---------------------- Forwarded by Lorna Brennan/ET&S/Enron on 01/11/2001 
08:41 AM ---------------------------


webmaster@cera.com on 01/10/2001 05:02:25 PM
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Subject: A Colossal and Dangerous Failure - CERA Alert



Title: A Colossal and Dangerous Failure
URL: http://www20.cera.com/eprofile?u=35&m=2185


Overview: WESTERN ENERGY*CALIFORNIA GOVERNOR STAYS THE COURSE
California governor Gray Davis provided his strongest public statements to 
date regarding the state,s power crisis in his annual State of the State 
Address on January 8, 2001. Echoing many of his previous positions on what he 
perceives as a flawed and unfair California market structure, the governor 
labeled the state,s electricity market system a colossal and dangerous 
failure. Among other actions, he launched new initiatives valued at $1 
billion to encourage conservation, provide financing and land to new 
generators, grant authority to utilities to engage in a portfolio of 
transactions to manage electricity costs, and increase regulatory scrutiny of 
existing market suppliers. The governor also called for a greater role for 
the state in overseeing and constructing new power plants.

The governor acknowledged that the actions proposed are only some of the 
steps necessary to put California on the road to recovery. Details regarding 
sources of funding for the initiative are still forthcoming. Although he 
stated that California,s investor-owned utilities must not be allowed to go 
bankrupt, no formal plan for ensuring their solvency was given. The financial 
community continues to lack the assurance it requires to continue to provide 
financial backing for Pacific Gas and Electric and Southern California 
Edison. At this time the state legislature remains the body most likely to 
guarantee their solvency.

The governor again criticized the Federal Energy Regulatory Commission for 
what he believes has been its failure to manage and restrain properly the 
wholesale market. Merchant plant generators were accused of gouging the 
state, and it was suggested that these generators acted illegally in their 
operations, jeopardizing the reliability of the power grid. New, more severe 
sanctions were promised for those caught withholding power or extracting what 
investigators find as unreasonable profits.

A Los Angeles Times poll released the morning before the governor,s address 
indicated that the majority of Californians still do not believe there is an 
energy crisis. Although the 33 percent growth in the state,s economy over the 
past ten years has nearly outstripped the state,s and surrounding region,s 
supplies of power, the bulk of the governor,s statements continue to focus on 
the culpability of power producers, rather than the serious supply shortfall.

Though the governor introduced steps to fund and facilitate the construction 
of new generating plants, increased regulatory scrutiny and the threat of 
sanctions will exacerbate the concern already expressed by plant developers 
and the financial community that the investment climate in California is 
excessively risky.


**end**

Follow above URL for complete report.

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