pay 10 cents and 9 cents, respectively. 
"This appears to be an unsubstantiated and illegal cost shift to Northern California customers," lawmakers wrote in a letter sent Wednesday to PUC President Loretta Lynch. 
The PUC had planned to consider the issue today, but it is among several items that have been delayed for as long as two weeks as the commission struggles to issue regulations needed to allow the state to borrow more than $12 billion on the bond market. 
Lynch said linking the price of electricity to the actual cost to the state of providing it instead of spreading out the toll that the electricity crisis has exacted on California equally is consistent with the way the commission has traditionally imposed rates. 
"That is the methodology the commission has used for decades," Lynch said. "It would be discriminatory to have Edison customers and SDG&E customers subsidize PG&E customers." 
Still, Assemblyman Joe Canciamilla, D-Pittsburg, said that unless the plan is modified, Northern California lawmakers might block legislation designed to keep SoCal Edison out of bankruptcy. That legislation, which could come to the Assembly floor as early as today, has been a key part of Gov. Gray Davis' strategy to navigate California out of the electricity crisis. 
"I don't know how anyone in the north is going to be able to justify voting for a bailout for Edison that shifts any of these costs onto PG&E customers, directly or indirectly," Canciamilla said. 
According to Canciamilla, relieving SoCal Edison of hundreds of millions of costs for state-purchased power could help the Southern California utility finance $1 billion in debts to generators, which in turn would help make the bailout plan work. 
"I don't think the real motivation is retribution (against PG&E for defying Davis by declaring voluntary bankruptcy in April) as much as it is trying to figure out a way to assist in making a bailout (of SoCal Edison) work," Canciamilla said. 
Meanwhile, PG&E took out radio spots and ads in three newspapers Wednesday, urging customers to complain to the PUC about the plan. 
"The commission substantially changed the formula, and as a result our customers would be forced to pay more," said PG&E spokesman Ron Low. 
That claim is mostly true, but potentially misleading. PG&E's customers would pay more for the electricity purchased by the state, but whether that would lead to a higher overall electricity bill is not clear. 
That is because the PUC has yet to determine how much PG&E should earn on electricity generated at the plants it still owns. If PG&E is allowed to earn relatively little, then no rate increase would be needed. 
But if the sum of the rate collected by DWR and the rate collected by PG&E exceeds what customers are paying now, then another rate hike could occur. 
The PUC's Lynch, who assured reporters this spring that no rate hikes would be needed after the commission approved increases totaling 4 cents per kilowatt-hour this year, was noncommittal Wednesday about the possibility of a further increase for PG&E customers. 
Paul Clanon, head of the PUC's energy division, said the likelihood of a rate increase for PG&E customers would become clearer near the end of the month, when drafts begin circulating to address the rate that PG&E may collect. 
PUC officials did say, however, that no rate hike would hit customers of Southern California utilities. 
State officials say it costs far more to provide power in the north because the state has to buy more electricity to serve Northern California and there is comparatively less electricity available in the northern part of state and in the Pacific Northwest. 
That pinch between supply and demand is exacerbated by transmission constraints that make it more difficult to bring electricity up from Southern California, according to DWR spokesman Oscar Hidalgo. 
The state supplies about 40 percent of the electricity used by PG&E customers, with the rest being generated at PG&E plants or under existing contracts, especially with alternative energy generators. 

CALIFORNIA OFFICIAL SEEKS PROBE OF POWER CUTBACK
Bloomberg News

09/01/2001 
The Arizona Republic 
Final Chaser 
Page D3 
Copyright (c) 2001, The Arizona Republic 
-- California Secretary of State Bill Jones plans to ask federal regulators to investigate allegations that officials colluded to reduce output at a power plant to save the state money on energy trading. 
Jones plans to seek the Republican nomination to challenge Gov. Gray Davis in next year's gubernatorial campaign. He will ask the Federal Energy Regulatory Commission to start an investigation, said Beth Pendexter, a spokeswoman for Jones. The probe would focus on why a state agency may have ordered Edison International's utility to reduce output at a plant in Nevada. 
The state Department of Water Resources would be a target of the investigation, Pendexter said. The department may have sought to slow production at the Mojave power plant, she said. Because the state buys power at higher prices in long-term contracts, it loses money when it has to sell electricity cheaply during a time of excess supply. 
The Department of Water Resources has spent almost $9 billion buying electricity for PG&E Corp.'s Pacific Gas & Electric and Edison's Southern California Edison, which are insolvent after running up billions in debts under the state's deregulation law. The department has signed about $43 billion in long-term energy contracts. 

The State Davis Upbeat on $2.9-Billion Edison Plan Energy: Governor is optimistic that Senate, Assembly versions can be reconciled and a bill sent to him next week, before session ends.
MIGUEL BUSTILLO; NANCY RIVERA BROOKS

09/08/2001 
Los Angeles Times 
Home Edition 
Page B-10 
Copyright 2001 / The Times Mirror Company 
SACRAMENTO -- Gov. Gray Davis expressed optimism Friday that a $2.9-billion plan to try to restore Southern California Edison to financial health will reach his desk before next Friday, when legislators adjourn for the year. 
A day after the state Assembly narrowly approved the measure, the Democratic governor said that although it still needs to be reconciled with a slightly different version approved earlier by the Senate, he is confident the bill will clear the Legislature. 
"I'm hopeful that we get the [rescue plan] ratified by a week from today, the last day of the session," Davis said Friday during a breakfast meeting in Sacramento. "I think that's entirely doable now, since it's passed both houses, albeit in different forms. Our goal will be to get that done before the Legislature recesses." 
Davis' optimism contrasted with angry words from consumer activists, who oppose the bill as a bailout of Edison. 
"Is this the best deal the Assembly can get from a company that claims to be desperately in need of help?" said Mike Florio, senior attorney for the Utility Reform Network in San Francisco. "It reads as if the same scoundrels that led the Legislature into deregulation--the utilities and the large commercial customers--are still running the show." 
Edison executives offered a subdued response during a conference call with investors Friday, maintaining that the road to restoring the company's finances in the Capitol remains long. 
"This is another step in the trail," said Theodore Craver Jr., chief financial officer of Edison International, parent company of the Rosemead-based utility. "We obviously have a long way to go yet in terms of additional steps at the Senate, but it's good to see some momentum there." 
The bill, SB 78xx, by Sen. Richard Polanco (D-Los Angeles), is a slimmed-down version of a rescue deal Davis reached with the debt-strapped utility this spring to keep it out of bankruptcy. 
It has cleared both houses, but still needs final approval in the Senate, where Senate President Pro Tem John Burton (D-San Francisco) plans to take several days to review the changes made in the Assembly to determine whether the measure is viable. 
In many ways, the two versions are alike. Both would allow the utility to float bonds that would be used to repay about three-fourths of the $3.9-billion debt Edison incurred purchasing electricity during the early days of the energy crisis. Edison bought the power on the volatile open market for far more than it could charge its customers under a state-imposed rate freeze. 
Edison would be permitted to use the money to pay back most of its creditors--banks and small alternative energy producers. Both bills would bar Edison from using the money to repay large energy companies, which Democratic legislators accuse of gouging the state during the crisis. The utility would be on its own to pay or negotiate the $1 billion it owes those companies. 
Under the Assembly version, the bonds would be paid off by about 180,000 of Edison's large- and mid-sized business customers, those that use 20 kilowatts and up. Under the Senate version, a smaller number of the largest businesses would foot the tab. Under both bills, residential customers and most small businesses would be spared. 
Supporters of the bill say that neither version would require an additional increase in electricity bills. Opponents question that assertion. 
Because the company would still have sizable debts even if the bill passes, Edison representatives say they cannot guarantee they will not wind up in bankruptcy. Robert Foster, Edison International's executive vice president of external affairs, told investors Friday that the bill "still leaves Southern California Edison at risk." 
"Nevertheless, we are encouraged by the progress made by the Assembly toward creating a workable framework to get the state out of the power procurement business and restore Southern California Edison to credit-worthiness," Foster said. 
In both plans, Edison would also agree not to pursue a series of lawsuits and legal claims against the state. Pacific Gas & Electric, the state's largest utility, has filed suit against the state, charging that the rate freeze illegally prohibited the company from recovering its costs of providing power to customers. 
Both bills also would give the state conservation rights to 20,000 acres of mostly wilderness land near Edison's hydroelectric power reservoirs. 
The original rescue deal from last spring hinged on the state purchasing Edison's power grid. Some legislators and consumer activists said the grid could be upgraded with public financing to improve the distribution of power and prevent the likelihood of blackouts. But legislators have questioned the value of owning a third of the state's power lines--the share controlled by Edison--and the bills minimize the grid acquisition. 
Under the Senate plan, the state would have an option to purchase the lines at $1.2 billion or book value, less than half what Davis initially proposed. The Assembly plan would give the state a similar option, requiring further action by the Legislature before it could be exercised. The Assembly bill would pay the utility twice book value or fair market price, whichever was lower. 
The Assembly and Senate versions contain provisions that would allow businesses to pursue "direct access" contracts to buy electricity from energy companies instead of from the utility. Participating businesses would have to pay an exit fee of sorts to cover their share of the utility's debt bonds. 

Power Politics in the Senate

09/10/2001 
The New York Times 
Page 28, Column 1 
c. 2001 New York Times Company 
This has not been a good year for clear thinking about energy. First came the Cheney-Bush ''national energy strategy,'' which presupposed that the country was in the grips of a terrible energy shortage and that the only sure way to address it was to drill aggressively for more oil and gas, remove various regulatory impediments to the burning of coal and build 1,300 new power plants. The House of Representatives swallowed the Cheney-Bush scenario whole and produced an alarmingly unbalanced energy bill with $33 billion in tax breaks -- $27 billion for traditional energy producers, only $6 billion for conservation. 
The Senate must now set things right, presumably at lower cost; even the Bush administration was appalled by the House's price tag. What this country wants is an energy policy that encourages oil and gas exploration without corrupting the environment, finds more efficient ways to use the energy we have and begins planning for the day when the fossil fuels we take for granted are less abundant at home or abroad. This will not be an easy task; energy politics gets nasty (and local) in a hurry. In the House, for example, many normally reliable friends of the environment voted in favor of opening the Arctic National Wildlife Refuge to the oil companies and against increasing fuel economy standards because they were terrified of retaliation from organized labor if they did otherwise. 
This is a rare chance for the Senate to exercise statesmanship while reaping political rewards as well. Polls show that the two issues on which President Bush is most vulnerable are energy and the environment. The Senate cannot lose if it produces a plan more balanced and enlightened than his. It will be up to Jeff Bingaman, the chairman of the Senate Energy and Natural Resources Committee, to devise such a plan. Then Tom Daschle, the Senate majority leader, must sell it to his colleagues. 
There are three areas where the House bill requires complete overhaul. 
Improving Efficiency: The House bill dedicates $5.9 billion in various subsidies for energy efficiency and renewable energy, versus about $27 billion for the coal, oil and gas industries. It creates modest tax credits for people who buy hybrid cars, for builders of more energy-efficient homes and for manufacturers of some energy-saving appliances. But it does nothing to improve the efficiency of one of the biggest energy users of all, air-conditioners, and it is here that the Senate could usefully resurrect the tough standards imposed by the Clinton administration that President Bush is trying to roll back. 
The most important and courageous step, however, and one the House refused to take, would be to close the so-called S.U.V. loophole, under which large vehicles like sport utility vehicles and minivans are classified as light trucks and thus escape the 27.5-mile-per-gallon standard required of ordinary cars. Closing that loophole, which Detroit is perfectly capable of doing, would result in oil savings of one million barrels a day by 2015, more than the Arctic National Wildlife Refuge could be expected to yield in the same time frame. 
Increasing Supply: At the heart of the House bill is a proposal to open up the refuge's coastal plain to oil exploration. That would yield only six months' to a year's worth of oil, even at favorable prices, while disrupting an ecological treasure. Industry assertions that drilling would create 750,000 new jobs have been widely discredited. 
There are other steps the committee can take to increase supply. One is to see whether there is an environmentally safe way of tapping and transporting the vast supplies of natural gas at Alaska's Prudhoe Bay, where the oil industry is already firmly ensconced. Such a scheme would be expensive, and in some quarters controversial, but it makes a lot more sense than invading the refuge, the national forests, the Rocky Mountain Front and other sensitive areas on which the oil industry and the Cheney task force have cast a covetous eye. 
Improving Reliability: The House was so fixated on subsidizing traditional energy producers, including the coal-fired utilities, that it paid no attention to the way electricity is regulated and transported. That was a huge oversight that Mr. Bingaman says he intends to remedy. As the now-receding California crisis demonstrated, electricity deregulation has not gone smoothly. There are transmission problems in the West and Northeast. Power does not move easily from one region to another, and the system is full of disincentives that discourage smaller -- and potentially more efficient -- producers of power from entering the market. 
None of this will come easy for Mr. Bingaman and Mr. Daschle. They must resist President Bush's seductive and specious argument that opening up new areas for oil and gas drilling and easing environmental regulations will provide an immediate economic boost. And powerful corporate and labor forces are arrayed against them. But the nation would like them to give it their best shot. 

A Self-Inflicted Wound Aggravates Angst Over Enron
By ALEX BERENSON

09/09/2001 
The New York Times 
Page 1, Column 1 
c. 2001 New York Times Company 
SOMETHING is rotten with the state of Enron. 
Or so Wall Street suspects. On Jan. 1, shares in Enron, the giant energy trading company in Houston, stood at $83.13. On Friday, Enron closed at $31.57, down 9.7 percent for the week and 62 percent for the year. The slide has destroyed more than $38 billion in shareholder value. 
In part, the company's problems are beyond its control, a result of the collapse in natural gas prices this year and investor fears of a coming glut in electricity. But the deepest wound at Enron is self-inflicted. Heavy insider selling, indecipherable accounting practices and a stream of executive departures have combined to create a growing credibility gap between the company and Wall Street. 
''The stock is trading under a cloud,'' says James S. Chanos, the president of Kynikos Associates, a hedge fund in New York. Mr. Chanos began betting against Enron early this year and says he thinks that the company's shares remain overvalued. 
Enron's problems came to a head on Aug. 14, when it announced that Jeffrey K. Skilling, the chief executive, had quit for personal reasons. 
With his resignation, Mr. Skilling joined a half-dozen other top Enron managers who have decided this year to pursue other opportunities. Still, the news came as a surprise because Mr. Skilling was named to his post only in February. 
Under the best of circumstances, the unexpected departure of a chief executive rattles Wall Street. But hard-headed investors can usually comfort themselves by toting up the sales and profits that the dearly departed pooh-bah has left behind. Executives come and go, but numbers are forever. 
Unfortunately, Enron's books offer investors little succor. The complexity of the company's businesses and the way it reports its results make understanding Enron's financial statements essentially impossible. 
Over the last decade, Enron has transformed itself from a simple natural gas pipeline company into the world's largest trader of electricity and gas. Last year, about three-quarters of the company's cash flow came out of the company's wholesale services division, which includes its trading operations. 
But Enron keeps to itself the details of the trades it makes. Are they short-term or long-term? Is the company hedged, or does it make ''directional bets'' on the prices of the commodities it trades? 
The answers are crucial, because they determine how much risk Enron has taken to make its money. Big profits are nice. Big profits that come from big, risky trades are a recipe for big, unexpected write-offs. 
Enron also makes a habit of selling assets and securities to closely related companies in ''related party'' transactions. The company says that the deals are comparable to those it makes with independent buyers and that they have been approved by its board and outside auditors. 
But related-party deals can provide a convenient way for public companies to shift losses to private affiliates. And Enron's disclosure about its related-party deals, including billions of dollars in asset swaps with a partnership that until recently was controlled by the company's chief financial officer, is notably sketchy. 
In the good old days, like last year, companies could get away with the unlikeliest of accounting gimmicks, as long as their revenue and profit numbers looked good. But Wall Street has become more demanding, as Enron is learning to its chagrin. 
Mark Palmer, a spokesman for Enron, says the company is aware of investors' concerns. ''We've got credibility issues on the street, no question,'' Mr. Palmer says. ''We're looking at a lot of ways to give our investors more information.'' 
Sooner would be better than later.