-----Original Message-----
From: Fairchild, Tracy [mailto:tracy.fairchild@edelman.com]
Sent: Monday, October 22, 2001 9:27 AM
To: 'arem@electric.com'; 'nplotkin@rcsis.com';
'douglass@energyattorney.com'
Cc: Allen, Stevan; Manuel, Erica
Subject: 10/20 SDUT: Small users might face $8 billion power bill


AReMers:

Here's the San Diego Union Story that ran on Saturday 10/20.  It includes
only part of my quote.  What I said in total, when asked to response from
AReM's perspective on Angelides' comments that DA would shift $8B over time
to other ratepayers was:

"Direct access is still a small part of California's energy market.
However, direct access is being held up as the scapegoat when one of the
biggest problems we have right now is $43 billion in contracts that
effectively hold California ratepayers hostage to the utilities for decades,
if not renegotiated."



Small users might face $8 billion power bill
Direct-access loophole used by big customers


By Craig D. Rose 
STAFF WRITER 

October 20, 2001 

A legal loophole exploited by large electricity customers could leave mostly
smaller customers shouldering $8 billion more in electricity costs than they
should, the state treasurer disclosed yesterday.

The loophole opened over the summer when it became clear that large
customers could get lower electricity prices and might avoid the billions in
state costs from the electricity crisis by entering into so-called
direct-access relationships with alternative electricity suppliers.

Under direct-access deals, customers bypass their local utility as a source
of electricity and turn instead to an outside provider. The California
Public Utilities Commission barred direct access in late September. In a
letter yesterday, State Treasurer Philip Angelides chided the utilities
commission for failing to close the loophole sooner and urged commissioners
to retroactively cancel direct-access deals dating to July 1.

Angelides said the "direct-access stampede, which occurred as the PUC failed
to act," could cost utility customers $800 million through 2002, and more
than $8.2 billion while the state is financing power costs.

Commission President Loretta Lynch said the PUC delayed dealing with direct
access on the advice of the governor, Angelides and the Legislature. She
added that the commission is considering retroactive cancellation of
direct-access deals.

Other state officials, meanwhile, offered few clues yesterday as to how they
plan to seek changes to some of the long-term contracts that cover $43
billion in state power purchases. Gov. Gray Davis indicated Thursday that he
might seek to renegotiate some contract terms.

In a teleconference yesterday, advisers to the governor said discussing
their strategy might compromise their bargaining position. Barry Goode,
Davis' legal secretary, said the state is not pursuing changes for all the
long-term contracts -- there are more than 50 -- and he defended the
contracts as "very valuable and an asset to the state."

A growing number of critics says the contracts bind the state to expensive
and in some case unnecessary electricity purchases. Industrial and large
commercial customers, meanwhile, scrambled over the summer to avoid those
state costs by signing direct-access deals.

From July until Sept. 20, when the PUC barred the deals, large customers
boosted the amount of power they bought via direct access from 2 percent to
13 percent.

In San Diego Gas & Electric territory, the flight was heavier. About 18
percent of electricity now purchased by large power users is done via direct
access, bypassing the utility.

At the same time, direct access has been largely unavailable to smaller
customers. In fact, providers dumped residential direct-access customers as
uneconomical during the power crisis.

Smaller customers of SDG&E, Southern California Edison and Pacific Gas and
Electric Co., meanwhile, must now bear the costs of California's long-term
power contracts and of costs incurred earlier this year to deal with the
crisis.

The impact of direct access was underscored in an additional way by state
officials yesterday. Advisers to the governor explained that estimates of
state power purchase obligations for 2001 and 2002 have fallen by about 20
percent, from $21.4 billion down to $17.2 billion.

But the retail cost of state-purchased electricity will fall only 5.5
percent for the overwhelming majority of utility customers statewide. That's
because fewer customers remain to pay the costs, according to the state
Department of Water Resources, which is responsible for California's power
purchases.

The Alliance for Retail Energy Markets, an electricity supplier group,
reiterated yesterday that it will sue the utilities commission if it moves
to retroactively cancel direct access. Tracy Fairchild, a spokeswoman for
the group, said direct access was not the cause of high power prices for the
state.

"One of the biggest problems we have right now is $43 billion in contracts
that effectively hold California ratepayers hostage to the utilities for
decades, if not renegotiated," Fairchild said.

In a separate matter, the utilities commission said yesterday it will not
schedule additional hearings to deal with a second plan for resolving the
$747 million debt that SDG&E says it is owed by its customers.

Commission President Loretta Lynch indicated last week that hearings might
be held in San Diego. Lynch said yesterday she erred in suggesting the
hearings without first consulting with Commissioner Carl Wood, who is
assigned to oversee the SDG&E proceedings.

Consumer and environmental groups filed the second plan as an alternative to
a proposal presented by SDG&E and the governor for dealing with the debt.
Consumer groups say their plan would require at least $185 million more from
the utility to pay down the debt and would thereby save consumers at least
that much money.

State officials also said yesterday that the governor and state Legislature
remain at loggerheads over a bill by Senate President Pro Tempore John
Burton, D-San Francisco, that would separate a $12.5 billion bond offering
from the power contracts. The bill was approved by the Legislature in
special session.

Davis' press secretary, Steve Maviglio, said again yesterday that the
governor will veto the bill, which has not yet been sent to him. The Davis
administration says the bill would trigger lawsuits from electricity
suppliers who hold contracts with the state.

Staff writer Ed Mendel and the Associated Press contributed to this report.

Craig Rose's e-mail address is craig.rose@uniontrib.com. His phone number is
(619) 293-1814.