Daylight For Gray Davis 


By David S. Broder

Wednesday, September 5, 2001; Page A19 


SACRAMENTO -- The lights are dimmed in the office of California Gov. Gray Davis, but his prospects of winning reelection next year and becoming a 2004 Democratic presidential possibility are looking a lot brighter than they were just a few months ago.

The office air-conditioning is imperceptible, despite the outside temperature of 105 degrees, as Davis practices the energy conservation he has been preaching. But overall, the summer has been mild, electric power usage is down 12 percent from last year and there hasn't been a blackout anywhere in the state since May 8.

Republicans, who had set up a Web site to record the expected energy crisis, concede that Davis has dodged a disaster. Always cautious, the governor says, "So far, so good, but you never talk about a possible no-hitter in the middle of the game."

In fact, Davis is not home free. He is pushing a financial bailout bill to avert bankruptcy for Southern California Edison, a bill opposed by both free-market Republicans and liberal Democrats in the legislature. Sale of bonds to replace the billions the state spent buying power last winter and spring has been held up by litigation from already bankrupt Pacific Gas and Electric, leaving a potential hole in the current-year budget and ensuring that the election-year fiscal situation likely will be grim. Drought conditions threaten a water shortage next year.

Private polls show clear vulnerabilities for Davis. Despite a drop in public fears of an energy crisis and some increasing optimism about the overall direction of the state, two August surveys I was shown found fewer than one-third of Californians favor reelecting Davis, while two-thirds say he should definitely be replaced or they would consider an alternative. His job approval scores are as poor as those of President Bush, who lost California in a landslide last November.

The polls show a notable Davis weakness among Democrats, and one veteran lobbyist here told me that the governor was "just one blackout away from drawing a serious primary opponent" -- one reason that Davis last week preemptively staged a show of support from the Democratic mayors of seven big cities.

But the potential vulnerability may never be tested. Davis has $30 million in the bank and is headed for a $50 million war chest. California has not denied a sitting governor a second term since 1942, reelecting two Democrats and four Republicans, most recently Pete Wilson, who was in much worse shape politically in 1993 than Davis is now.

And all three potential Republican gubernatorial candidates have liabilities. Wealthy businessman William Simon Jr., son of the former Treasury secretary, has impressed Republican insiders as personable and smart. But he has never run for office before and is unknown to the voters, who have showed skepticism about first-time millionaire candidates in both parties.

Secretary of State Bill Jones, the only Republican in statewide office, has been Davis's most aggressive and effective critic, zeroing in on conflicts of interest in the stock holdings of several Davis energy advisers and appointees. But Jones left the Bush campaign early in the battle for the 2000 nomination to endorse Sen. John McCain, and the White House reportedly has told GOP contributors not to help him. Two McCain allies, Sens. Fred Thompson and Chuck Hagel, are coming out to raise money for Jones next month, but his treasury is anemic.

The White House favorite is former Los Angeles mayor Richard Riordan, who won two races in that heavily Democratic city. Riordan is 71 and, as Davis points out, has never run statewide or in a partisan contest. Conservatives question his liberal social policy positions, and Jones notes pointedly, "Riordan and his wife have contributed more than $1.5 million against Republican candidates, including $80,000 to Gray Davis in past races."

With its growing population of minorities, California looks even to business lobbyists more and more like a solidly Democratic state, where Republican victories will be the exception. GOP leaders in the legislature and the congressional delegation appeared last week to be ready to accept redistricting plans that would save their current seats but lock them into minority status for the next decade.

Bush, who was once seen by California GOP leaders as their salvation, now seems to some of them to have turned his back on the state. He has visited only once since taking office, and one GOP official told me, "The only Cabinet member we ever see out here is [former Californian] Ann Veneman," the secretary of agriculture.

It is a complete reversal of fortune for the home base of Earl Warren, Richard Nixon and Ronald Reagan, and Gray Davis is the lucky beneficiary of this historic shift.



? 2001 The Washington Post Company 
 -----Original Message-----
From: 	Gottfredson, Bryan  
Sent:	Tuesday, September 04, 2001 3:01 PM
To:	Alamo, Joseph; Bauer, Kate; Bradley, Rob; Briggs, Tom; Brown, Michael - COO London; Butler, Janet; Canovas, Guillermo; Comnes, Alan; Corman, Shelley; Dasovich, Jeff; Decker, Larry; Denne, Karen; Dotson, Marcus; Fiala, Markus; Frazier, Lamar; Gottfredson, Bryan; Guerrero, Janel; Hansen, Bob; Hartsoe, Joe; Holmes, Chris; Hudler, Shirley A.; Hughes, Evan; Ibrahim, Amr; Kean, Steven J.; Levy, Alberto; Linnell, Elizabeth; Long, Chris; Mahoney, Peggy; Mandelker, Jeannie; Mara, Susan; Maurer, Luiz; Moore, Karen; Morrison, Andrew; Nersesian, Carin; Neustaedter, Robert; O'Day, Nicholas; Palmer, Mark A. (PR); Parsons, Alex; Perrino, Dave; Petrochko, Mona L.; Pharms, Melinda; Roan, Michael; Robertson, Linda; Schmidt, Ann M.; Schoen, Mary; Seyfried, Bryan; Shapiro, Richard; Sharma, Ban; Shelk, John; Sherriff, John; Shortridge, Pat; Staehlin, Roberta; Steffes, James D.; Styles, Peter; Sullivan, Kathleen; Sullivan, Lora; Thome, Jennifer; Tracy, Lysa; Tribolet, Michael
Subject:	CA Issues

Energy conservation efforts leave California blackouts in the dark	The Milwaukee Journal Sentinel 	09/04/2001 
Sunny California never lost power So much for predicted blackouts	The Washington Times 			09/04/2001 
Public Power Utilities' Outlook Stable: 					Capital Markets Report 		09/04/2001 
Preview / WEEK OF SEPT. 3-SEPT. 9 Bill to Rescue Edison Is Set for Review
										Los Angeles Times 			09/03/2001 
Idea of Edison Bankruptcy Gains Currency Utilities			Los Angeles Times 			09/02/2001 
Williams files as creditor in PG&E case					Tulsa World 				09/01/2001 
USA: Williams files $591 mln claim in PG&E bankruptcy			Reuters English News Service 		08/31/2001 
Now Davis Doing Too Much, Energy Critics Say				Los Angeles Times			09/04/2001
Calif Consumer Group Has 30K Signatures Vs Edison Rescue 		Dow Jones				09/04/2001
Eleventh Hour Chimes For California's Edison Rescue Deal 		Dow Jones				09/04/2001
Fitch Rates California $5.7B RANs F1+ 					Fitch					09/04/2001
Dan Walters: State's infrastructure crisis grows, but no one seems to have a plan
										Sac. Bee				09/04/2001
State's long-term power contracts could be too high all way to 2010 	San Diego Tribune			09/03/2001

---------------------------------------------------------------------------------------------------------------------------------------------------------------------
Energy conservation efforts leave California blackouts in the dark
JOHN WOOLFOLK

09/04/2001 
The Milwaukee Journal Sentinel 
Final 
Page 03A 
Copyright 2001 Journal Sentinel Inc. (Note: This notice does not apply to those news items already copyrighted and received through wire services or other media) 
Energy conservation efforts leave California blackouts in the dark 
State has reported no shutdowns since May 
By JOHN WOOLFOLK 
Knight Ridder News Service 
Tuesday, September 4, 2001 
San Jose, Calif. -- This was supposed to be California 's summer of darkness, but as the summer draws to a close without any blackouts, the doomsayers are proving to be wrong. 
Just a few months ago, they talked about 20 hours of rolling blackouts. Or 250 hours. Even 1,000 hours. But the blackouts stopped in early May. 
Mild weather and surprisingly strong consumer conservation saved the day, with help from new power plants and market controls. Consider: 
-- State officials had hoped to lower peak power demand by 2,300 megawatts -- about equal to a nuclear power plant -- with a $600 million effort to promote conservation and efficiency. Consumers saved as much as 5,500 megawatts. 
-- Average temperatures were above normal in June, but not as high as last year, and cooler than normal in July and August. More important, there haven't been the severe regional heat waves that strain the power grid. 
-- Six new power plants have gone online so far this summer, totaling more than 1,600 megawatts. The three largest, accounting for 1,400 megawatts, had been in the works for years. The others were rushed into production under a state effort to boost peak supplies. 
-- Tougher federal regulations enacted in May and June prohibit California power plant owners from withholding power from the grid in emergencies and appear to be curtailing "megawatt laundering" schemes. 
Which played the greatest role may be debated for years. But even if it was mostly just good weather, Gov. Gray Davis is praising Californians. 
Davis had initially urged consumers to cut back 8%, then upped it to 10% and offered 20% rebates to those who conserved 20% over last year. 
State officials expected 10% to qualify for the rebates, but about a third of customers are getting them, and consumers have cut peak demand as much as 14%, according to the California Energy Commission. 
Conservation a surprise 
"We were lucky to have the combination of bringing more power plants online, extraordinary weather and the heroic efforts of Californians," said Davis spokesman Roger Salazar. "A tremendous amount of the credit for not having the blackouts is directly a result of the efforts of Californians to conserve energy." 
Energy-efficient products flew out of stores. The Home Depot reported that sales of portable generators doubled, low-watt fluorescent bulbs were up 150% and window films -- used to lower air conditioning demand -- were up 25%, said spokeswoman Kathryn Gallagher. 
Those who spent the summer working in dim, sweaty offices, air- drying their clothes and snapping up all things energy efficient say they didn't really buy the dire blackout forecasts. 
"I really do think they exaggerated," said Agnes Grossinger of San Jose. But she's not ashamed of her efforts to save power by not using anything electric until the evening. It's saved her $280 in electric bills, and she plans to keep doing it. 
Those who had predicted disaster say consumer conservation surprised them. 
"The big thing was that we didn't use the electricity ," said Lon House, an energy consultant for the state who had forecast 1,000 hours of blackouts, based on meager conservation in San Diego last summer. "The energy conservation surprised everybody. I didn't think we could do it." 
Some say weather a factor 
Conservation advocates agree, saying that lowered consumption played a big role in easing the state's power demand. 
"We didn't get lucky with the weather," said Ralph Cavanagh, energy specialist with the Natural Resources Defense Council. "There's no question in our opinion that the overwhelming factor in explaining the reduction in statewide energy use is energy efficiency." 
But energy market experts find that hard to believe. 
"The weather has obviously been the biggest contributor to avoiding blackouts," said Severin Borenstein, director of the University of California Energy Institute in Berkeley. 
For the governor's critics, the summer blackout no-show has been deflating. They snapped up 15,000 "Blackouts 2001, Gray Out 2002!" bumper stickers and launched a Web page screaming blackouts were "unavoidable." 
But the blackout counter remains frozen at 6, the last on May 8. Critics say the governor got lucky but concede he did well in motivating conservation.

Sunny California never lost power So much for predicted blackouts
Thomas D. Elias

09/04/2001 
The Washington Times 
2 
Page A3 
(Copyright 2001) 
LOS ANGELES - Remember all those doomsday forecasts of blackouts rolling across California day after day, hour after hour, all summer long? They turned out a lot like the warnings of the much-vaunted Y2K problem: a lot of hot air, a paper tiger, a complete no-show. 
With summer almost gone, no part of California has experienced so much as one second of power outage, as expected, from the supply shortages that have plagued the state since May 8. 
Wind damage to power lines, yes. Short circuits, occasionally. But systematic blackouts, none. 
That's in stark contrast to the forecasts of so-called experts. 
The California Independent System Operator, which runs the state's power grid, said in April that Californians could expect at least 34 days of rolling blackouts in the summer months if they used as much electricity as last year. 
The North American Electric Reliability Council predicted 260 hours of summer blackouts. 
The reasons for the debunking of those seemingly overblown predictions of disaster vary from conservation to mild weather and brand new power generating capacity. 
Several power plants also returned to service after being closed much of last winter and spring for repairs or "routine maintenance." 
Both state and consumer groups maintain that many of those closures were deliberate attempts to drive up the price of power. 
California Attorney General Bill Lockyer, a Democrat with gubernatorial aspirations, is currently investigating the possibility that a criminal conspiracy produced the shutdowns. 
Whether the massive winter and spring price boosts were criminal or merely driven by market forces, the Federal Energy Regulatory Commission has indicated it may approve as much as $4 billion in rebates to California for overcharges. 
Democratic California Gov. Gray Davis says he will sue unless the rebate amount is much, much higher. 
Meanwhile, wholesale power prices are down more than two-thirds from winter, averaging $67.42 per megawatt-hour over the last month, compared with a range of $200 to $400 per megawatt-hour in February and March. 
Most analysts, however, point to the weather and consumer conservation as key factors that helped avoid blackouts altogether. 
In June, Californians consumed 12.4 percent less electricity than one year earlier. 
The reduction in use was 5.2 percent for July, as the weather in some parts of the state heated up a bit and many air conditioners started to run. 
During peak hours, when shortages are most likely, usage was down 14.1 percent in June and 10.7 percent in July. 
Consumers trimmed between 1,000 and 3,000 megawatts of usage during the daily peak hours from 4 p.m. to 6 p.m. - enough to power between 1 million and 3 million homes. 
"Without the conservation, there would have been a major problem," said Greg Fishman, an official of the Independent System Operator. 
And no one here is saying the danger of blackouts is completely gone. 
"We're not out of the woods yet," said Mr. Davis as he cut a ribbon to open a "peaker" power plant near Palm Springs two weeks ago. 
"We face our toughest test in early September when temperatures should hit three digits on a regular basis in many places. But this much we do know: Californians everywhere - from the workers working day and night to build new plants to the families waiting to do laundry after 7 p.m. - all of them are exceeding expectations and meeting this energy challenge." 
Mother Nature has helped considerably, especially in June and July. 
Cooler-than-expected temperatures in Oregon and Washington state made more power than expected available from the dams of the federal Bonneville Power Administration along the Columbia River. 
"Overall, it seems like most of the summer has been a little on the low-temperature side," said Dan Atkin, a National Weather Service meteorologist stationed in San Diego. 
But no one in government or the power industry is ready to say the crisis is over. 
"We certainly aren't ready to stand down the bombers yet," said Stephanie Donovan, a spokeswoman for the San Diego Gas & Electric Co. 
But, as Mr. Atkin noted, "We didn't get $3-a-gallon gasoline, either. Now you see how difficult forecasting is." 

Public Power Utilities' Outlook Stable: Moody's

09/04/2001 
Capital Markets Report 
(Copyright (c) 2001, Dow Jones & Company, Inc.) 
New York, September 04, 2001 -- The credit outlook for public power electric utilities remains, and will likely continue to be, stable even as the electric industry restructuring evolves into greater market competition and despite deregulation's failure in California , Moody's says in a soon-to-be released report. 
"Moody's believes most public power utilities have used the past several years well to cut costs and to better position themselves to ensure that customers are satisfied and that the utility's financial condition remains sound," says analyst Dan Aschenbach, author of the Special Comment, which contains ratings and outlooks for 72 utilities whose debt totals more than $73 billion. 
Armed with the advantage of local regulation and governance, public power utilities--even those in California --have derived operational strength from retaining ownership of electricity generation and maintaining long-term fixed contracts and strong rate flexibility. 
Challenges the utilities face include continued market volatility, new and more competitive technology, increasing industry consolidation, environmental compliance costs (re: nitrogen oxide regulations), and risks of major plant outages or major resource loss related to wholesale energy market volatility. 
The most important challenge involves implementing "a resource strategy that is diverse and flexible enough to meet a more competitive and volatile energy market," says Aschenbach. 
He adds that Moody's analysis of this challenge and of utility credit stability during industry restructuring depends, as always, on strong management, competitive cost structure, and financial flexibility. 
Overall, evaluation of public power utility credit risks and challenges, says Aschenbach, should be viewed with the context of continued implementation of the National Energy Act of 1992 by the Federal Energy Regulatory Commission (FERC), which aims for more open and easier transmission access and more vibrant regional energy markets. 
Despite deregulation's problems in California and increased state intervention in that market, the nation's wholesale market is already deregulated, the analyst says, and the federal focus is on improving transmission grid efficiency. 
Meanwhile, states have varying timetables for implementing deregulation, from which most public power utilities are exempt (to the ire of investor-owned utilities). Moody's predicts that, as a result of deregulation's failure in California , conflicts will increase between federal deregulation policies and states taking a cautious position of protecting local customers from disruptive and costly power outages. 
Moody's believes deregulation's negative financial effects, as exemplified by municipal utilities in Columbus, Ohio, and Springfield, Illinois, in 1998, and more recently in Seattle and Tacoma, Washington, "will be repeated elsewhere as the more competitive market evolves and some public power utilities are caught in unpredictable marketplace conditions," says Aschenbach. 
In addition, utilities may face significant competitive pressures--even without federal legislation--from increased levels of investor-owned utility consolidation and market power in both electricity generation and transmission. 
And then there's the uncertainty regarding the competitiveness-affecting issue of private-use restrictions on tax-exempt bonds municipal utilities use to raise funds. These federal restrictions, whose relaxation investor-owned utilities strongly oppose, limit the amount of bond proceeds that can benefit private-end power users. 
Finally, public power electric utilities face proposals in Congress seeking their regulation by FERC. Says Aschenbach: "The loss of the flexibility in remaining exempt from any restrictive regulatory order would be disruptive to public power utilities." 

Preview / WEEK OF SEPT. 3-SEPT. 9 Bill to Rescue Edison Is Set for Review

09/03/2001 
Los Angeles Times 
Home Edition 
Page C-2 
Copyright 2001 / The Times Mirror Company 
A bill to rescue Edison International's utility from bankruptcy is set to be considered Tuesday by a California Assembly fiscal committee, which postponed its review of the plan late last week. 
The Assembly Appropriations Committee adjourned for the three-day weekend without voting on the bill because of confusion over 11 amendments being considered. The committee members didn't receive analysis of some amendments before the start of the hearing. 
Southern California Edison, the state's second-largest electric utility, needs the measure to help pay off $3.5 billion in debt accumulated under the state deregulation law, which froze consumer power rates while allowing wholesale costs to rise. 
Under the bill, the utility would be allowed to sell as much as $2.9 billion in bonds backed by utility fees paid by an estimated 180,000 business customers. 
The state would have a five-year option to buy the utility's transmission lines at twice book value, or about $2.4 billion. 
The appropriations committee has to vote before the full Assembly can consider the plan. If approved by the Assembly, the plan must be merged with a separate bill passed by the state Senate last month. 


Idea of Edison Bankruptcy Gains Currency Utilities: With PG&E as an example, consumer and business groups are beginning to view reorganization as a palatable option to a state rescue plan.
JERRY HIRSCH

09/02/2001 
Los Angeles Times 
Home Edition 
Page C-1 
Copyright 2001 / The Times Mirror Company 
As state lawmakers enter what looks to be the final round of debate on a rescue plan for insolvent Southern California Edison Co., consumer advocates and even some business groups are asking whether the utility's 4.3 million customers might be better off if SCE filed for bankruptcy. 
Support for a legislative deal for SCE, which is backed by Gov. Gray Davis and the utility, is difficult to gauge, in part because the April bankruptcy filing of California's largest utility--Pacific Gas & Electric Co.--has proved less disruptive to customers than first thought. 
Many lawmakers, analysts and others believe Bankruptcy Court might be a better forum for SCE to settle its financial problems than the political arena. 
If SCE and its nearly $4 billion in power debt land in Bankruptcy Court, the logic goes, the company, its creditors and its lenders probably would have to make more concessions than would ratepayers to return the company to fiscal health. 
That would be a far different formula than the rescue plan passed by a key Assembly committee last week. That plan would require the utility's largest 180,000 customers--primarily businesses--to pay for as much as $2.9 billion in bonds to cover much of SCE's debt through higher rates. SCE would finance or negotiate away the remainder of its debt. 
Edison International, the utility's Rosemead-based parent company, has spent virtually the entire year fighting off bankruptcy, arguing that it could cost as much as $1 billion in legal and administrative fees and could lead to employee layoffs and higher rates for customers. 
To emerge from bankruptcy, the company maintains, it might have to sell some of its assets or curtail investment in its electrical grid. 
The utility sank into insolvency after piling up billions of dollars in energy-related debt under California's deregulation laws. It was forced to buy power for more than what it could charge customers when prices spiked over the last year. 
The accumulation of similar debt pushed San Francisco-based PG&E to file for protection from creditors in U.S. Bankruptcy Court in April. 
Southern California Edison has been following a different path, agreeing to a rescue deal negotiated with Davis. The final version of that plan continues to be debated in the Assembly this week. 
One reason for the tenuous nature of the deal's support is that PG&E's bankruptcy thus far has had no disastrous effects. Another reason is that bankruptcy experts say the tab will run into the hundreds of millions of dollars, not the $1 billion Edison projects for a major utility bankruptcy. And by not approving an SCE rescue bill, politicians would be able to say that they did not vote in favor of raising electricity rates. 
"Clearly it is in [ratepayers'] best interests for there to be a Southern California Edison bankruptcy," said Kenneth Klee, a bankruptcy expert at UCLA law school. "The advantage of bankruptcy is that creditors and Edison would share in the pain too. That would give ratepayers some cushioning." 
Even with bankruptcy, Klee said, ratepayers probably would have some exposure. "There is no free lunch," he said. 
Klee's views are shared by consumer advocates, who have mounted a spirited but so far unsuccessful lobbying campaign against a legislative rescue of Edison. They argue that a variety of Edison missteps and its acquiescence to deregulation make it, rather than rate payers, responsible for huge debts. 
"Ratepayers are unlikely to be any worse off in a bankruptcy than in an absolute bailout of the utility," said Bob Finkelstein, an attorney with the Utility Reform Network, a consumer advocacy group. 
"But from what we have seen in the PG&E case, a bankruptcy would probably be more fair for ratepayers," Finkelstein said. "So far, the judge has left rate matters with the Public Utilities Commission." 
In June, U.S. Bankruptcy Court Judge Dennis Montali denied a Pacific Gas & Electric challenge of state regulators' authority to set its electricity rates. He said he wanted to avoid "jurisdictional chaos" and added that "the public interest is better served by deference to the regulatory scheme and leaving the entire regulatory function to the regulator." 
But Finkelstein acknowledged that there isn't enough of a track record with utility bankruptcies to know for sure. 
"This is all uncharted territory," he said. 
Indeed, one factor that could make a bankruptcy filing the least attractive option is an Edison lawsuit against the state that argues that regulatory law gives it the right to recover from customers what it paid for power under federally approved rates. Edison has said it would drop the lawsuit if it can work out a legislative settlement. 
Barring that, the lawsuit could end up costing ratepayers more than they would pay under a state rescue plan, said Allan Zaramberg, president of the California Chamber of Commerce, who supports the Assembly bill. 
Legal experts are divided over whether Edison would win its case. 
The version of the rescue bill that the Assembly Committee on Energy Costs and Availability approved Wednesday night would allow the utility to issue ratepayer-supported bonds to pay most of its debt, but says it must find other ways to deal with the nearly $1 billion it owes independent power producers. 
"Bankruptcy is better than the political football game that is being played now," said Gary Ackerman, executive director of the Western Power Assn., a Menlo Park, Calif., trade group that represents many of the large power producers and traders to which SCE is in debt and which would be barred from a share of the bond money under the current plan. "It brings order to an otherwise chaotic process." 
Bankruptcy also is where the utility is likely to wind up regardless of whether the Legislature passes the rescue plan, said Benjamin Zycher, of the San Francisco-based Pacific Research Institute. 
Lawmakers have left the big power producers out of the rescue bill because the state has accused the independent generators of price gouging. The problem, Zycher said, is that those companies still have claims. If they don't get their money, they could push SCE into involuntary bankruptcy by pressing their claims in federal court. 
The downside to such a tactic, Ackerman said, is that bankruptcy proceedings take time and cost money. Moreover, he said, he understands that members of his trade group could end up collecting less than 100% of what they are owed by Edison. 
Others say any advantages of a bankruptcy are outweighed by unique problems that would arise from putting the state's second-largest electric utility through the process. 
"I don't think it is clear-cut," said state Sen. Debra Bowen (D-Marina del Rey), who chairs the Senate Energy, Utilities and Communications Committee. "I think it is better to avoid a bankruptcy, but it also wouldn't be the end of the world either." 
Bowen sees a multitude of unknown outcomes as the biggest risks in a bankruptcy. A judge who tries aggressively to protect creditors might attempt to impose rate increases. Such a move could be supported by the utility, which would see its debt reduced through the rates customers pay, Bowen said. 
A bankruptcy also could sever the interests of the utility from the state's policy agenda, she said. 
PG&E has become a wild card in the state's policymaking on energy, and many lawmakers are fearful that Edison would be too if it took the bankruptcy route. Since filing for bankruptcy, PG&E has raised objections to rate making and revenue projections by state agencies, which could delay a $12.5-billion bond offering to cover the state government's power purchases on behalf of the insolvent utilities. 
Some lawmakers believe that, as the beneficiary of a state rescue, Edison would be more cooperative than the Northern California utility. 
Though ratepayers might fare better in a bankruptcy in a narrow financial sense, Zycher said, damage to the state's image would undermine any financial gain. 
"A world in which government can pass a misguided policy that imposes such costs on private companies and then leaves it all to Bankruptcy Court to settle out is dangerous to the investment environment in California," he said. 
Thomas Walper, an attorney advising Southern California Edison on bankruptcy issues, said the utility wants to reach an "acceptable legislative solution" that allows it to become solvent so the company has more control over its future and so the state can exit the power business sooner. 
Though a bankruptcy certainly raises all of these issues, many analysts outside SCE point to the case of PG&E. To date, they say, the actions of Bankruptcy Judge Montali have not disrupted service or been pro-creditor at the expense of ratepayers. 
"We have seen it work orderly in the PG&E case," Ackerman said. 
But the state still is in the early stages of the process, Bowen said. The real test will come when a judge approves PG&E's still-undetermined plan for reorganization. Then questions about who is responsible for the huge energy debts run up by the utilities will be answered. 
* 
Times staff writer Miguel Bustillo in Sacramento contributed to this report


Williams files as creditor in PG&E case

09/01/2001 
Tulsa World 
FINAL HOME EDITION 
Page 1 
(Copyright 2001) 
Tulsa-based Williams Cos. Inc. filed a claim Friday in U.S. Bankruptcy Court for $591 million in account receivables it says may be due from Pacific Gas & Electric, California's largest electric utility. 
The reimbursement would be for natural gas sold to Pacific Gas & Electric in California through the California Independent System Operator and the California Power Exchange Corp. 
Pacific Gas & Electric, a unit of PG&E Corp., filed for Chapter 11 bankruptcy protection April 6. 
Williams officials said the claim -- filed in San Francisco -- reflects the maximum amount PG&E could owe Williams for the period through April 6. Williams also acknowledged that some material portion of the $591 million claim may be found to be the responsibility of Southern California Edison. 
"The $591 million claim represents our gross receivables through April 6 and the amount we are required to file to ensure that the courts have a full picture of the monies owed to Williams as bankruptcy proceedings filed by PG&E last April progress," said Steve Malcolm, president of Williams' energy services unit. 
"Williams' reported revenues have previously included the estimated effect of these bankruptcy proceedings and other ongoing credit issues." 
Williams sold power through the CA ISO and Cal PX; those entities hold the sales figures that can be attributed to PG&E and SoCal Edison. Consequently, Williams said it does not know the exact sales amounts made to PG&E. 
In the claim filed Friday, Williams itemizes power sales to the CA ISO for $557.65 million and $32.71 million to the Cal PX. One invoice of power sold directly to PG&E for $747,900 also is included in the claim. 
"Williams is committed to serving the California power market and continues to work toward finding equitable solutions to the energy problems facing this state," Malcolm said. 
"Our claim filed today is in accordance with the legal measures Williams must take to ensure our interests are protected." 
Williams does not believe its credit exposure to the bankruptcy will result in a material adverse impact on its results of operations or financial condition, Malcolm said. 

USA: Williams files $591 mln claim in PG&E bankruptcy.

08/31/2001 
Reuters English News Service 
(C) Reuters Limited 2001. 
TULSA, Okla., Aug 31 (Reuters) - Diversfied energy company Williams Cos. Inc. said Friday it has filed a proof of claim for $591 million in unpaid account receivables in the Pacific Gas & Electric bankruptcy case. 
The company said, however, it does not believe its credit exposure would have a material adverse impact on its operating results or its financial condition. 
Williams said the $591 million represented the maximum amount the utility, a unit of PG&E Corp. , might owe for power sold via the California Independent System Operator and California Power Exchange. 
It noted some material portion of the total might be owned by another utility Edison International unit Southern California Edison. 
San Francisco-based Pacific Gas & Electric, California's largest utility with around 13 million customers, filed for Chapter 11 bankruptcy protection in April.

Now Davis Doing Too Much, Energy Critics Say

 	By ERIC BAILEY, Times Staff Writer


SACRAMENTO -- Faulted early on for responding sluggishly to the energy crisis, Gov. Gray Davis has reversed course in dramatic fashion, wielding his executive powers in a way critics now say edges toward imperiousness.

In recent months, Davis has used his constitutional authority to issue a sweeping series of executive orders: He authorized the state to borrow $5 billion for energy purchases, weakened air pollution standards for power plants and bypassed some of government's normal checks and balances.

Most recently, he signed an order allowing Pacific Gas & Electric to transfer a Kern County power plant to another company. The move, Davis said, would let the new owner retool and begin producing power by next summer. But it also allowed the company to skip review by the Public Utilities Commission, and suspended a provision of state law.

"It's the imperial governor," said Barbara O'Connor, director of Cal State Sacramento's Institute for the Study of Politics and Media.

The Democratic governor has argued that initially he needed to step back and study the evolving crisis. Then, once schooled in his options, he was able to take decisive action to keep the lights on.

"Extraordinary times demand extraordinary action," said Davis' press secretary, Steve Maviglio.

The governor's aides point to polls showing that the public believes Davis is doing a better job than the Legislature of managing the crisis. Surveys also show him running ahead of the three potential Republican candidates for governor--Secretary of State Bill Jones, former Los Angeles Mayor Richard Riordan and businessman William Simon.

"My guess is most of the voters would rather have him act decisively and not get caught up in the stalemate of Sacramento politics," said Bruce Cain, director of UC Berkeley's Institute of Governmental Studies. "They probably figure we can all worry about the niceties of representative democracy later on."

The energy crisis certainly has presented Davis with his stiffest challenge. Unlike the earthquakes, insect infestations, fires, droughts and floods that have tested past governors, the power emergency has unfolded like no other.

Complex and persistent, it has defied simple solutions because of the innumerable players scattered across the worlds of government, business and finance, and its multiple layers of interconnected problems.

Some Say Davis Doing Too Much

Despite a January State of the State speech by Davis that highlighted the crisis and pledged more than $1 billion to attack it, legislators complained into the spring that he wasn't doing enough. But now the governor is being criticized for doing too much, in particular for his moves to slam through executive orders of extraordinary scope and volume.

Since declaring a state of emergency in mid-January, Davis has issued more than two dozen such orders, terse decrees that allow a governor to bypass the more time-consuming legislative process--and to avoid jousting with state lawmakers who may not be of a like mind.

This has only happened before in times of life-or-death crisis.

The peak for former Gov. Pete Wilson, himself no stranger to using gubernatorial fiat in a pinch, came when he issued 36 executive orders during 1994, the year of the catastrophic Northridge earthquake, when the normal rules were suspended to get Southern California up and running. After the Loma Prieta earthquake in 1989, Gov. George Deukmejian also used his executive powers--albeit to a lesser extent--in bailing out the Bay Area.

During his first year in office, Davis signed about a dozen executive orders, mostly for narrowly focused issues, a world apart from the latest batch, which have fashioned huge changes in the way California does its power business.

"Executive orders have a role, but not as the policymaking process for our state," said Sal Russo, a Republican political consultant running Simon's campaign.

"It's godlike power," said Tom Hiltachk, a Republican attorney who acknowledged that Davis is within his constitutional rights. "But it's supposed to be exercised only in extreme conditions. And extreme conditions don't last for six or seven months."

Davis' moves have hardly gone unnoticed.

Consumer advocates are howling over a Davis plan they say would essentially hand control of electricity rates to the governor. Anti-tax crusaders say he has too eagerly embraced the notion that big government--in particular the takeover of power-buying for California's beleaguered utilities--is the solution.

Orders' Repercussions Will Last Long Past Crisis

Federal energy regulators in Washington are scrutinizing the governor's hold over the Independent System Operator, which shepherds the state's power grid. The key issue: a move by Davis since late last year to load up the ISO board with his own appointees.

More provocative than the volume of executive orders, however, have been the consequences--which will last far beyond the current crisis.

As well as authorizing billions for power purchases, the governor greased the skids for quicker construction of gas-fired power plants, an action that frustrated backers of alternative sources such as wind and solar. He relaxed state environmental reviews and rushed certification for smaller "peaker" plants designed to meet the surge of demand on hot summer days.

Davis cleared existing plants to boost output by up to 50 megawatts without the usual bureaucratic procedures. Open-meeting rules, traditional review periods and other statutory checks and balances were suspended in some instances to speed the push to get more megawatts on line.

Such actions allowed Davis to jump-start an otherwise tedious process, crunching regulatory time down from years to, in some cases, weeks.

"Waiting periods, regulatory delays--all those things stood in the way of keeping the lights on," said Maviglio, the governor's spokesman.

The biggest shift came at the state Department of Water Resources, a previously low-profile agency run by a Davis appointee. The department made its first power purchase in December--unbeknownst to lawmakers at the time--and in January began buying power for the state's financially hobbled private utilities, too broke to do so on their own.

Now the Davis administration supports a proposal by the Department of Water Resources to have the state PUC essentially rubber-stamp any rate increases the department deems necessary, excluding consumers from the process. Several of his other actions have also weakened PUC oversight.

Though the administration argues that it makes no sense to have one state agency regulate another, consumer advocates fear the arrangement would allow Water Resources to raise rates whenever needed without adequate public oversight.

"It seems the way he prefers to operate, free of public scrutiny," said Doug Heller of the Foundation for Taxpayer and Consumer Rights. "It's something you'd expect only in some tin-pot dictatorship. It's monarchical, not democratic."

Some at the state Energy Commission likewise feel they have seen their power undermined by the executive branch. Robert A. Laurie, appointed to the commission by Wilson, said the independence of his agency has eroded under Davis.

"The reason we were made a commission in the first place, in 1975, was that the Legislature wanted independent advice," Laurie said. "In my opinion, our advice is no longer independent but is thoroughly controlled by the executive branch."

Legislators Not Rushing to Help Share the Blame

Legislative leaders have not exactly rushed to the defense of Davis, who even on the best of occasions has an arm's-length attitude toward state lawmakers. The damned-if-he-does, damned-if-he-doesn't response Davis is receiving contrasts sharply with the treatment accorded previous governors during a crisis. Wilson, for instance, was lionized for his rapid executive moves after the Northridge quake, a groundswell of support that helped the Republican capture a second term in 1994.

Democrats, at least, say they understand that Davis is in a fix, and most are at least tacitly standing behind his efforts.

"Obviously we would have been happy if more of these actions had been done jointly with the Legislature," said Sen. Byron Sher (D-Stanford), Environmental Quality Committee chairman. "But hindsight is easy and I wouldn't criticize him for what he did."

State Senate President Pro Tem John Burton, a San Francisco Democrat and longtime Davis foil, believes the governor is "doing the best he can in a difficult situation. I would not have wanted the buck stopping at my desk."

That does not mean, however, that Democratic leaders are enthusiastically supporting Davis.

Several were irked that the governor refused to share details of key energy negotiations with top legislative brass, even in private.

His secrecy has extended beyond energy matters. Davis seemed to some around the Capitol to be oddly distant during July's drawn-out budget negotiations, breaking from tradition by convening only a single session of the so-called Big Five legislative leaders. Administration officials counter that the governor was on the phone repeatedly with lawmakers to round up the needed votes.

When the governor talked of ordering the Legislature to stay in Sacramento through its summer recess to address a bail-out plan for troubled Southern California Edison, irritated lawmakers ignored the threat and went home.

"People skills are not Gray's strong suit," said Cal State Sacramento's O'Connor. "It's an omnipotent, 'I'm smarter than you' style."

If Davis' use of executive orders has riled some, concern remains in some quarters about what he might yet do.

Lew Uhler, president of the Sacramento-based National Tax Limitation Committee, suggested that Davis needs to back away from wielding his executive powers, particularly now that the state seems to be skirting a power meltdown.

"It's all part of his worldview: that we're all vassals of the state," Uhler said.

Oddly enough, Davis also comes under criticism from those who believe he failed to wield his executive powers forcefully enough.

Peter Navarro, a UC Irvine economist, argued that the governor should have used eminent domain to seize power plants in an effort to bring prices into line. Instead, Davis has deployed mostly verbal weaponry against power generators. Despite his rhetoric, generators negotiated what critics contend are pricey long-term power deals from the administration.

Davis is trying to renegotiate the contracts. He has also asked federal energy regulators to force generators to refund $8.9 billion for what he contends was gouging during the past year. But the prospects on those fronts are mixed.

"Gray Davis used the considerable powers of the executive branch to make all the wrong moves," Navarro said.

Lights Still On, but Glow Could Dim Later

Davis defenders believe the governor has turned the corner on the energy crisis, at least in part because he took advantage of his emergency powers. He has also been lucky: Mild weather has helped the state avoid summertime blackouts. Media attention has begun drifting to other events.

"Believe me, we didn't want to be in this business of purchasing energy," said Maviglio, Davis' spokesman. "We only did it on an emergency basis to keep the lights on."

Yet Davis' use of executive powers to help defuse the energy crisis could have negative political repercussions if the circumstances escalate again, according to UC Berkeley's Cain.

"Some of the things that do go sour," he said, "will be more easily pinned on him." 
--- 
Times staff writers Dan Morain and Nancy Vogel contributed to this story. 


Calif Consumer Group Has 30K Signatures Vs Edison Rescue 
LOS ANGELES (Dow Jones)--A California consumer group will present Gov. Gray Davis Tuesday with more than 30,000 signatures on a petition protesting a rescue deal for insolvent utility Southern California Edison, according to a news release. 
In recent weeks the Foundation for Taxpayer and Consumer Rights has stepped up efforts to protest legislation that would allow the Edison International  unit to issue $2.9 billion in bonds backed by business customers to pay part of its $3.9 billion in debt. The bill will be heard by the Assembly Appropriations Committee Tuesday. The Legislature adjourns Sept. 14. 
The foundation has said the bill will result in rate increases beyond two that were already instituted this year, and has vowed to sponsor a 2002 ballot measure to overturn an Edison bill if it passes. 
"Governor Davis and Legislators can protect ratepayers over the next two weeks or face a ratepayer revolt for the next 15 months," FTCR Organizing Director Carmen Balber said. "The message of this petition is clear: we won't pay for the failure of the utilities' deregulation scheme." 
-By Jessica Berthold; Dow Jones Newswires; 323-658-3872; jessica.berthold@dowjones.com <mailto:jessica.berthold@dowjones.com> 


Eleventh Hour Chimes For California's Edison Rescue Deal 
By Jason Leopold and Andrew Dowell 
Of DOW JONES NEWSWIRES 
(This article was originally published Friday.) 
SACRAMENTO (Dow Jones)--Even a soap opera has to end sometime. 
For Edison International  utility Southern California Edison, that time could be Sept. 14, when the state Legislature adjourns for the year. 
After more than seven months of haggling and missed deadlines, there is widespread agreement that lawmakers have just two more weeks to craft a state-sponsored rescue for the utility. If legislation isn't enacted by that date, it never will be, key lawmakers and Gov. Gray Davis said. And if that happens, Southern California Edison will likely join PG&E Corp utility Pacific Gas & Electric in bankruptcy court. 
"This deadline is real," Davis spokesman Steve Maviglio said. "Every day we wait is one step closer to bankruptcy." 
At issue is a rescue plan that could come up for a vote on the Assembly floor as early as Tuesday. The plan has already been approved by the Assembly Committee on Energy Costs and Availability, and an earlier version was approved by the Senate. 
The key details of the plan were first agreed to in principle in February and then formalized in a memorandum of understanding between Southern California Edison and the state on April 9. 
In essence, the state would help the utility raise funds to recover some of the losses it sustained buying wholesale power at prices far higher than it could collect from customers, taking in exchange a claim on the utility's transmission assets. 
As currently conceived, the plan would allow the utility to sell $2.9 billion in bonds that would be repaid by medium and large businesses. In exchange, the state would hold a five-year option to purchase the company's power lines for $2.4 billion, or twice their book value. 
Rescue Plan Uncertain 
Lawmakers and the utility say the bill still has a long way to go. Senate Energy Committee Chairwoman Debra Bowen, D-Redondo Beach, when asked if the Senate would support the bill as amended by the Assembly, had this to say: 
"At this point, I think people may be better off buying a Power Ball ticket," she said. "There's still a long way to go before it gets to the Senate." 
Even if the plan clears the Legislature, it will likely have to get by the voters as well. Consumer groups, which want utility shareholders to foot the bill, are preparing a ballot initiative to overturn whatever lawmakers approve. 
If lawmakers don't come to an agreement, the governor could extend the special session, but Maviglio said Davis won't take that step. 
Southern California Edison needs the package so it can deal with its creditors, who have been waiting since the utility first defaulted on power bills and debt-service obligations in January in an effort to conserve cash. 
As of July 31, the utility had $3.3 billion in unpaid and overdue obligations, including $878 million owed to power suppliers and $931 million in debt payments. 
Southern California Edison also owes $1.2 billion to small power generators known as qualifying facilities. Some of those generators had threatened earlier this summer to pull the utility into bankruptcy. 
The utility has worked out a schedule to repay $900 million in past-due QF bills. The QFs were paid 10% of what they're owed in June, but the remaining payments hinge on the rescue package. 
Creditors will likely lose faith in a negotiated solution if lawmakers don't act by Sept. 14, said Richard Cortright, a director at Standard & Poor's. 
"We could see another bankruptcy here," Cortright said. "We really are at the precipice." 
An Opening On Bankruptcy 
The plan isn't necessarily a cure-all. As reported, ratings agencies have said excluding large power suppliers from being compensated under the legislation, which now appears to be the price of passage, could delay the recovery of Southern California Edison's credit ratings or even provoke creditors to push the utility into bankruptcy. 
Pacific Gas & Electric, frustrated by the political and regulatory process, scrapped talks on its own rescue package in April and put itself in the hands of the U.S. Bankruptcy Court. 
Southern California Edison, on the other hand, has long maintained it won't file for bankruptcy - at least until recently. Last week, Edison said for the first time that the company may voluntarily seek bankruptcy protection if a deal isn't reached. 
"We would not foreclose on all of our options," Brian Bennett, Edison International vice president of external affairs, said last week. 
If Southern California Edison followed Pacific Gas & Electric, three-quarters of the state's electricity consumers would be served by bankrupt utilities. Small power suppliers could also be pulled down, threatening the state's power supply. 
To be sure, this isn't the first time Edison and others have said deadlines were serious. The most recent to elapse was Aug. 15. According to the April MOU, failure by the Legislature to act by that date would give Edison or the state the right to pull out of the agreement. Neither did. 
If lawmakers again fail to act, Southern California Edison could return to the federal courts, where it had pursued a case based on the so-called filed rate doctrine, a set of precedents holding that utilities are entitled to recover costs incurred serving their customers. 
If Edison were to win the case - and legal experts consider the principle solid - it could recover its losses without going through Bankruptcy Court. 
Some say having a real deadline could stiffen resolve to get a deal done. 
"Some people say negotiations don't come together until there's a deadline," said Steve Fetter, managing director of the global power group at Fitch. "We're at that point." 
-By Jason Leopold, Dow Jones Newswires; 323-658-3874; 

Fitch Rates California $5.7B RANs F1+ 
				
Fitch-NY-September 4, 2001: Fitch rates the State of California's $5.7 billion 2001-02 revenue anticipation notes (RANs)`F1+'. The notes, expected Sept. 13 through negotiation with a syndicate led by Lehman Brothers, will be dated the date of delivery and will be due on June 28, 2002. The issue will include fixed-rate notes and index notes; the fixed-rate notes will not be callable and the index notes will be callable to the extent specified by the state treasurer at the time of sale. 
The notes are not general obligations of California. 
They are secured by unapplied moneys in the general fund, including transfers and internal borrowings as permitted by law, subject to prior use for schools and higher education, debt service on general obligations and commercial paper and reimbursement of advances to the general fund from special funds as required by law. 
The notes are being issued to provide liquidity for the general fund. While California's financial operations have been very successful in the past few years, with revenues far in excess of estimates, the general fund has this year advanced $6.1 billion for the purchase of electric power pursuant to the state program administered by the Department of Water Resources  Reimbursement is anticipated from the proceeds of power revenue bonds to be issued by DWR, but is not now expected until November. In addition to this drain, revenues for 2001-02 were revised downward in May by some $4.7 billion and expenditures for the year will be in excess of revenues. 
The notes are well secured. With the power purchase reimbursement received (expected in November), the notes will be covered 2.6 times (x) by ending balance and borrowable resources. Should the reimbursement be delayed beyond June 30, 2002, borrowable resources would cover note principal 1.5x. With reimbursement, ending balance and borrowable funds would be a generous 11% of estimated receipts and, without, a much narrower 3.7%. The notes are a moderate 7% of cash flow, or 8% without the power purchase reimbursement. At June 30, 2002, with reimbursement, the general fund cash balance would be $1.1 billion, held in the special fund for economic uncertainties and borrowable funds would hold $8 billion; without, the borrowable funds would amount to $2.8 billion. 
This indicates that note repayment could be met if reimbursement is not received but it would leave the state with a general fund deficit and a steep reduction in the balances of other funds. 
Economic assumptions appear reasonable, with employment dropping from more than 3% growth to 2.3% in 2001 and 1.7% in 2002 and personal income at 2% and 5.6%, respectively. Revenues for this year were lowered in May and personal income taxes are expected to yield 6% less than last year and sales taxes to increase only 2.3% although the rate will automatically rise by $0.0025 in January. Risks to the forecast include the difficulty in predicting the volatile capital gains, bonus and options portion of the income tax and uncertainty over the trend of the economy. California has been outperforming the nation but in July, employment rose only 1.6%, the lowest rate since October 1994. Yet the first month's revenues, in July, were 4.7% over the estimates, with the income tax ahead by 5.5% and the sales tax, 5.2%. Bank and corporation taxes remain weak. 

Dan Walters: State's infrastructure crisis grows, but no one seems to have a plan


(Published Sept. 4, 2001) 
If the true out-of-pocket costs of California's energy fiasco borne by ratepayers, taxpayers, creditors and utility stockholders were to be totaled, the number could easily surpass $100 billion. And by happenstance, that's about what experts say California needs to spend on critical infrastructure improvements, such as new and remodeled schools, waterworks and transportation systems, over the next decade. 
The money wasted on the energy crisis is gone; it remains only for politicians, including those who created or exacerbated the debacle, to decide who gets stuck with the bill. But as they pick at the carcass of the energy crisis, politicians also confront the harsh reality that the state's ever-growing population and rapidly changing economy are continuing to create pressures for infrastructure investment. And it's clear that Gov. Gray Davis, legislators and others charged with resolving California's infrastructure crisis don't have a plan to do it. 
With just two weeks remaining in the 2001 legislative session, lawmakers have barely started on fashioning bond issues to be placed before voters next year. The Legislature's own budget office is renewing its perennial suggestion that the governor and lawmakers devise a comprehensive, multiyear capital improvement program rather than do what they usually do: slap together a package of bond issues at the last moment with numbers plucked from thin air. But while politicians pay lip service to such a rational and businesslike approach, they're not likely to do it. 
A two-house conference committee was convened the other day to begin working on the single biggest piece of the bond package, one that would finance sorely needed elementary and high schools and colleges, not only new buildings but repairs and upgrades to old ones. 
Funds from a $9.2 billion school bond approved by voters in 1998 have been spent, and a coalition of educators says $27 billion more is needed. The Legislature's budget office says the state could issue up to $30 billion in additional general obligation bonds for all purposes, including schools, if the borrowings were spaced out to avoid overloading the bond market. 
But how big a bond package should be placed before voters is just one question to be answered in the next couple of weeks. Legislators must also decide how the proceeds are to be divided among various educational levels, and they must resolve a very nasty squabble over allocation of K-12 money. 
For years, California parceled out school bond money on a more-or-less first-come, first-served basis. Districts that put together local financing and specific construction plans were given priority. But those first in line tended to be affluent suburban districts, while big urban districts such as Los Angeles Unified dawdled. A lawsuit was filed last year to overturn the state allocation process, and the state agreed to change its method to one funneling more money to the urban schools. That, in turn, has created a political backlash among legislators from rural and suburban districts whose projects have suddenly been pushed back. 
Publicly, legislators on the conference committee say they're committed to helping every district build and maintain safe, uncrowded and attractive schools for every one of California's nearly 6 million K-12 students. But they know that not every need can be satisfied, and by deciding how big a bond issue is to be offered and settling on how the money is to be divvied, they'll be engaging in a form of rationing. 
In that sense, the school bond wrangle is a metaphor for California's larger infrastructure crisis. There won't be enough to meet every demand. Not every car can be driven on the roadways simultaneously, not every student can have a seat in a good classroom, and not everyone's thirst for water can be satisfied. 
The politics of rationing -- who gets what and at what cost -- will dominate the Capitol for years to come, even if the r-word is never uttered publicly. And that $100 billion blown on the energy crisis would have come in very handy right about now.

State's Long term Power Contracts Could be too High all the way to 2010
By Ed Mendel  September 3, 2001  SACRAMENTO -- One of the unintended legacies of the failed electricity deregulation plan, and the crisis it spawned, may force the state to pay above-market prices for power for the rest of the decade.  The dozens of long-term power contracts signed by the state earlier this year, as it desperately sought to reduce soaring prices, will be probed by a committee after the Legislature adjourns later this month.  "I think it is important we discern whether there are opportunities for reshaping some of those contracts in the future," said Assemblyman Fred Keeley, D-Boulder Creek, chairman of the Joint Legislative Audit Committee.  The plan pursued by the administration of Gov. Gray Davis to tame soaring power prices on the spot market offered generators a deal: Lower prices now in exchange for prices likely to be a little above market in the future.  When power prices fell in June, the administration declared that the plan had worked. The spot market, shrunk by the increasing amount of power obtained through contracts, is now said to tilt toward buyers rather than sellers.  But ironically, as prices on the spot market fell, they also raised questions about whether the contracts are too much of a good thing, both in price and quantity.  The spot market has already fallen below contract prices at times this year.  In the initial administration forecast in April, the long-term contracts were expected to be below average non-contracted prices through 2010. Now lower spot-market prices have reversed the forecast.  An update in July by the same administration consultants, Navigant Consulting/Montague DeRose, expects the average price of power on the spot market to be well below the average contracted price from 2003 through 2010.  As for the volume under contract, the forecast is that the amount of power that the state must buy on the spot market will shrink and nearly disappear in 2004, before beginning to grow again.  The state, with 55 contracts worth roughly $45 billion, has been forced to sell some surplus power at a loss. Experts say a surplus is not unusual when power buyers make large purchases.  The large volume of power under contract also creates other problems. It limits the growth of power from clean, renewable sources -- wind, solar, and geothermal -- that are not prone to price spikes like natural gas.  Businesses that want to shop around for cheaper power, which was the point of deregulation, may be forced to stay in the state system to prevent the contract payments from falling too heavily on residential consumers.  Still, Keeley faces an uphill battle as his committee looks at reopening the contracts. The governor's top energy adviser, S. David Freeman, defends the contracts as "insurance" against runaway spot-market prices.  And the two California generators, Calpine and Sempra, who hold the biggest state contracts and say they intend to be good citizens, vigorously defend their contracts as being good deals for the state.  A Calpine senior vice president, Jim Macias, said its four contracts to provide 2,500 megawatts over 10 years are at very competitive rates, an average of $60 per megawatt hour.  The president of Sempra Energy Resources, Michael Niggli, said his firm has been buying power, sometimes at a loss, to meet its contract. When new plants come on line in 2003, he said, Sempra's rates will vary with the price of natural gas and be among the lowest.