Firsst article attached refers to the 1946 Nebraska case I mentioned to you 
in DC
----- Forwarded by Steven J Kean/NA/Enron on 03/02/2001 10:36 AM -----

	Miyung Buster@ENRON_DEVELOPMENT
	03/02/2001 10:04 AM
		 
		 To: Ann M Schmidt/Corp/Enron@ENRON, Bryan Seyfried/LON/ECT@ECT, 
dcasse@whwg.com, dg27@pacbell.net, Elizabeth Linnell/NA/Enron@Enron, 
filuntz@aol.com, James D Steffes/NA/Enron@Enron, Janet 
Butler/ET&S/Enron@ENRON, Jeannie Mandelker/HOU/ECT@ECT, Jeff 
Dasovich/NA/Enron@Enron, Joe Hartsoe/Corp/Enron@ENRON, John 
Neslage/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, John Sherriff/LON/ECT@ECT, 
Joseph Alamo/NA/Enron@Enron, Karen Denne/Corp/Enron@ENRON, Lysa 
Akin/PDX/ECT@ECT, Margaret Carson/Corp/Enron@ENRON, Mark 
Palmer/Corp/Enron@ENRON, Mark Schroeder/LON/ECT@ECT, Markus 
Fiala/LON/ECT@ECT, Mary Hain/HOU/ECT@ECT, Michael R Brown/LON/ECT@ECT, Mike 
Dahlke/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Mona L Petrochko/NA/Enron@Enron, 
Nicholas O'Day/AP/Enron@Enron, Paul Kaufman/PDX/ECT@ECT, Peggy 
Mahoney/HOU/EES@EES, Peter Styles/LON/ECT@ECT, Richard 
Shapiro/NA/Enron@Enron, Rob Bradley/Corp/Enron@ENRON, Roger Yang/SFO/EES@EES, 
Sandra McCubbin/NA/Enron@Enron, Shelley Corman/ET&S/Enron@ENRON, Stella 
Chan/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Steven J Kean/NA/Enron@Enron, Susan 
J Mara/NA/Enron@Enron, Mike Roan/ENRON@enronXgate, Alex 
Parsons/EU/Enron@Enron, Andrew Morrison/LON/ECT@ECT, lipsen@cisco.com, Janel 
Guerrero/Corp/Enron@Enron, Shirley A Hudler/HOU/ECT@ECT
		 cc: 
		 Subject: Energy Issues

Please see the following articles:

Oakland Trib 2/28:
 "Energy buyout foes say dump grid plan"

San Diego Union 2/28: "Energy chief 'open' to plan on transmission line 
buyout"

SF Chron, 2/28: "Energy Experts Belie Davis' Rosy Prediction
Summer expected to be crunch time"

Riverside Press 3/1: "PUC to mull baseline level for electricity"

Orange Co. Register 3/1: "Electricity notebook"

Contra Costa Times 3/1: "PUC chief defends actions in crisis"

LA Times 3/2: "Cal-ISO Says Suppliers Overcharged"

Sac Bee 3/2: Power profits targeted: Generators urged to forgive some of 
utilities' debts            (Steve Kean quoted)

Energy Insight 3/2: "California Energy Island Won't Work"

SF Chron 3/2: Ex-Regulator Urges Temporary Federal Price Caps on Power

SF Chron 3/2: PG&E to Pay Creditors Only 15% / Smaller suppliers outraged 
over plan
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Energy buyout foes say dump grid plan
Davis critics point to federal veto disclosure 
By Steve Geissinger
SACRAMENTO BUREAU 
SACRAMENTO -- Foes of Gov. Gray Davis' plan to buy power lines said Tuesday 
the 11th-hour disclosure of federal veto power over the stalled deal shows 
the effort should be abandoned altogether. 
But Davis, who spent the day lobbying federal officials in Washington, D.C., 
said he's confident the Bush administration will support his plan to purchase 
California's high-voltage transmission grid as part of a deal to rescue 
teetering utilities. 
Critics of the plan to ease the energy crisis, however, aren't so sure that 
Bush's Republican administration, which favors market-driven strategies over 
government intervention, will support the Democratic governor's proposal. 
Moreover, Republican legislators here said, the last-minute revelation that 
the plan would need the approval of federal regulators is further evidence 
that it is misdirected, overly complex and will take too long to implement. 
"It means much more time will be required and time is something that 
especially a lot of the creditors of the utilities do not have," said 
Assembly Republican leader Bill Campbell of Villa Park. 
"I think this means we have to look at an alternative deal," Campbell said. 
Dan Nelson, a spokesman for Senate Republican leader James Brulte of Rancho 
Cucamonga, said Republicans generally oppose state purchase of power lines 
from utility companies as part of a plan to rescue them from financial 
difficulty. 
They instead support acquisition of some other asset from the utilities, such 
as stock warrants, in exchange for state assistance with their financial 
woes. 
Foes say the grid purchase would saddle the state with an antiquated network 
that could prove costly to maintain while supporters contend it could lead to 
quick improvements in a bottlenecked system overdue for repairs. 
Word that Davis' plan to buy transmission lines would need federal approval 
surprised some legislators, their aides said. Open government advocates have 
harshly criticized the administration for secrecy surrounding much of the 
governor's energy crisis relief efforts. 
Federal Energy Regulatory Commission Chairman Curtis Hebert disclosed 
recently in Washington that his board has authority over the deal, which he 
called "nationalization" that is "against the best interests of the American 
public." 
Following that disclosure, Democratic legislative leaders backing Davis' plan 
said they hope to maneuver around the need for commission approval. 
California can perhaps circumvent the potential hitch by relying in part on a 
1946 case involving the state of Nebraska that did not require federal 
approval, according to Senate President Pro Tem John Burton, D-San Francisco. 
Nevertheless, Davis, in Washington for a national governors meeting, said he 
presented a nine-page proposal to U.S. Energy Secretary Spencer Abraham and 
expects a response by the end of the week. 
"He wants this problem solved and he's been very supportive," Davis said. 
"He's recommended approval on every request I've made and I believe he will 
support our proposal." 
Abraham's office did not return calls seeking comment. 
The Federal Energy Regulatory Commission that will likely weigh the fate of 
the plan, however, is independent of Abraham's office. Even so, Abraham is 
part of an energy policy team appointed by Bush, and Davis views Abraham's 
support of the proposal as a potential key to a federal nod. 
Davis' history with the commission won't help his efforts. He and the 
commission have been at odds for months over the governor's campaign to 
impose tough wholesale price caps in the West. 
The latest complications in the plan to rescue utilities came amid a 
continuing deadlock in secret negotiations between the state and the Pacific, 
Gas and Electric Co., which is reluctant to sell its high-voltage 
transmission lines. 
Davis announced Friday that California's other major investor-owned utility, 
Southern California Edison, had agreed on the basic framework of a deal that 
includes the sale of its transmission grid to the state for $2.8 billion. 
The utilities, trapped between high wholesale costs and lower 
government-frozen retail rates, have been pushed to the brink of bankruptcy 
as they amassed nearly $13 billion in debt. 
When the utilities could no longer buy enough power, the state began 
brokering billions of dollars in emergency and long-term power deals to 
thwart rolling blackouts. 
Then Davis and legislators began developing strategies to ease the energy 
crisis, including increased conservation, construction of new generation 
plants and ways to prevent utility bankruptcies. 
Under Davis' plan to rescue utilities, the state would help fiscally restore 
the companies with bonds in exchange for acquisition of their 26,000 miles of 
transmission grids. The state would upgrade the aging grid and then lease the 
lines back to the utilities to operate.
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Energy chief 'open' to plan on transmission line buy out
By Toby Eckert 
COPLEY NEWS SERVICE 
February 28, 2001 

WASHINGTON -- Energy Secretary Spencer Abraham is "open" to California's plan 
to take over utility transmission lines in the state, but stopped short of 
endorsing the proposal, saying he needed to study it further, Gov. Gray Davis 
said yesterday. 
"From the tone of his remarks, I think his comments will be positive, and I 
hope by the end of the week he will be able to endorse the proposal or at 
least endorse a modified proposal that is satisfactory to us," Davis said 
after meeting with Abraham privately at the Department of Energy. 
A spokesman for Abraham said he "couldn't characterize (Abraham's) reaction 
one way or the other." But he said Abraham was "open to taking a look at the 
material the governor provided" and would follow up with Davis. 
In his effort to drum up federal support for the buyout plan, Davis also 
invoked a name that resonates throughout the halls of power in Washington: 
Alan Greenspan. 
Davis said the Federal Reserve Board chairman "in a general way thinks it 
makes sense to acquire transmission lines to make the capacity improvements 
that have not been done over the past 15 years." 
Greenspan and Davis informally talked about the power crisis this week, aides 
to Davis said. Greenspan's comments could not be confirmed independently. 
Davis was in Washington for the four-day winter meeting of the National 
Governors Association. But he also used the occasion to try to convince the 
new Bush administration -- and the media -- that his plans to solve 
California's power woes are sound. 
The governor spent about an hour briefing Abraham on the tentative agreement 
the state struck last week to acquire Southern California Edison's 
transmission system for $2.76 billion. The state is trying to negotiate 
similar deals with San Diego Gas and Electric and Pacific Gas and Electric as 
a condition for helping the utilities pay off about $13 billion in debt they 
have accumulated because of soaring wholesale power costs. 
The Federal Energy Regulatory Commission probably will have to sign off on 
any purchase plans, and FERC Chairman Curtis Hebert has made comments 
indicating he is skeptical of the idea. But Davis believes he can overcome 
possible opposition at FERC if Abraham backs the plans. 
Davis also said he and Abraham had "some creative talks about how we might be 
able to find more megawatts for this summer" and assigned staff members to 
work on that "on a daily basis." He did not elaborate on the ideas, saying 
there may be some details forthcoming "in about two to three weeks." 
The governor will continue his East Coast sales pitch for the transmission 
line purchase -- and other elements of his plan to solve the power crisis -- 
in a meeting with Wall Street analysts and bond-raters today. 
Davis and legislators also have pursued long-term power contracts with energy 
suppliers to wean the state from the open market, which became wildly 
expensive last year. 
Mirant Corp., which operates power plants in Northern California, said 
yesterday that it has agreed to shift contracts from the defunct California 
Power Exchange to the Department of Water Resources, which is the state's 
electricity buyer. 
The contracts amount to about 1,000 megawatts of power over the next 10 
months. Last week, Mirant agreed to sell 750 megawatts to the state next 
month. On a typical winter day, the maximum demand on the grid managed by the 
state Independent System Operator, about 75 percent of the total state 
network, is about 30,000 megawatts. 
Davis' visit to Washington came against the backdrop of a muted federal 
response to California's power crisis. The Bush administration, which favors 
open power markets, has said it is largely up to state officials to solve the 
problem, rejecting calls by Davis for more aggressive action like caps on 
wholesale power costs. 
But the Democratic governor praised the Republican president publicly on 
several occasions. He cited the administration's temporary extension of 
federal orders that kept electricity and gas flowing to the state during 
emergency shortages and its agreement to speed up federal review of new power 
plants. 
"Secretary Abraham and the Bush administration in general have been 
wonderfully responsive to my requests. I cannot thank them enough," Davis 
said yesterday. 
Other California Democrats have been less charitable toward President Bush. 
"I think the president is going in the wrong direction on this issue," said 
Rep. Bob Filner, D-San Diego, a staunch advocate of wholesale price controls. 
"A hands-off approach by the federal government, as the president has 
suggested, is not going to solve this problem."
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Energy Experts Belie Davis' Rosy Prediction
Summer expected to be crunch time 
Greg Lucas, Sacramento Bureau Chief
Wednesday,?February 28, 2001 
,2001 San Francisco Chronicle 
Sacramento -- Gov. Gray Davis' optimistic assessment that California may be 
on the "back side" of its energy crisis flies in the face of what many energy 
companies and other experts predict. 
California's real test will come this summer when electricity usage sharply 
increases, and unless everything breaks the way Davis hopes, predictions are 
that large chunks of the state will be in the dark. 
"We're not on the back side of this crisis. This problem is far, far bigger 
than the governor is suggesting," said Gary Ackerman, executive director for 
the Western Power Trading Forum in Menlo Park. 
"To characterize the problem that way shows a recklessness that feeds on the 
popular notion we don't have an energy crisis. We do. We have a very serious 
one that's going to hit us as temperatures and loads go up," Ackerman said. 
The Democratic governor's comments were made Monday in Washington, D.C., 
during an East Coast visit aimed at getting Washington and Wall Street 
support for his energy plan. 
He admitted more hard work is needed, but said the state is on the "back side 
of the crisis" because lawmakers have passed bills needed to help lower 
electricity prices. 
"Does that mean we're home free?" Davis asked yesterday. "No." 
But he again repeated that the state is on the back side of the crisis. 
That is contrary to predictions by the Independent System Operator, which 
oversees the state's power market. 
On any given day in June, the ISO estimates, the state will fall 6,815 
megawatts short of demand. That would put nearly 7 million homes in the dark, 
if it happens. 
In July, the expected shortage is 4,685 megawatts. In August, it's 5,297 
megawatts. That's if California has a normal summer. If it's hotter than 
normal, the shortage grows. 
The ISO's estimates tend to be conservative and do not include Davis' 
conservation goal. 
But even if a 10 percent reduction were achieved in June that would save 
roughly 5,000 megawatts, the state would still be short 1,800 megawatts. 
And there are other variables. 
Depending on the snowpack and reservoir levels, hydroelectric plants may not 
be able to run at full bore, which would also worsen the situation. 
"That is something the governor cannot spin his way out of," said Sen. Tom 
McClintock, R-Northridge. 
Davis said a combination of new power plants and energy conservation will 
help the state get through this summer. 
The clock is running. The ISO predicts shortages of 3,030 megawatts in May - 
- just two months away. 
"The real electricity crisis is going to be this summer, and I don't think 
we've made enough progress there," said Severin Borenstein, director of the 
University of California Energy Institute. 
California won't be able to build its way out of the energy crisis by quickly 
approving and building new power plants, Borenstein said. 
The ISO's demand estimates already factor in the new power plants set to come 
online this summer. 
"Unless we have a very mild summer and have lots of rainfall between then and 
now," Borenstein said, "we are going to face some serious shortages." 
Like Davis, Borenstein says California needs to do more to conserve energy. 
Unlike Davis, he favors raising prices on big power consumers to give them an 
incentive to cut back. 
But the Democratic governor may be sending Californians a mixed message. 
By telling them the worst is over, he could undercut his plan by making 
people believe more conservation is unnecessary. 
Excluding what lies ahead, there are also plenty of energy issues left 
unresolved right now. 
Although Davis has reached a tentative deal with Southern California Edison 
on purchasing its share of the state's transmission system for $2.7 billion 
-- no such deal exists with either Pacific Gas & Electric or San Diego Gas & 
Electric. 
Some alternative energy producers, like co-generation plants, are shutting 
down because the cash-poor utilities haven't paid them for several months. No 
cash means no fuel to run the turbines that make the juice. 
Generators like Duke Energy and Reliant Energy aren't convinced the crisis 
has passed. 
For starters, both companies are owed in excess of $700 million for 
electricity bought by PG&E and Edison but never paid for. 
"There are a lot of issues still out there such as how much power your state 
will require this summer, whether there is enough generation on the ground or 
available commercially to handle the load if there is a significant spike in 
demand," said Richard Wheatley, a Reliant spokesman. 
Harvey Rosenfield, head of the Foundation for Taxpayer and Consumer Rights, 
has a slightly different take on whether the worst is over. 
"We've said all along it's a crisis inspired by the greed of the utilities 
and the energy companies," Rosenfield said. 
"Now that taxpayers are paying $1 billion every three weeks to buy 
electricity and the ratepayers are going to pay between $13 billion and $20 
billion, the companies are happy and the crisis is over. What more could they 
want?"
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PUC to mull baseline level for electricity
It's been a decade since amounts were set. They vary by region, season and 
whether a home is heated with gas or electricity.

By Robert T. Garrett
The Press-Enterprise
SACRAMENTO
Inland-area residents who want a higher "baseline quantity" of lower-priced 
electricity each month will get a chance to plead their case in the next few 
weeks. 
The state Public Utilities Commission will examine by early April whether the 
monthly usage limits that trigger higher rates for residential customers are 
set too low, PUC President Loretta Lynch said Wednesday. 
Baseline amounts are set by the PUC and vary by geographic region, season and 
whether a home is heated with gas or electricity. 
"It's been over a decade since the baselines were set," Lynch told the 
Sacramento Press Club. ". . . I think it's about time for us to look at what 
these baselines are in the 21st century." 
Lynch, an appointee of Gov. Davis, declined to say whether the commission 
will make permanent a 9-percent rate hike imposed in early January on 
residential customers of Southern California Edison, which serves much of the 
Inland Empire. 
With Edison and Pacific Gas Electric collapsing financially, the PUC imposed 
the rate hike -- and increases of up to 17 percent for Edison's large 
business customers -- for 90 days. 
The "temporary surcharge" will be lifted in early April unless the PUC votes 
to keep it in effect. 
Davis has said he hopes his plan to rescue the state's ailing utilities and 
avoid rolling blackouts can be carried out without further rate hikes. 
Davis was in New York City on Wednesday, where the plan drew a tepid response 
from Wall Street. 
Meanwhile, the unexpected shutdown of four Western power plants for repairs, 
combined with scheduled maintenance at several in-state plants, forced 
California grid officials to declare a Stage 2 alert. 
Wall Street analysts who met privately with Davis in New York called his 
moves a good step toward solving the energy crisis, but said more must be 
done. 
"He talked about a lot of short-term measures to alleviate problems for this 
summer, but he hasn't communicated a long-term fix," said Lawrence J. 
Makovich, senior director of Cambridge Energy Research Associates. 
Lynch said Wednesday that she and others on the PUC should have recognized 
sooner that utility deregulation wasn't working. 
As part of its review of the January rate hikes, the PUC will invite public 
comments on baselines, Lynch said. 
She said she plans to examine the baselines for each climate zone. In 
Edison's service area, for instance, there are six. 
Lynch also said the PUC would look at whether baselines are fair and 
effective, and whether similar incentives to conserve energy should be built 
into the rates of businesses. 
If the commission adopts "incentives for businesses," she said, it has to 
make sure it doesn't set the baseline quantities too low for industrial 
sectors such as agriculture and biotechnology. State Sen. Jim Battin, R-La 
Quinta, said Lynch's proposed review of the fairness of baselines in the 
different climate zones "could be encouraging." 
But he said he thinks businesses will oppose having baselines applied to 
them. 
Battin has waged a battle against baselines, which he calls "social 
engineering" and which were mandated by a state law passed in the 1980s. 
In the Inland area, the baseline system works like this: 
In Temecula and Corona an "all-electric" home -- meaning one that is heated 
by electricity -- this summer will pay 12 cents a kilowatt for the first 304 
kilowatts used each month; for each additional kilowatt consumed, Edison will 
charge 14 cents. 
In Moreno Valley, Hemet, Rialto and most of Redlands, owners of 
"all-electric" homes will pay Edison the lower rate for 514 kilowatts per 
month this summer. 
In the Coachella Valley, in both summer and winter, Edison charges the 
higher, 14-cent rate only for monthly consumption above 1,299 kilowatts. 
Those with gas heating in their homes get different baseline allowances than 
do those with electric heating. 
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Electricity notebook 
State, Calpine sign $8.3 billion in pacts. 
March 1, 2001 
Calpine Corp., a San Jose-based power plant owner, signed two contracts 
valued at up to $8.3 billion to sell electricity to the California Department 
of Water Resources for 10 to 20 years. 
The contracts with the DWR, which buys electricity for the state's 
two-biggest utilities, will provide 1,500 megawatts, or enough to light 1.5 
million homes, the company said. 
Calpine signed one $5.2 billion, 10-year contract to sell 1,000 megawatts 
from new power plants. Deliveries are expected to begin July 1, with 200 
megawatts. The full amount of power won't be available until July 2002. 
A $3.1 billion contract calls for Calpine to provide power for 20 years. 
Deliveries are expected to begin in August with 90 megawatts and to increase 
to 495 megawatts in August 2002. 
The contract also allows the state to buy up to 2,000 hours during peak 
periods from 11 new generating units, once they are built. 
In February, Calpine signed a 10-year contract valued at $4.6 billion with 
the DWR to supply 1,000 megawatts. A megawatt is enough to light 1,000 homes. 
Separately, Duke Energy Corp. said it is in discussions with the DWR on 
long-term power supply contracts. 
The Gas Co. agrees 
to buy gas for PG&E 
The Gas Co. said Wednesday that it reached an agreement with Pacific Gas & 
Electric Co. to buy natural gas for the troubled utility for the next month. 
PG&E, which is near bankruptcy, has said it is running out of gas supplies 
and is unable to buy more because creditors are hesitant to sell to it. 
PG&E had asked the state Public Utilities Commission to force The Gas Co., 
which serves all of Orange County, to step in and buy gas for PG&E on an 
emergency basis. 
The Gas Co. said the agreement with PG&E includes a guarantee that The Gas 
Co. will be paid out of the money received from PG&E customer bills. Unpaid 
balances cannot exceed $16.5 million, said Gas Co. spokeswoman Denise King.
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PUC chief defends actions in crisis
Loretta Lynch blames the energy crunch on the failure of deregulation; 
credit-rating firm says state will continue to feel its effects 
By Andrew LaMar and Mike Taugher
TIMES STAFF WRITERS 
SACRAMENTO -- Loretta Lynch, who has faced close scrutiny as president of the 
state Public Utilities Commission, defended her handling of the electricity 
crisis Wednesday and said she wishes the agency had recognized sooner that 
deregulation was not working. 
Appearing before reporters at a luncheon, the 38-year-old attorney offered a 
harsh assessment of deregulation and said California has not faced the same 
degree of uncertainty since the 1920s. 
"From my perspective, the system that we created was built on a theory and a 
hope and a promise, and that promise is unrealized and the theory was faulty 
and so therefore the hope remains unfulfilled," Lynch said. "I'm from 
Independence, Mo.; you have got to show me how we're going to get to the 
nirvana of the plan for deregulation." 
Lynch said the PUC is working feverishly on three things: 
To advise the Legislature on scores of energy bills. 
To legally defend its decision to keep rates frozen on two utility companies. 
To prepare to decide whether to extend or increase a 9 percent electricity 
rate hike approved in January. 
Meanwhile, the Wall Street credit-rating firm Standard & Poor's issued a 
report on the dangers of the energy crisis that said California will feel its 
effects "throughout 2001 and beyond." 
Damage has been contained to the state's utilities, which are nearly broke, 
and the state treasury, which S&P said is insulated from credit problems 
because of its ample reserves and ability to borrow. 
But S&P analysts said the combination of the energy crisis and a nationwide 
economic slowdown could restrict the state's ability to deal with budgetary 
issues that could come up if the economy continues to slow. Also, it could 
strap the budgets of cities, counties and other local governments if the 
state decides to cut payments to them. 
"In addition to the overall economic slowing that is clearly evident 
nationally, the utility crisis has hit California at a time when the 
technology sector, the growth of which has played a significant role in the 
state's economy over the past several years, is undergoing a significant 
retraction," S&P warned. 
As for Lynch, she challenged several popular assumptions as myths. First, she 
said, deregulation failed on its own, not because politicians cut it short. 
Second, she said, the PUC did not stop utilities from arranging long-term 
contracts to buy electricity, as they have claimed. 
And, the defense of the PUC's rate freeze in court is not a losing 
proposition, she said. 
"It is true that the utilities came to the commission and to me personally in 
October and said 'End the rate freeze. We are hurting.'" Lynch said. "When we 
looked at the request, it really did put us between a rock and a hard place, 
and that's a rock and a hard place we remain in today.'" 
But Lynch said if the PUC had lifted the rate freeze, "we would have, by 
administrative fiat, plunged the rest of California into the price volatility 
that San Diego experienced this summer." 
As it is, the commission is studying the market value of the assets Southern 
California Edison and PG&E were supposed to sell under the terms of 
deregulation. Once the commission sets the market value, it can determine 
whether the utilities are eligible to raise rates. 
In other developments Wednesday: 
Power generator Calpine Corp. announced two long-term electricity contracts 
that will require energy-starved California to pay up to $8.3 billion to keep 
the lights on in as many as 1.5 million homes. 
With the latest agreements, San Jose-based Calpine has three separate 
long-term electricity contracts with the state Department of Water Resources, 
which is shopping for deals that will spread the soaring cost of power over 
several years 
Environmentalists urged Gov. Gray Davis to upgrade his proposal to obtain 
development rights for scenic acreage owned by the state's beleaguered 
utilities, saying the state should obtain the properties outright. 
As part of a utility bailout package, the governor has recommended Edison and 
PG&E turn over development rights to more than 88,000 acres, including scenic 
parcels in the Sierra, and 26,000 miles of high voltage transmission lines, 
among other considerations. 
A Republican assemblyman attacked Davis for comments he made in Washington, 
D.C., on Tuesday. The governor said the deals he is negotiating with utility 
companies to buy their transmission lines would complete the legislative 
fixes needed and "it means we are basically on the downside of the problem." 
But Assemblyman Tony Strickland, R-Thousand Oaks, questioned whether there 
would be enough power this summer or if federal regulators would approve the 
state purchase of transmission lines. 
"It's irresponsible to call this crisis nearly over," Strickland said. "There 
are still way too many unknowns."
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Cal-ISO Says Suppliers Overcharged 

Power: State report calls for a refund of $562 million above 'reasonable' 
prices. Generators deny gouging. 

By NANCY VOGEL and JENIFER WARREN, Times Staff Writers


?????SACRAMENTO--Wholesale electricity suppliers overcharged California's 
utilities more than $500 million during December and January, an amount that 
the federal government should demand be refunded, according to a 
no-holds-barred state report released Thursday.
?????The report by the California Independent System Operator, which oversees 
the flow of electricity in the state, said power suppliers charged $11 
billion during those two months alone--more than they did for all of 1999.
?????Studying various market dynamics, the agency concluded that there was a 
"prima facie case" that the unnamed generators and marketers had charged $562 
million above "just and reasonable" prices, warranting further investigation 
and federal hearings into the appropriateness of refunds.
?????The state report is the most accusatory of a number of studies 
undertaken to determine why wholesale electricity prices have soared in 
California since last summer, throwing the state's biggest utilities into 
financial crisis and dashing hopes for lower consumer rates under 
deregulation.
?????The study also provides new ammunition to members of California's 
congressional delegation, who have unsuccessfully been pressing the Federal 
Energy Regulatory Commission to impose price ceilings on wholesale 
electricity costs.
?????Generators defended their operating practices and rejected the 
allegation that they had raked in unfairly large profits in December and 
January.
?????"We have played by the rules, acted ethically and legally in all our 
operations," said Richard Wheatley, a spokesman for Houston-based Reliant 
Energy, which owns power plants capable of supplying more than 3 million 
homes. "We have nothing to hide."
?????Gary Ackerman, executive direcor of the Western Power Trading Forum, 
said the Cal-ISO report does not account for less tangible factors that tend 
to drive up prices, such as political and financial uncertainties.
?????"Those are the things my people take into account when deciding whether 
to sell into California," said Ackerman. He noted that, in the second week of 
December, a period analyzed in the Cal-ISO report, electricity prices were 
higher in the Pacific Northwest than in California.
?????The report, he said, "provides some reasonable questions which will be 
responded to by my members, under FERC authority."
?????Cal-ISO officials stressed Thursday that they are not accusing any 
seller of inflating prices but are simply asking for federal action to 
restrain costs.
?????"We have not seen prices come down to what we feel are justifiable 
levels," said Anjali Sheffrin, director of market analysis for Cal-ISO.
?????Although federal energy commission officials on Thursday refused to 
comment on the study, many experts predicted that refunds would not be 
forthcoming.
?????Since July, when Gov. Gray Davis first asked the federal commission to 
give San Diego Gas & Electric customers refunds for electricity costs that 
doubled and in some cases tripled, the agency has refused to order power 
sellers to give back some of their profits to California utilities and 
consumers.
?????The commission, charged by Congress with assuring "just and reasonable" 
wholesale electricity rates, has also resisted imposing firm price caps on 
California's electricity market. In November, the commission called that 
market "dysfunctional" and vulnerable to manipulation by power sellers, but 
the agency has so far failed to document or punish specific cases of such 
anti-competitive behavior.
?????"The real question is what is FERC going to do with all of this?" said 
Gary Stern, chief of market analysis for Southern California Edison, once one 
of the two biggest buyers of electricity in California. "Based on past 
history, we think they're probably going to say they don't see wrongdoing 
that provides a reason for refund."
?????Determining rebates could prove a logistical nightmare for federal 
regulators and Cal-ISO, Stern said, but the data exist to show how much it 
cost power plant owners to generate electricity and what price they charged.
?????Given that Edison and PG&E have defaulted on payments of hundreds of 
millions to power sellers, Stern said, a rebate order wouldn't lead to 
reimbursement for individual utility customers. Instead, it could help the 
utilities eliminate some of their debt to generators and marketers.
?????Edison and PG&E have been pushed nearly to bankruptcy by high wholesale 
costs, which they could not pass on to their customers because of a 
state-imposed rate freeze. 
?????Last week, Davis announced that Edison had agreed in principle to state 
financial help in exchange for its transmission lines. Negotiations with PG&E 
continue.
?????The Folsom-based Cal-ISO drew its conclusions after reviewing 
electricity purchases made between Dec. 8, 2000, and Jan. 31, 2001.
?????To calculate the cost of producing electricity in those months, Cal-ISO 
analysts assumed power plant owners were buying natural gas from the spot 
market, where prices soared this winter, and were running old, inefficient 
plants. They also assumed relatively high prices for air emission credits in 
Southern California and added a 10% buffer to the operating costs.
?????Cal-ISO officials then compared these costs with the prices sellers were 
paid. Their report did not name the individual sellers, which range from the 
province of British Columbia to the publicly owned Los Angeles Department of 
Water and Power to private companies.
?????Several lawmakers praised the report as long overdue.
?????"It's about time," said state Sen. Debra Bowen (D-Marina del Rey), 
chairwoman of the Senate Energy Committee. She said that the desire among 
some legislators to seize power plants and take other drastic actions stems 
from the sense that "there's no one willing to enforce the provisions of the 
federal power act regarding just and reasonable rates.
?????"The utilities are doing a great job looking out for their shareholders, 
but who is looking out for ratepayers?" she asked.
?????Consumer advocacy groups applauded Cal-ISO's action and said the 
agency's evidence of overcharges underscored the need for hard price caps or 
a tax on generator profits.
?????"It's certainly not news to us that the generators are charging 
excessive wholesale prices," said Mindy Spatt, spokeswoman for the Utility 
Reform Network of San Francisco. "If there had been a real price cap, this 
investigation would not be necessary." 
?????California's congressional delegation has pushed hard in recent months 
for legislation that would impose temporary price controls on wholesale power 
supplies in the West. On Wednesday, a bipartisan team met with Curtis Hebert, 
chairman of the Federal Energy Regulatory Commission, and came away 
discouraged by Hebert's opposition to price caps.
?????The federal commission has imposed a so-called "soft cap" of $150 per 
megawatt-hour in California's electricity market. When sellers ask a higher 
price they must explain why it is necessary. 
?????Within 60 days, the commission can launch a review of those bids that 
could lead to refunds. So far, the federal panel has ordered none. On 
Thursday, Cal-ISO asked the commission to extend the two-month deadline in 
its examination of the purchases made during December and January.

* * *
?????Times staff writer Nancy Rivera Brooks in Los Angeles contributed to 
this story.
------------------------------------------------------------------------------
--------------------------------------------
Power profits targeted: Generators urged to forgive some of utilities' debts
By Stuart Leavenworth and Dale Kasler
Bee Staff Writers
(Published March 2, 2001) 
They are cocky and defiant, and unabashedly rich. Over the past year, the 
companies that generate and trade much of California's electricity have made 
multimillion-dollar profits off the state's power crunch. 
Yet pressure is mounting for these power producers to return some of their 
profits, or at least forgive some debts they are owed by the state's troubled 
utilities: 
A spokesman for Gov. Gray Davis said Thursday that at least two energy 
companies have volunteered to forgive some debt, a development that could 
give Davis leverage over other suppliers. 
Also Thursday, the state's Independent System Operator declared that some 
power merchants may have overcharged the state and utilities by as much as 
$562 million in December and January. ISO officials asked federal regulators 
to confirm their findings and seek refunds from the generators. 
Several key lawmakers say any deal to rescue Pacific Gas and Electric Co. and 
Southern California Edison must include debt forgiveness by generators and 
other creditors. 
"They have to get a haircut like anyone else," said state Sen. Debra Bowen, 
the powerful chair of the Senate Energy Committee. "I'm not saying they have 
to walk around like Jesse Ventura, but they can't continue to walk around 
like Don King, either." 
So far, most generators adamantly refuse to discuss debt forgiveness, saying 
their electricity prices are reasonable. 
Steven Kean, executive vice president of Enron Corp., said he didn't see "any 
reason" to forgive any debts. A spokeswoman for Mirant Corp. said company 
officials expect full payment. 
Richard Wheatley, a spokesman for Reliant Energy Inc., said lawmakers urging 
debt relief are engaged in wishful thinking. 
"The more they discuss it, the more they hope it might turn into reality," 
said Wheatley, whose company is owed $300 million. "From our perspective, 
it's not open to negotiation." 
But Bowen and others say generators, bondholders and other utility creditors 
have some good reasons to budge. 
If Edison and PG&E go bankrupt, Bowen says, the generators might have to wait 
years to get even partial payment. That's because they are unsecured 
creditors -- meaning they don't hold any collateral to secure payment of 
their debts. 
"It is not very hard to figure out from a dollars and cents standpoint," said 
Bowen, D-Marina Del Rey, who has been talking to some of the generators about 
debt forgiveness. "If you are owed 100 bucks, would you rather get $90 
several months from now, or would you rather take your chances with 
bankruptcy attorneys and get $50 three years from now?" 
Steve Maviglio, a spokesman for Davis, said the governor "has received a 
couple of unsolicited offers" from generators willing to forgive debts as 
part of a deal. Maviglio declined to name the companies, but said, "It is all 
part of the ongoing negotiations." 
The game of cat and mouse comes as Davis and lawmakers try to gain leverage 
over five companies -- AES Corp., Duke Energy Corp., Dynegy Inc., Mirant and 
Reliant -- that bought power plants from the California-based utilities in 
the early days of the state's foray into deregulation. 
Because of that divesture, much of California's power is controlled by 
out-of-state generators and their trading subsidiaries, or by independent 
brokers such as Enron, the country's biggest electricity marketer. 
In recent months, at least five class-action lawsuits have accused these 
companies of manipulating and inflating electricity prices, either by 
intentionally shutting down plants or by buying natural gas cheaply and using 
it to generate electricity sold at a several-hundred-percent markup. 
On Thursday, the nonprofit corporation that manages most of the state's 
electric grid revealed data that could support claims of price gouging. 
In a filing with federal regulators, the Independent System Operator said the 
wholesalers overcharged the ISO by $562 million for spot-market purchases in 
December and January. 
The ISO's findings are based on federal price caps that say any bids above a 
certain level be justified in writing. The ISO calculated the suppliers' 
costs, threw in a 10 percent profit margin -- and concluded that the 
generators had sold scads of power at unreasonable prices. 
The state's grid managers want the Federal Energy Regulatory Commission to 
seek refunds from the generators if regulators confirm that overcharging took 
place. But some doubt the FERC will act, given its past reluctance to set 
price controls or interfere in California's energy markets. 
"I don't think they have a whole lot of chance with FERC," said Severin 
Borenstein, director of the University of California Energy Institute. 
Federal officials, he said, "are likely to bend over backward to excuse the 
prices." 
Wholesalers also doubted the ISO report would lead anywhere, saying it left 
out significant, legitimate costs of selling electricity to California. 
Suppliers had the right to charge a "credit premium" as the risks of 
nonpayment began rising, said Gary Ackerman of the Western Power Trading 
Forum. Not only did the ISO become an uncreditworthy buyer -- because it got 
its money from Edison and PG&E -- but the whole political climate in 
California added to the wholesalers' risks, Ackerman said. 
Whether or not the ISO filing prompts action from federal regulators, it 
could help lawmakers pressure the generators. 
State Sen. Joe Dunn, D-Santa Ana, said he wants to sort out how much of the 
debts piled up by PG&E and Edison since last summer were the result of 
electricity prices that could be deemed "unjust and unreasonable" under 
federal and state laws. 
"Since every regulatory body has concluded those costs were unjust and 
unreasonable, a portion, if not a very significant part of that past debt 
ought to be forgiven," Dunn said. 
Some analysts say state leaders can't push the generators too far, since they 
depend on energy companies to build new power plants -- a supply boost that 
theoretically would lower energy prices. 
Dunn acknowledges that is a concern, but says the Legislature also can't 
afford to ignore charges that generators have gouged utilities and 
ratepayers. 
"That is the game of chicken we are in now," Dunn said. "And up to this 
point, it is only the state that has blinked." 
The issue of debt forgiveness could become moot if Davis can't strike a deal 
with PG&E and San Diego Gas & Electric to buy their transmission systems. 
Last week, Davis announced a tentative agreement to acquire Edison's power 
lines for $2.7 billion and is reportedly close to coming to terms with SDG&E. 
But PG&E has so far rejected the governor's overtures, and on Thursday it 
added to a litany of financial woes. The San Francisco-based company 
defaulted on another $1.21 billion worth of payments to electricity 
suppliers. It did, however, make partial payments totaling $228 million to 
the ISO, which bought power from the wholesalers on the utility's behalf, and 
to a group of cogenerators and alternative energy providers. 
If talks with the state break down, one of PG&E's alternatives would be 
bankruptcy court, where a judge would determine how its assets would be 
divided among creditors. An alternative scenario has one or all of the 
generators going to court to force PG&E into bankruptcy, but Bowen, for one, 
is doubtful that will happen anytime soon. 
"If they (the generators) thought they would come out better in a bankruptcy, 
we would be there already," said Bowen, whose committee would have to approve 
any rescue plan for the utilities. 
"So that means they have to give. Everyone has to give." 
Emily Bazar of The Bee Capitol Bureau contributed to this report. 

Thursday's developments
A Davis spokesman says the governor has received "unsolicited offers" from 
some generators willing to forgive debts but declines to name them. 
In a filing with federal regulators, the Independent System Operator says 
some wholesalers overcharged the ISO by $562 million for spot-market 
purchases in December and January. 
Pacific Gas and Electric Co. pays 16 percent of a $1.44 billion bill to 
wholesale power suppliers, defaulting on $1.21 billion of the debt but paying 
$228 million. 
State declares Stage 2 alert but downgrades it to a "warning" at mid-morning. 
Calpine Corp. becomes the latest wholesaler to sign long-term supply 
contracts with the Department of Water Resources, agreeing to two deals 
totaling $8.3 billion -- a 10-year contract for $5.2 billion and a 20-year 
contract for $3.1 billion. Last month, Calpine signed a deal worth $4.6 
billion. 

------------------------------------------------------------------------------
--------------------------------------------
Friday, March 2, 2001 



By Rick Stouffer 
rstouffer@ftenergy.com 

"(No state is an island, entire of itself; every state is a piece of the 
continent, a part of the main(" -John Donne

California Gov. Gray Davis has seemingly hit on a plan that he thinks will 
solve his state's energy problems: 
Acquire some 32,000 miles of transmission lines for between $8 billion and 
$10 billion to keep the bankruptcy wolf away from the state's three 
investor-owned utilities.

Create a public power authority to buy, build and operate power plants, 
financed with up to $5 billion in state bonds.

Not raise customer rates to pay for at least $10 billion in bonds used to pay 
for power. 
Sounds great, doesn't it? Something for everyone*no more pain*sounds 
suspiciously like California's original deregulation plan*itself a misnomer; 
California wasn't deregulated, it was restructured. 

Energy 'island' won't work
But Davis's efforts to, in effect, create the electrical island of California 
will not work, many say. The governor's control of transmission doesn't solve 
the immediate demand-supply conundrum. 

And creation of the fancy-sounding California Consumer Power and Conservation 
Financing Authority to buy, build and operate power plants could drive 
private developers out of the Golden State*who wants to compete against the 
ultimate government-subsidized entity? 

"Davis is, in effect, nationalizing the power industry in California," said 
Jonathan Gottlieb, a partner in Washington, D.C., law firm Baker & McKenzie's 
North American Utility and Energy Products Group. "Command and control 
economies have been collapsing around the world*except in California." 

The problems with the California power industry are numerous and beaten to 
death by the media. It appears everything went wrong that could go wrong*all 
at once*Murphy's Law in the absurd. 

Just as numerous as the problems, are the number of entities which can be 
fingered as having a hand in the debacle. 

All that said, Gov. Davis feels he has the magic bullet which will make 
everything right: take over much of the system, force those 
out-of-state-based generators to act "responsibly," bail out the incumbent 
utilities and not raise customer rates. 

But has anyone looked longer term than the next few months concerning the 
consequences of Davis' moves? Anyone stop to think what happens if and when 
the state does take control? 

Who runs the state-owned system? 
"With the transmission-lines buy, you have a mechanism which gives the 
utilities cash to pay off the debt incurred in buying wholesale power," said 
Craig Pirrong, a commodity markets expert and professor in the Olin School of 
Business at Washington University in St. Louis. 

"But now there are operational questions," Pirrong continued. "Is the state 
the most efficient entity to operate and maintain the wires system?" 

Good question. "You have to find someone to run the system once you take it 
over," said William Hogan, a professor in Harvard University's John F. 
Kennedy School of Government. "So you either contract or hire utility 
employees." 

There is precedent, obviously, for government-owned and operated utilities. 
In the United States, more than 2,000 municipals operate today, while 
internationally a number of state-run utilities are in operation, for example 
Electricit, de France. But government ownership of utilities appears to be on 
the way out across the world, the experts say. 

"Look what's happening worldwide," said Adrian Moore, executive director of 
the Los Angeles-based free market think tank Reason Public Policy Institute. 
"Over the last seven or eight years, billions of dollars worth of utility 
privatizations have taken place. Germany and Italy, for example, are selling 
off huge tranches of their national utilities." 

Municipal utilities tout their lower costs per customer, but those figures 
are deceptive, some industry watchers believe. 

"There are a lot of tax advantages and hidden subsidies in municipal 
utilities that mask the real cost," said economist Murray Weidenbaum, scholar 
in residence at the Jones Graduate School of Management at Rice University in 
Houston, Texas, and the former first chairman of President Reagan's Council 
of Economic Advisers. "If you move to a state-run utility, you can almost 
guarantee costs will go up over time," Moore said. 

Politics taking precedence
With state control of California's transmission lines, many experts see 
politics taking precedence over economics*or need*when decisions are made 
concerning where to build new lines. 

"You can see gamesmanship and lobbying taking precedence, moving away from 
economic drivers toward political drivers," Washington University's Pirrong 
said. 

On the generation side, many of the same problems associated with assuming 
command of the wires could occur. 

Generators including Mirant Corp. and Duke Energy already publicly expressed 
concerns with the wires acquisition; specifically, will they be shut out of 
access to get their power to market? 

"I can see politically that they've got to get something out of this to sell 
the plan to consumers, but we need to make sure we aren't discriminated 
against," Mirant President Marce Fuller said during the recent Cambridge 
Energy Research Associates energy conference in Houston. 

Discrimination against incumbents could occur, but what about bias against 
potential generators? With the establishment of the Consumer Power and 
Conservation Financing Board, what private company would want to bid against 
the sixth largest economy in the world? 

"With the government involved, companies would be reluctant to build new 
plants without a government contract, because the government is subsidizing 
construction," said Harvard's Hogan. 

"Where's the state's comparative advantage in building new plants?" 
Washington University's Pirrong asked. 

FERC must weigh-in
There is another major player in California's ascension to wires 
owner-operator: the Federal Energy Regulatory Commission (FERC). The Federal 
Power Act puts FERC right in the middle of the California takeover, said 
Baker & McKenzie's Gottlieb. 

"FERC Chairman Curtis Hebert has used the word 'nationalization' publicly to 
describe what California is proposing, and has said he has definite concerns 
about the proposal," Gottlieb said. "I don't think FERC can say no to the 
California takeover, but they could weigh it down with conditions." 

One of those conditions may be a trade-off: FERC will approve California's 
takeover of transmission wires, in exchange for the state giving control of 
the lines to multi-state regional transmission organizations. 

A 'quick' fix could take months
No one, including Davis, sees this plan happening quickly. In a presentation 
Wednesday to analysts in New York, the governor admitted it would take up to 
four more weeks to reach agreement with PG&E Corp./Pacific Gas & Electric Co. 
for its wires. He also admitted he cannot win enough Republicans to pass the 
bill with the two-thirds majority needed for immediate implementation. Bills 
in California passed with a simple majority must wait 90 days before going 
into effect. 

Thus, the entire process may not be over for at least another six weeks, and 
even then the Davis plan could face a ballot initiative. But for the sake of 
argument, assume Gov. Davis gets his way and takes control of the 
investor-owned utilities' wires and begins building and buying plants. Where 
does such a massive undertaking leave the Golden State in three to five 
years? 

"All things add up to a pretty grim situation," said the Reason Public Policy 
Institute's Moore. "Five years from now just because the state is purchasing 
power, we will have prices higher than the U.S. average. That will be 
exacerbated by the state owning the wires and building the plants." 

"I'm very dubious; the government-run utility in the long-run will be very 
expensive," Harvard's Hogan concurred. 

Baker & McKenzie's Gottlieb sees the California screen test as providing the 
impetus for a huge infrastructure build-out nationwide. One recent survey 
found that some $20 billion in plant financings within the United States are 
projected for just the first three months of 2001*compared to $24 billion for 
all of 1999. 

A textbook case
According to economist Weidenbaum, the California energy debacle answers the 
question "does the government deregulate as badly as it regulates," with a 
huge exclamation point. 

"California is a textbook dramatization of the shortcomings of government 
involvement with business," Weidenbaum said. "You now have Chapter Two in 
that book; we already have Chapter One." 

The English poet Donne said: "And therefore never send to know for whom the 
bell tolls; it tolls for thee." 

In California, that "bell" is clanging. 
------------------------------------------------------------------------------
--------------------------------------










Ex-Regulator Urges Temporary Federal Price Caps on Power

Carolyn Lochhead, Chronicle Washington Bureau 
?
Friday,?March 2, 2001 








Washington -- Federal energy regulators should intervene more forcefully in 
California's energy crisis, a former Reagan-appointed regulator said 
yesterday, 
while other experts feared the financial effects could balloon into another 
savings-and-loan bailout disaster. 
Independent regulatory experts speaking at a high-profile panel on the energy 
crunch also said Gov. Gray Davis may be whistling in the dark in his 
assurances that the power crisis will be largely resolved by summer. 
"I think there is a fairly compelling argument that something needs to be 
done," said Elizabeth Moler, appointed to the Federal Energy Regulatory 
Commission by President Ronald Reagan and named chairwoman by President Bill 
Clinton. 
Moler, speaking to the Brookings Institution and the American Enterprise 
Institute Joint Center for Regulatory Studies, said some form of temporary 
federal intervention on wholesale prices is needed, so long as it does not 
discourage investment in new generation capacity. 
Davis and Sen. Dianne Feinstein, D-Calif., have urged federal regulators to 
impose temporary price controls to give the state breathing room. 
The chairman of the Federal Energy Regulatory Commission, Curt Hebert, is 
strongly opposed to price caps, saying they would discourage investment and 
delay resolution of the crisis. California needs to lift the electricity rate 
freeze on consumers to encourage conservation and restore the finances of the 
bankrupt investor-owned utilities, Hebert has argued. 
But Moler faulted federal regulators and the California Public Utilities 
Commission, both of which oversaw the state's deregulation plan, for allowing 
the problem to fester. 
"The signs were there in June that something needed to happen," Moler said, 
noting that electricity deregulation is complex and always needs adjustments. 
"I'd like to think I would have been reading the market monitoring reports, " 
Moler said. "I'd like to think I would have been on the airplane to San 
Francisco every other week, and on the other weeks, the CPUC would have been 
on a plane to Washington." 
Moler also faulted state PUC members for blaming the crisis on their 
predecessors. "I'm pretty amazed the CPUC is still blaming Dan Fessler," the 
former chairman, Moler said. "He's been gone for three years." 
Moler noted that the state's plan to take over the utilities' transmission 
lines needs federal regulatory approval, which Hebert indicated he opposes, 
comparing the move to "nationalization." 
Davis' assertions this week to Washington policymakers and Wall Street 
analysts that he has the crisis under control were also viewed dubiously. 
Noting that peak California power demand will rise to 45,000 megawatts in the 
summer from 30,000 in the winter, Robert Litan, director of the Joint Center 
for Regulatory Studies, said, "You do your own math. If you think the problem 
is bad now, you ain't seen nothing yet." 
Litan said the state's partial electricity deregulation was a giant gamble 
that freed wholesale prices would stay below fixed retail prices, but the bet 
went bad and now state taxpayers are paying the cost. 
"I used to study S&Ls, and what California is doing sounds a lot like what 
the federal government did for 10 years, which was pray and hope that the 
problem goes away," he said. 
California is paying roughly $1.5 billion a month for electricity while state 
officials try to craft a long-term solution. 
Paul Joskow, director of the Center for Energy and Environmental Policy 
Research at the Massachusetts Institute of Technology, said state and federal 
policymakers must devise a long-term blueprint that encourages investment in 
new generation and offers price stability to consumers. 
"I haven't seen any long-term plan yet for where they are going in 
California," Joskow said. ". . . I think the governor owes that to the 
citizens of California, because now we're going from week to week, and you 
know as well as I do what it's going to be six months from now." 
E-mail Carolyn Lochhead at clochhead@sfchronicle.com. 

? 
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02/16/2001 - California governor proposes state power line purchase . 
02/09/2001 - Removal of Rate Caps Urged. 
02/08/2001 - Developments in California's power crisis . 
02/04/2001 - Davis Neglected Key Strategy In Power Crisis. 
>>more related articles... 



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NEWS 
PG&E to Pay Creditors Only 15% / Smaller suppliers outraged over plan
David Lazarus

03/02/2001 
The San Francisco Chronicle 
FINAL 
Page A1 
(Copyright 2001) 
Pacific Gas and Electric Co. said yesterday it would pay only about 15 cents 
on the dollar for its outstanding power bills, sparking outrage among smaller 
creditors, who accused the utility of driving them out of business. 
In a filing to securities regulators, PG&E revealed it would pay just $228 
million of about $1.4billion due for recent electricity purchases. 
"How would you feel if your boss gave you just 15 percent of your paycheck 
and said he'll get back to you for the rest?" asked Bob Judd, director of the 
California Biomass Energy Alliance, representing operators of 28 wood-fired 
plants statewide. 
PG&E's filing marks a turning point in California 's energy crisis. It is now 
possible that not only will the state's largest utility go under, but it 
could take a number of power generators with it. 
PG&E, now in talks with the governor on a possible financial bailout, is 
telling creditors to be thankful for whatever they get. If the utility 
declares bankruptcy, all parties know, many creditors may receive nothing. 
Still, time is running out for Ridgewood Power, a New Jersey company with 14 
plants in California . It already has had to shut down three facilities in 
PG&E's service area because it can no longer afford to keep them running. 
'NOWHERE NEAR' 
"The amount of money PG&E is giving us is nowhere near what we need to pay 
our natural gas suppliers," said Martin Quinn, Ridgewood's chief operating 
officer. "We could restart the plants tomorrow if we could be released from 
our PG&E contracts and sell to another buyer." 
He added that his company would ask federal regulators to nullify its 
contracts with PG&E so Ridgewood could bid for alternative power contracts 
being offered by California state officials. 
PG&E's larger creditors reacted more cautiously to word that the utility 
would pay only a fraction of its outstanding bills. 
"We have to study the consequences and see," said Richard Wheatley, a 
spokesman for Houston's Reliant Energy, which formed a creditors' committee 
last month with other leading electricity providers. "We don't know how much 
of the money we'll get." 
Reliant and other major creditors are grappling with how much leeway to grant 
PG&E on its unpaid bills before deciding to cut their losses and push the 
cash-strapped utility into bankruptcy. 
'VERY CONCERNED' 
"We are very concerned about the credit issue," said Steve Stengel, a 
spokesman for Houston's Dynegy Inc., another member of the creditors' 
committee. "But we are still interested in finding a comprehensive solution 
to California 's energy situation." 
That may depend on the outcome of current talks Gov. Gray Davis is holding 
with PG&E and Southern California Edison to purchase the utilities' 
transmission lines as part of a multibillion-dollar bailout package. 
PG&E and Edison are saddled with nearly $13 billion in debt as a result of 
ill-conceived efforts to deregulate the state's electricity market. 
The announcement of partial payments was not a complete surprise to PG&E's 
creditors. The utility's chief financial officer, Kent Harvey, told investors 
in a conference call last month that PG&E would prefer to "make partial 
payments than no payments at all." 
PG&E has defaulted on more than $730 million in short-term debt payments 
since January amid growing concerns that the utility will file for bankruptcy 
protection. 
In response, three California counties have formed their own creditors' 
committee to recoup investments in PG&E's short-term debt, also known as 
commercial paper. 
The three -- Santa Cruz, Riverside and Siskiyou counties -- are inviting 
other public agencies to join forces in seeking compensation from PG&E for 
the defaulted payments. 
The prospect of PG&E filing for bankruptcy has diminished somewhat in recent 
weeks as Davis and Sacramento lawmakers scrambled to come up with proposals 
to rescue California 's utilities from financial ruin. 
Although Edison has said it is prepared to sell its power lines to the state 
for nearly $3 billion, PG&E so far has refused to follow suit. 
However, as The Chronicle reported yesterday, the utility retained outside 
counsel this week to offer advice on a possible sale of its power lines, 
increasing the likelihood that a deal may be in the works. 
SUITS ALLEGE MISMANAGEMENT 
Separately, PG&E said yesterday it had been hit with a pair of lawsuits 
seeking almost $3 billion in restitution for financial mismanagement. 
One suit charges the utility's parent company, PG&E Corp., with violating its 
fiduciary duties by forcing the utility to repurchase shares from the 
corporation for $2.3 billion. 
The other alleges that PG&E Corp. collected nearly $3 billion from the 
utility under a tax-sharing arrangement but paid only $2.3 billion to the 
government. 
The lawsuits were filed in San Francisco Superior Court by Richard D. Wilson. 
No other information about the plaintiff was immediately available. 
------------------------------------------------------------------ 
----------- Refund RequestedElectricity generators overcharged the state by 
more than a half-billion dollars in two months and should be forced to return 
the money, power officials said yesterday. 
The California Independent System Operator said in a filing with the Federal 
Energy Regulatory Commission that generators appeared to have charged $555 
million more than what was reasonable. 
It was unclear how any refunds might be passed on to consumers. About 
two-thirds of all power purchases in the spot market were over price caps 
established by FERC, said Eric Hildebrandt, an ISO manager of market 
monitoring. The cap was $250 per megawatt hour in December and $150 per 
megawatt hour in January. 
The ISO is requesting that FERC order a refund for "excessive" costs. 
Source: Chronicle Sacramento Bureau 



Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.