We have been pulling together these weekly(sometimes more often) summaries
for internal purposes.  Would you find it helpful to be on the distribution
list?  Hope you are doing well.  Look forward to touching base soon.
----- Forwarded by Suzanne Nimocks/HOU/NorthAmerica/MCKINSEY on 03/28/2001
03:41 AM -----
       Memorandum

    TO:   Pru Sheppard
    BCC:  Suzanne Nimocks


   FROM:   Pru Sheppard
       B. Venki Venkateshwara
      DATE:    March 27, 2001

       California Power Crisis Update (No. 10)

      DEVELOPMENTS THIS WEEK, 3/23/2001

          The weeks highlights include:


      ?   Continued indications that the issue of market power and possible
      remedies for it is likely to remain a high profile issue in
      California and elsewhere (both retroactively and prospectively)
      ?   An ironical situation with respect to QFs in which QF power under
      contract is effectively being released into the market at higher
      prices
      ?   A court order requiring Reliant to continue to sell power to the
      ISO even if it is not being paid in a full and timely manner
      ?   Another Stage 3 emergency and rolling blackouts

      Market power


          There are continued indications that the issue of market power
      will not be settled simply.  This week there was a lengthy and
      politically influential front page story in the New York Times about
      FERCs passive approach to policing generators (Critics Say U.S.
      Energy Agency Is Weak in Oversight of Utilities). The story was by
      Jeff Gerth and Joseph Kahn. (Jeff Gerth's 1992 story on the
      Whitewater deal is viewed by journalists to have been the origin of
      what eventually became a multi-year investigation of Bill Clinton.)


          The key issues are familiar:


      ?   Does market power exist to a degree that warrants remedies such
      as price caps, refunds, and so on?
      ?   If so, what is the basis for asserting that market power exists
      and what is the remedy?  (See the discussion in the New York Times
      article on the "good hours" vs. "bad hours" approach and the
      associated political decision not to deal with "good hours").
      ?   Can market power be used as leverage to eventually settle
      generator bills in California at something less than 100 cents on the
      dollar.   (The California ISO filed a complaint claiming $6 billion
      in overcharges this week.)

      The QF irony


          Through the 1990s, QF contracts were projected to be the source
      of stranded costs because they were priced "way above market."  In
      recent months, in California, they look like a bargain (although some
      are not such great bargains because a portion of their price is tied
      to gas).  You would think that the utilities would request QFs to
      maximize their output.  But credit problems have created an ironical
      situation.  The facts:


      ?   PG&E and Edison have not been paying the QFs fully and promptly
      for some time.
      ?   The QFs form a creditors committee and threaten to push PG&E and
      Edison into bankruptcy. (Some gas-fired QFs had to shut down because
      they did not have money to pay for the gas.)
      ?   Last week's court decision allows MidAmerican/CalEnergy to
      essentially sell its power to others even though the QF contract
      "dedicates" the output to the purchasing utility.
      ?   CalEnergy does so immediately, selling to El Paso.

      The Reliant Order


          A court ordered Reliant to continue to sell to the ISO, when
      requested, regardless of whether Reliant had been paid fully and
      promptly for past deliveries to the ISO.  Reliant announced it will
      appeal the order.


          This is somewhat of a contrast to the QF situation except that
      the circumstances governing the 2 situations are probably different.
      The QF contracts pre-date the ISO and are with the utilities and most
      likely make no reference to providing power during emergencies.  In
      fact, many QF contracts have the opposite provision: authority for
      the utility to cut takes during so-called "light load" periods.


      Stage 3 emergency and rolling blackouts--again


          There was another Stage 3 emergency in California ? with rolling
      blackouts this week.  This prompted everyone to wonder why this was
      happening in March.  Among the factors:


      ?   Increased demand from summer-like temperatures
      ?   Cutbacks in imports
      ?   Loss of 1400 MW due to a transformer fire at an Edison plant
      ?   Loss of about 3100 MW from QF plants that were forced to shutdown
      because they could not afford gas bills  (VV)


      MARKET COMMENTARY

      (For easier printing of all the articles in this section use the file
      at the end of the section)


      Critics Say U.S. Energy Agency Is Weak in Oversight of Utilities
      By JEFF GERTH and JOSEPH KAHN
      03/23/2001
      The New York Times
      Page 1, Column 1
      c. 2001 New York Times Company

      WASHINGTON, March 22 -- The pressure was intense when federal
      regulators met
      privately last month to debate remedies for soaring electricity
      prices in
      California.
      Officials of the Federal Energy Regulatory Commission, the agency
      whose mandate
      is to ensure ''just and reasonable'' electricity rates nationwide,
      had evidence
      that a few companies had been selling electricity to California at
      prices far
      above the cost of generating it. The agency faced an imminent
      deadline to
      challenge those prices or let the companies possibly pocket hundreds
      of millions
      of dollars in unfair profits.

      An internal memorandum laid out two choices. The agency could audit
      and punish
      ''bad actors,'' the companies that were exploiting the market. Or it
      could
      identify ''bad hours,'' when electricity shortages were most acute
      and spiking
      prices were arguably nobody's fault, and order refunds for only the
      most
      exorbitant prices.
      ''It may be easier to identify bad hours than bad actors,'' the
      memorandum said.

      The commission took the easier way. It decided not to investigate
      reports of
      abuses by companies, but issued an order that could require them to
      refund to
      the state utilities up to $124 million collected during a relatively
      few ''bad
      hours'' in January and February. That is hundreds of millions of
      dollars less
      than California might have claimed, since the most potential
      overcharging
      occurred during ''good hours,'' when power was more plentiful but
      prices were
      often just as extreme. The order ignored those hours.
      Today, in a criticism of the agency's lack of aggressiveness,
      California
      regulators estimated that generators had charged $6.2 billion above
      competitive
      levels over 10 months. They urged the agency to dig deeper, hoping it
      would
      demand more refunds or other stiff remedies. But the agency's track
      record --
      one of complacency in the eyes of state officials -- leaves
      California
      regulators skeptical that Washington will confront the big power
      producers.
      The small, obscure agency, tucked behind the rail yard of Union
      Station here,
      has largely soft-pedaled its role as the electricity industry's top
      cop, even
      though it has wide authority to keep power companies in line. To keep
      rates
      reasonable, it can impose price caps, strip companies of the right to
      charge
      market rates, force them to return excessive profits and even suspend
      deregulation altogether.
      Instead, the agency has largely left it to private companies to pry
      open the
      $250 billion electricity industry, which has historically been
      controlled by
      monopoly utilities and state officials. The agency's defenders,
      including its
      chairman, Curt Hebert Jr., a fierce advocate of unfettered markets,
      say that its
      largely hands-off approach reflects the delicate balancing of
      competing
      interests -- a commitment to protect consumers while not stifling
      market forces.

      But politicians, utility executives, energy economists and local
      regulators say
      California's rolling blackouts and skyrocketing electricity prices
      are the signs
      of a market running amok. They accuse the agency of standing aside as
      companies
      manipulate their way to windfall profits. The agency's critics, who
      include one
      of its own commissioners and numerous staff members, say that its
      enforcement
      mission has been blunted by free-market passions and the influence of
      industry
      insiders in its ranks.
      When the agency began its first national investigation of high
      electricity
      prices last year, it named a newly recruited industry insider, Scott
      Miller, to
      lead the effort. Mr. Miller and his colleagues said in their report
      that there
      was ''insufficient data'' in California to prove any profiteering by
      generating
      companies. Yet his own former employer, PG&E Energy Trading, was at
      the time a
      subject of a civil antitrust investigation by the Justice Department
      that
      focused on electricity market abuses in New England.
      The agency has given state regulators a lead role in monitoring local
      power
      markets. Yet even as these regulators have urged the agency to be
      more
      aggressive in investigating suspicions that companies have abused
      their power in
      California, New England, the Midwest and the mid-Atlantic, they have
      frequently
      been ignored or rebuffed.
      Critics say that the agency began deregulation before it was ready or
      willing to
      make sure the markets worked effectively. They accuse it of showing
      favoritism
      to industry -- allowing companies, for example, to ignore
      requirements to file
      detailed reports of market transactions that are critical to proving
      accusations
      of market abuses.
      ''We need to wake up to the fact that this is a dysfunctional market
      that is
      being gamed and manipulated by those who participate in it,'' said
      William
      Massey, a commissioner of the agency who has become one of its
      leading critics.
      The agency's inaction, the critics say, leads to ''gaming'' --
      jockeying for
      profits that does not necessarily involve illegality -- and outright
      market
      manipulation. Consumers and utilities are the victims, paying
      billions of
      dollars more for electricity than if the markets were truly
      competitive.
      Agency officials acknowledge that enforcement of market rules to curb
      gaming and
      manipulation had not been a high priority in previous years. But they
      defended
      their recent California order as proof that they intend to keep
      markets free of
      abuse. They add that the agency is also pressuring two generators to
      refund
      almost $11 million for possibly manipulating the California market
      last spring.
      Agency officials and some outside analysts say that poorly conceived
      deregulation plans by states, a shortage of power plants, rising
      natural gas
      prices, and even the weather have had more impact on electricity
      prices than
      abuses by companies or any failings by the agency. They say the
      agency must
      balance the competing interests of generators, local regulators and
      utility
      companies if it is to keep deregulation on track.
      ''We're trying to craft a system that gives breathing room to develop
      a market,
      but not so much room that undue market power punishes consumers,''
      Mr. Hebert
      said.
      Fight Over Deregulation
      Today's debate traces back to the 1930's, when President Franklin D.
      Roosevelt
      backed legislation to break up utility monopolies. The Federal Power
      Act of 1935
      gave the Federal Power Commission a mandate to ensure ''just and
      reasonable''
      electricity rates. The Federal Power Commission was abolished in 1977
      and
      replaced by the Federal Energy Regulatory Commission, an independent
      agency with
      1,200 employees that also oversees oil pipelines and the natural gas
      market. The
      president appoints the chairman and four commissioners -- two
      Democrats and two
      Republicans with staggered terms of five years. Two Republican seats
      are
      currently unfilled.
      The deregulation of the electricity markets began in the late 1980's,
      after the
      agency had begun opening the gas markets. By 1996, the commissioners
      issued a
      landmark order that forced utility companies to open their
      transmission lines to
      other utilities and electricity wholesalers. The commission and many
      private
      economists expected that by prying open protected markets,
      electricity prices
      would immediately fall.
      That possibility set off a deregulation frenzy, most prominently in
      California,
      New York, New England and the mid-Atlantic states. Generating
      companies rushed
      to expand in the new, borderless market.
      But the agency's balancing act has grown more difficult as
      electricity
      deregulation has spread nationwide. Congress has forced it to trim
      its staff in
      recent years. Officials complain that investigating abuses in
      electricity
      markets strains their resources.
      And as the California crisis has worsened, the commissioners have
      begun sparring
      publicly among themselves about what to do. This week, Mr. Massey, a
      Democratic
      commissioner, and Mr. Hebert (pronounced AY-bear), a Republican, sat
      side by
      side before a House panel and argued diametrically opposed positions.
      Mr. Hebert
      said high prices in California ''were sending the right signals to
      get supply
      there.'' Mr. Massey called the prices that generators were charging
      ''unlawful''
      and said that his agency, by not reining them in, ''is simply not
      doing its
      job.''
      The agency's leadership has been in flux for months. Congressional
      and industry
      officials in Washington say President Bush is considering replacing
      Mr. Hebert,
      whom he named to the top post less than two months ago, with Pat
      Wood, who runs
      the Texas public utility commission. A White House spokeswoman had no
      comment on
      the reports.
      Though Mr. Hebert's positions are not far from those of the Bush
      administration,
      his relations with California leaders may have made his position
      tenuous. Mr.
      Hebert, a Mississippian who is a close ally of the Senate majority
      leader, Trent
      Lott, has warred with California politicians who have proposed new
      solutions to
      the crisis there.
      Mr. Hebert, who has served as a commissioner since 1997, has often
      taken the
      most ideologically free-market position of any commissioner. He
      flatly rejects
      the idea of price caps on electricity as hopelessly ineffective and
      contrary to
      market forces. When Gov. Gray Davis outlined a plan to have the state
      buy
      transmission lines to relieve utility companies' debt, Mr. Hebert's
      response was
      dismissive. ''It's not in the interest of the American public,'' he
      pronounced.
      Even as new electricity markets opened in the summer of 1999, they
      started
      producing nasty shocks. The mid-Atlantic region experienced some
      early
      volatility.
      As the turmoil grew, economists began raising the alarm about a
      phenomenon
      called ''market power,'' the ability of energy traders in the new
      national
      market to sustain prices above the competitive level. Proving such
      abuses is
      difficult, because it requires comparing tens of thousands of
      separate
      electricity transactions with the costs of the generators that
      initiated them.
      Joseph Bowring, who heads the market monitoring unit of the nonprofit
      entity
      that operates the mid-Atlantic transmission system, said that power
      companies
      there had exercised some market power. But only the Federal Energy
      Regulatory
      Commission, not local regulators, had the authority to collect the
      data to
      determine how much market power had been exercised and whether it had
      been
      abusive or not, he said.
      Mr. Bowring said he talked to agency officials about doing so. In the
      end, Mr.
      Bowring and several agency officials said, the agency chose not to
      investigate.
      The decision roiled some agency officials.
      Ron Rattey, a veteran agency economist, wrote a memorandum last June
      describing
      the staff as ''impotent in our ability to monitor, foster, and ensure
      competitive electric power markets.'' The staff, the memorandum said,
      did not
      even enforce a requirement that power companies file detailed
      quarterly reports
      listing essentially every sale they make. Such data would have been
      useful to
      Mr. Bowring.
      Local-Federal Clash
      Local regulators who want to ensure competitive prices often have to
      act on
      their own. Monitors in New England have intervened about 600 times
      since 1999 to
      correct prices they determined had been caused, at least in part, by
      market
      manipulation.
      The federal agency has sometimes chastised them for interfering too
      much.
      The industry, not surprisingly, shares that view. One vocal critic
      was Mr.
      Miller. Before the agency recruited him last July to head its
      division of energy
      markets, he was director of policy coordination for the national
      energy-trading
      unit of PG&E Corporation, the California holding company whose assets
      also
      include Pacific Gas and Electric, the California utility.
      Although the utility has lost billions of dollars during California's
      crisis,
      Mr. Miller's former unit has become one of the most profitable new
      energy
      traders nationwide. PG&E Energy Trading, by several estimates, is now
      the
      second-largest seller of electricity in New England.
      The company has had a rocky relationship with regulators. They
      intervened
      several times in 1999 and 2000 to retroactively cancel auctions they
      said
      produced excessive profits for PG&E and other companies. Mr. Miller
      denounced
      the practice, though he acknowledged in public testimony that his
      company
      sometimes charged ''very high'' prices when it could.
      ''One person's predatory pricing is another person's competitive
      advantage,''
      Mr. Miller said at a public hearing on deregulation in Texas in 1999.
      New
      England regulators too often acted as ''judge, jury and executioner''
      when
      overseeing the market, he said.
      One year later, Mr. Miller and his new colleagues at the federal
      agency got a
      chance to examine New England's problems from the regulators'
      perspective. Their
      Nov. 1 report attributed New England's frequent price gyrations to
      technical and
      regulatory flaws.
      As Mr. Miller's team was preparing its report, the Justice
      Department, whose
      threshold for stepping into possible industry wrongdoing is far
      higher than the
      agency's, began looking into whether price spikes in New England
      pointed to
      unlawful monopoly power or collusion, people contacted by the
      department during
      that inquiry said.
      One subject of the civil inquiry is possible price manipulation in
      one of New
      England's ancillary services markets, people contacted by the
      department said.
      They said the department was examining whether PG&E and two other
      companies
      tried to corner that market for several months early last year. PG&E
      confirmed
      that the Justice Department had contacted it, but denies wrongdoing
      and says it
      has cooperated with the department's requests.
      Mr. Miller has declined to comment on his role at PG&E or at the
      agency. His
      supervisors defended his work and said they had detected no conflict
      of interest
      between his work at PG&E and his duties at the agency.
      Those duties brought Mr. Miller to California last August. With
      electricity
      prices there soaring, he and his colleagues sat down with several
      utility
      executives at the agency's San Francisco office.
      One executive, Gary Stern, director of market monitoring for Southern
      California
      Edison, wanted the agency to stop what he suspected were market
      abuses by power
      generators. He provided a road map to help investigators figure out
      how power
      companies traded power contracts -- and whether they had manipulated
      the
      markets.
      But when Mr. Miller and his team approached 11 generators and
      marketers --
      including his old employer -- a few weeks later, they did it their
      way. They
      asked eight questions, many of them imprecise, like: ''Describe your
      strategy
      for bidding generation resources into market.''
      This question, Mr. Stern said in a recent interview, ''was equivalent
      to asking
      a suspected burglar how he spent his day.''
      Some agency officials also thought the team should probe deeper. Mr.
      Rattey
      recommended that Mr. Miller seek the quarterly pricing reports that
      marketers
      were supposed to file. But his suggestion was not adopted, agency
      records show.
      Daniel Larcamp, Mr. Miller's supervisor, said ''there might have been
      more
      information that could have been obtained'' in the California
      inquiry. But he
      said the commission gave the staff only three months to finish,
      making it
      impossible to collect and analyze the reams of data involved.
      For Mr. Miller, agency documents show, the investigation was so
      time-consuming
      that he had no time to fill out the financial disclosure form
      required of new
      federal employees. Mr. Miller submitted his form in late January,
      after a
      reporter requested it. Agency lawyers approved the form, but only
      after he
      provided additional information about his job and compensation from
      PG&E. The
      lawyers said Mr. Miller's participation had been permissible because
      PG&E was
      not the subject of the investigation.
      When the staff report was issued on Nov. 1, it found high prices and
      problems in
      the design of the California market. But while the companies ''had
      the potential
      to exercise market power,'' the commission said, there was
      ''insufficient data''
      to prove that they did.
      Some marketers saw the report as an exoneration.
      ''This has been looked at several times, most notably by the FERC and
      nobody has
      found any evidence of market manipulation and profiteering,'' Rob
      Doty, the
      chief financial officer of Dynegy Inc., told a reporter earlier this
      year.
      California Inquiry
      The agency has recently shown signs of wanting to apply pressure on
      generators.
      But its early efforts show how it is treading on new and uncertain
      turf.
      When the California crisis grew severe last December, the commission
      issued a
      refund order, a shot across the bow for generators charging high
      prices. It
      required them to submit detailed data any time they sold electricity
      in
      California for more than $150 per megawatt hour, considered at the
      time a fair
      estimate of the highest costs any of them faced.
      It also told generators that for the next several months, they could
      be forced
      to give refunds if the agency found that they had charged excessive
      prices. The
      commission also said that it would examine bidding practices and
      strategies for
      withholding generating capacity to ferret out any efforts to
      artificially raise
      prices.
      When the agency's own 60-day deadline for examining market data in
      January
      approached, however, it became clear that staff members had not made
      any
      detailed examination. Instead, staff members said, the agency
      scrambled to forge
      a last-minute compromise that would allow it to issue a statement
      opposing high
      prices in the state without a time-consuming investigation.
      During this scramble, a senior staff member, Kevin Kelly, suggested
      focusing on
      bad hours instead of bad actors.
      ''Our attempts to find illegal behavior or legal 'misbehavior' by
      sellers ('bad
      actors') always seems to fail,'' his memorandum said. It said that
      the agency
      could more easily blame high prices on acute shortages during the
      most critical
      hours.
      The suggestion won the day. The commission decided to limit its order
      to the
      hours when California declared a Stage 3 emergency, when supplies are
      critically
      low.
      Mr. Stern of Southern California Edison and several private-sector
      economists
      have attacked the economic logic of that order. They said that the
      commission
      has focused on times when prices might be legitimately high. The
      bigger worry:
      Generators can and often do sustain artificially high prices when
      supplies are
      not as tight, they say.
      Mr. Massey, the Democratic commissioner, dissented from the decision
      for those
      reasons. Because most high-priced transactions in January and
      February did not
      occur during bad hours, he argued, the commission effectively chose
      to bless as
      ''just and reasonable'' the hefty profits generators are making from
      the
      California crisis.
      ''The problem with my agency is that we're so carried away with the
      rhetoric of
      markets that we've gotten sloppy,'' Mr. Massey said. ''We're talking
      about
      electricity. It's the juice of the economy, so it's got to be
      available and
      reasonably priced.''


      Williams defends pricing of electricity
      03/23/2001
      Associated Press Newswires
      Copyright 2001. The Associated Press. All Rights Reserved.

      TULSA, Okla. (AP) - Williams Cos. Inc. says it can justify the rates
      it charged
      for wholesale power, despite accusations from federal regulators that
      it sold
      over-priced electricity to California.
      Federal regulators claim Williams Energy Marketing and Trading Co., a
      unit of
      Tulsa-based Williams, owes California more than $40 million in
      refunds for power
      it sold to the state's Independent System Operator.

      The Federal Energy Regulatory Commission says that Williams is one of
      several
      power providers responsible for $124 million in overcharges from
      transactions in
      January and February.
      The Independent System Operator, which manages the state's power
      grid, claims
      the state was overcharged $6.2 billion by 21 wholesale power
      providers,
      including Williams, between May and February.
      Williams says the rates it charged California were fair and were
      based on
      production costs and market conditions.
      "Williams is confident that it performed within the guidelines
      established by
      the ISO," said Williams spokeswoman Paula Hall Collins. "We felt like
      we had
      worked within the regulations set up by ISO."
      According to the commission, power prices levied by Williams in
      January and
      February exceeded federal price ceilings based on the cost of natural
      gas and
      other market conditions.
      However, the price ceilings were established after the ISO accepted
      Williams'
      power prices, Collins said.
      The commission will review Williams' explanation and either accept
      the
      justification or order the company to pay refunds.



      Allegheny Energy makes big California connection
      03/23/2001
      Associated Press Newswires
      Copyright 2001. The Associated Press. All Rights Reserved.

      HAGERSTOWN, Md. (AP) - Allegheny Energy Inc. said Thursday it has
      agreed to sell
      $4.5 billion worth of power to California's electricity-purchasing
      agency over
      the next 10 years.
      The company said the contract call for Allegheny to provide up to
      1,000
      megawatts that the Hagerstown-based company has secured from western
      generating
      plants through its new energy trading division, Allegheny Energy
      Global Markets
      - formerly Merrill Lynch Global Energy Markets.

      "This is a win-win for both the state of California and Allegheny
      Energy. It
      provides a long-term source of fixed-price energy and should help to
      stabilize
      prices in California," said Michael P. Morrell, president of the
      Allegheny
      Energy Supply division.
      Allegheny Energy is the parent of Allegheny Power, which delivers
      electric
      energy and natural gas to parts of Maryland, Ohio, Pennsylvania,
      Virginia and
      West Virginia.


      Williams plans expansion of pipeline to help power Calif.
      03/23/2001
      Associated Press Newswires
      Copyright 2001. The Associated Press. All Rights Reserved.

      SALT LAKE CITY (AP) - The Williams Cos. plans to expands its Kern
      River
      pipeline, which runs through Utah, to provide more natural gas for
      generating
      plants in California.
      Williams' gas pipeline unit in Salt Lake City said Thursday that it
      plans to
      construct nearly 700 miles of additional pipeline that will run
      parallel to its
      existing Kern River line.

      Construction on the $1 billion project is expected to begin next year
      and is
      scheduled for completion in May 2003, said Kirk Morgan, director of
      business
      development for Kern River pipeline.
      "Shippers are seeking more access to natural gas from the Rocky
      Mountain basin,
      where producers are aggressively stepping up production," Morgan
      said.
      The new pipeline is expected to deliver about 900 million cubic feet
      of natural
      gas per day to markets in Utah, Nevada and California.
      Most of the gas will be used for generating plants planned in
      California. If all
      of the pipeline's capacity were used to generate electricity, it
      could produce
      about 5,400 megawatts. "That is enough to light around 4.5 million
      homes,"
      Morgan said.
      The original Kern River line was completed in 1992. It enters Utah
      from Wyoming
      then crosses into the Salt Lake Valley near Bountiful. It turns south
      near the
      Salt Lake City International Airport then runs the length of the
      state before
      passing into southern Nevada and winding up near Bakersfield, Calif.
      It currently transports 700 million cubic feet of natural gas per
      day. Williams,
      based in Tulsa, Okla., recently filed an emergency application with
      federal
      regulators to install additional pumping stations on the line to
      increase its
      capacity by 135 million cubic feet per day. That $81 million pumping
      station
      project should be completed by July 1.
      During the 2002 construction period, the Kern River project will
      employ between
      1,500 and 1,800 people. The company estimates annual property taxes
      it pays to
      Utah counties will increase from $3.5 million to about $7 million.
      Questar will be one of the customers on the new pipeline, Morgan
      said.
      The utility wants to supply additional gas to southern Utah cities,
      including
      St. George and Cedar City.
      "Our own pipelines serving southern Utah are at full capacity so this
      is an
      opportunity to transport additional gas into those areas from
      company-owned
      supplies in Wyoming," said Questar Gas spokeswoman Audra Sorensen.



      Calif Energy Commission OKs 3 Pwr Plants Worth 2,076 MW
      03/23/2001
      Dow Jones Energy Service
      (Copyright (c) 2001, Dow Jones & Company, Inc.)

      (This article was originally published Thursday)

      LOS ANGELES -(Dow Jones)- The California Energy Commission Wednesday
      approved
      three power plants worth 2,076 megawatts, two of which are scheduled
      to come on
      line by the end of 2002, a CEC spokesman said Thursday.

      The plants approved include BP Amoco PLC (BP) unit ARCO Western
      Energy's 500
      megawatt Western Midway Sunset Project, slated to come on line in
      October 2002;
      Caithness Energy's 520 MW Blythe Power Plant, to come on line by Dec.
      31, 2002;
      and Thermo Ecotek's 1,056 MW Mountainview Power Plant, scheduled to
      come on line
      in April 2003.
      All three of the new plants will be natural gas-fired combined-cycle
      plants.
      The $550 million Mountainview plant will be located in Southern
      California, near
      San Bernadino. The $300 million Western Midway-Sunset plant will be
      located in
      central Kern County, while the $250 million Blythe plant will be
      located in the
      city of Blythe in Riverside County.
      The latest approvals bring to 13 the total number of plants approved
      since April
      1999 by the CEC, a spokesman said. Those plants will supply 8,405 MW
      to the
      state, which has seen rolling blackouts and spiking wholesale power
      prices in
      the last six months, in part due to lack of supply.
      -By Jessica Berthold, Dow Jones Newswires; 323-658-3872;
      jessica.berthold@dowjones.com


      Some CalEnergy Power Could Be Sold Outside Calif - CEO
      03/23/2001
      Dow Jones Energy Service
      (Copyright (c) 2001, Dow Jones & Company, Inc.)

      (This article was originally published Thursday)

      LOS ANGELES -(Dow Jones)- Some of CalEnergy Operating Corp's power
      could end up
      being sold outside of California, though that is not the company's
      intent,
      CalEnergy Chairman and CEO David Sokol said in a conference call
      Thursday.

      CalEnergy, an affiliate of MidAmerican Energy Holdings Co, which is
      majority
      owned by Warren Buffett's Berkshire-Hathaway (BRKA), was given legal
      authority
      Thursday to suspend 270 megawatts of power delivery to Edison
      International
      (EIX) utility Southern California Edison and sell on the open market,
      because
      SoCal Edison has not paid its bills since November.
      CalEnergy stopped supplying power to SoCal Ed immediately following
      the court
      ruling.
      "We stopped supplying power at 1 PM (PST) and have been selling to
      parties that
      will pay since then....We are selling it to marketers; our current
      marketing
      agent is El Paso Corp (EPG) and they will sell it for us," Sokol
      said.
      Sokol added that while it was his company's intention to have its
      power sold to
      California, that could not be guaranteed.
      "We leave the energy selling to El Paso....We've directed them that
      we would
      like the power to stay in California but we can't stop them," from
      selling out
      of state, Sokol said.
      Wholesale prices on the open market are about $400-$500 a
      megawatt-hour, three
      times more than what the company had received under its contract with
      SoCal Ed.
      The court's ruling did not address the $45 million SoCal Ed still
      owes CalEnergy
      for November and December power, and Sokol said that his company's
      separate
      lawsuit on that matter sought to attach the utility's assets as
      payment for that
      debt.
      Sokol said the court's ruling had "significant implications" for the
      entire
      community of small, independent generators, known as qualifying
      facilities or
      QFs, who have not received payment from SoCal Ed.
      "Edison's own lawyer said it best....that every QF in the state will
      begin to
      mitigate if the judge allowed us (to sell on the open market)," Sokol
      said.
      Sokol said his company was prepared to push SoCal Ed into involuntary
      bankruptcy
      Friday if CalEnergy hadn't won the case, but said he couldn't
      speculate whether
      other QFs may be more or less inclined to do so as a result of the
      court
      outcome.
      A group of renewable power suppliers, owed more than $100 million
      from SoCal Ed,
      said late Wednesday they want state lawmakers to release them for
      their supply
      contracts with PG&E Corp. (PCG) unit Pacific Gas & Electric and SoCal
      Ed until
      the utilities are restored to financial stability.
      The utilities claim close to $13 billion in undercollections due to
      an inability
      to pass high wholesale power costs to customers under a rate freeze.
      In a statement, SoCal Ed said it opposed CalEnergy's bid to suspend
      its QF
      contract because the utility believed Gov. Gray Davis and state
      regulators are
      close to resolving "very legitimate financial concerns of CalEnergy
      and other QF
      suppliers."
      SoCal Ed said it was concerned that CalEnergy's request to sell to
      third parties
      would lead to a major supply shortage in California.
      The utility said it has informed the QFs that it is working to
      resolve the issue
      without giving unfair advantage to one class of creditors.
      While many of the state's large power suppliers have been paid by on
      a forward
      basis for the power they sell into California, the QFs, which make up
      one-third
      of the state's total power supply, haven't been paid by SoCal Ed
      since November.
      PG&E has made partial payments to its QFs.
      -By Jessica Berthold, Dow Jones Newswires; 323-658-3872,
      jessica.berthold@dowjones.com
      (Jason Leopold contributed to this article.)


      California and the West Judge Frees Small Firm From Edison Contract
      KEN ELLINGWOOD; DAN MORAIN
      TIMES STAFF WRITERS
      03/23/2001
      Los Angeles Times
      Home Edition
      A-3
      Copyright 2001 / The Times Mirror Company

      El CENTRO -- California's balance of electrical power shifted
      slightly Thursday
      when an Imperial County judge temporarily freed a small geothermal
      energy
      producer from its contract with Southern California Edison, allowing
      it to sell
      power on the open market.
      The ruling by Superior Court Judge Donal B. Donnelly could lead to a
      mass exodus
      by hundreds of small energy producers that have been selling power to
      the
      state's financially troubled utilities for months without getting
      paid.

      At the same time, it may have staved off plans by a group of the
      small
      generators to send Edison into involuntary bankruptcy as early as
      today.
      In Sacramento, energy legislation pushed by Gov. Gray Davis passed in
      the state
      Senate but foundered in the Assembly. The measure was intended to
      ensure that
      the state gets repaid for the electricity that it has been buying on
      behalf of
      Edison and Pacific Gas & Electric, which say they lack the cash and
      credit to
      purchase power. The bill also was supposed to guarantee that the
      small,
      alternative energy producers--which together provide nearly a third
      of the
      state's power--get paid. But Assembly Republicans opposed it, saying
      it hadn't
      been given sufficient scrutiny.
      The impact of the small producers was made clear in Imperial County,
      where
      Edison's failure to pay CalEnergy, the county's biggest property
      taxpayer, had
      outsize implications. CalEnergy had put county officials on notice
      that it was
      about to miss a $3.8-million property tax payment. The uncertainty
      had prompted
      the tiny Calipatria Unified School District to postpone a bond issue
      for badly
      needed school repairs.
      Among CalEnergy Chairman David Sokol's first acts after the judge's
      ruling
      Thursday was to promise Imperial County Supervisor Wally J.
      Leimgruber that the
      company would pay its property taxes on time.
      "That is great news," Leimgruber said.
      Within hours of its court victory, CalEnergy had stopped transmitting
      geothermal
      power to Edison and begun selling it to El Paso Energy, a marketing
      company that
      purchased the energy at prevailing rates and resold it on the spot
      market.
      Some of the more than 700 other small energy producers in the state
      said they
      were considering similar action against Edison and Pacific Gas &
      Electric.
      "We absolutely need the right to sell to third parties," said Dean
      Vanech,
      president of Delta Power, a New Jersey company that owns five small
      gas-fired
      plants in California and is owed tens of millions of dollars by
      Edison.
      Sokol praised the Imperial County judge and said his company simply
      wanted the
      authority to sell its power "to a credit-worthy company that, in
      fact, pays for
      the power."
      An Edison spokesman said the company was disappointed with the
      ruling, but
      sympathized with CalEnergy and other small producers because
      "California's power
      crisis has placed [them] in financial distress, just as it has placed
      utilities
      in financial distress."
      Edison expressed concern that the ruling would prompt CalEnergy and
      other small
      producers to sell their power out of state. Sokol said CalEnergy had
      specifically told El Paso Energy that it hoped its power would remain
      in
      California, "but if someone wants to pay a higher price out of state,
      we can't
      stop them."
      Sokol said that Edison still owes CalEnergy $140 million and that the
      company--along with seven other small producers--had been prepared to
      file a
      petition in federal bankruptcy court in Los Angeles today forcing the
      utility
      into involuntary bankruptcy. He said his company no longer intends to
      do so, and
      he believed--but wasn't certain--that the other companies would
      shelve their
      plans.
      Edison filed papers Thursday with the federal Securities and Exchange
      Commission
      showing that it owed $840 million to various small electricity
      producers, many
      of which rely on renewable energy sources such as geothermal steam,
      solar energy
      or wind.
      The alternative energy producers--and utilities--strenuously objected
      to the
      legislation considered in Sacramento on Thursday. The bill, spelling
      out how the
      utilities are to pay the state and the small producers, passed the
      Senate on a
      27-9 vote, the exact two-thirds margin required. But it stalled in
      the Assembly
      on a 46-23 party-line vote, well short of two-thirds.
      "When I was a citizen back in Lancaster, I heard these stories about
      pieces of
      legislation that were cooked up late at night, that . . . were cut
      and pasted
      together and were rammed through by the Legislature," Assemblyman
      George Runner
      (R-Lancaster) said. "That's exactly what we have before us."
      The alternative electricity generators, including oil companies,
      warned that
      they would lose money under the Davis proposal, while representatives
      of Edison
      and PG&E, which have amassed billions in debt in the worsening energy
      crisis,
      said the legislation would push them deeper into the hole.
      "There isn't enough money," Edison attorney Ann Cohn testified at a
      Senate
      hearing on the bill Thursday. "It is a very simple question: Dollars
      going out
      cannot be greater than dollars coming in."
      The bill, AB 8X, combined several proposals. First, it sought to
      clarify earlier
      legislation by spelling out that Edison and PG&E must pay the state
      all money
      collected from consumers for electricity that the state has been
      buying.
      Additionally, the bill would turn over to the California Public
      Utilities
      Commission the thorny issue of how much to pay alternative energy
      producers for
      their electricity.
      Wind, solar and geothermal producers might agree to the prices
      offered by the
      administration. But most of the alternative energy producers,
      including Chevron
      and British Petroleum, use natural gas to generate electricity
      through
      "cogeneration," a process of creating steam for both electric
      generation and
      heat. With natural gas prices high, they contend, they would lose
      money at the
      prices Davis is offering.
      *
      Ellingwood reported from El Centro, Morain from Sacramento. Times
      staff writers
      Mitchell Landsberg in Los Angeles and Jenifer Warren, Nancy Vogel and
      Carl
      Ingram in Sacramento contributed to this story.
      (BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
      Power Points
      Background
      The state Legislature approved electricity deregulation with a
      unanimous vote in
      1996. The move was expected to lower power bills in California by
      opening up the
      energy market to competition. Relatively few companies, however,
      entered that
      market to sell electricity, giving each that did considerable
      influence over the
      price. Meanwhile, demand has increased in recent years while no major
      power
      plants have been built. These factors combined last year to push up
      the
      wholesale cost of electricity. But the state's biggest
      utilities--Pacific Gas &
      Electric and Southern California Edison--are barred from increasing
      consumer
      rates. So the utilities have accumulated billions of dollars in debt
      and,
      despite help from the state, have struggled to buy enough
      electricity.
      *
      Daily Developments
      * Overcharges by major electricity suppliers were estimated at $6.3
      billion, up
      from the $5.5 billion first thought, California's power grid operator
      said.
      * Electricity producers denied that they have profiteered and argued
      that
      Cal-ISO's figures don't take into account all their costs.
      * A Superior Court judge's ruling Thursday freeing a small producer
      from its
      contract with Edison could lead to a mass exodus by small energy
      producers that
      have been selling to the utilities without getting paid.
      *
      Verbatim
      "If these guys have such high costs ... how come they're making so
      much money?"
      --Gary Stern, Edison's director of market monitoring and analysis,
      referring to
      power producers
      Complete package and updates at www.latimes.com/power


      Grid Operator Says California Paid Too Much for Power
      By Rebecca Smith and John R. Emshwiller
      Staff Reporters of The Wall Street Journal
      03/23/2001
      The Wall Street Journal
      A2
      (Copyright (c) 2001, Dow Jones & Company, Inc.)

      California's electric-grid operator said power suppliers may have
      overcharged
      the state and its utilities by $6.2 billion, or a total of 30%, in a
      10-month
      period, and has asked federal regulators to step up their policing of
      electricity markets.
      Meanwhile, a California state judge handed down a decision involving
      small power
      producers that could result in more electricity being made available
      in the
      energy-starved state, but likely at greater cost to the state
      government.

      The $6.2 billion figure was contained in a market analysis by the
      California
      Independent System Operator filed yesterday with the Federal Energy
      Regulatory
      Commission. The ISO says it isn't seeking a refund -- for the May
      through
      February period -- because its analysis lacked important market data.
      For example, it estimated costs for 21 suppliers based on published
      prices for
      natural gas, not on specific data showing what each generator
      actually paid for
      the fuel. "We don't know how much gas actually was purchased at
      spot-market
      prices," said Anjali Sheffrin, the ISO's head of market analysis.
      Charles Robinson, general counsel for the ISO, said FERC needs to
      become "more
      aggressive about market-power mitigation." The ISO's filing, he said,
      was
      intended to push the agency in that direction, since FERC is
      responsible for
      policing deregulated electricity and natural-gas markets.
      He said that if the FERC doesn't act, the state of California may
      find ways to
      discipline the market, such as through the state attorney general's
      office. The
      attorney general has been investigating the state's electricity
      market for many
      months but hasn't brought any court action.
      Dynegy Inc., a big owner of power plants in California, said it will
      provide
      additional information to FERC supporting its position that the
      prices it has
      charged for power have been "just and reasonable." The Houston
      company was one
      of 13 energy suppliers that the FERC this month ordered to pay
      refunds totaling
      $124 million or "show cause" why it should be excused. Dynegy said
      the FERC
      analysis was flawed, because it used "inaccurate" prices for natural
      gas and
      pollution credits.
      While big power producers such as Dynegy came under attack, small
      power
      producers won a potentially significant victory in a state court in
      Southern
      California's Imperial County. A judge granted 10 geothermal plants
      operated by
      the CalEnergy Co. unit of MidAmerican Energy Holdings Co., a unit of
      Berkshire
      Hathaway Inc., of Omaha, Neb., permission to suspend deliveries of
      electricity
      to Southern California Edison Co. and instead seek other buyers.
      These plants, known as "qualifying facilities," are under long-term
      contract to
      Edison and other utilities but haven't been paid for months. Edison,
      a unit of
      Edison International, of Rosemead, Calif., says it has been unable to
      pay
      hundreds of millions of dollars in power bills to CalEnergy and
      others because
      it has been driven to the brink of insolvency by the state's failed
      utility-deregulation plan.
      While the CalEnergy case involves only about 320 megawatts of power,
      the
      repercussions could be far greater. Collectively, hundreds of
      qualifying
      facilities, or QFs, produce as much as 30% of California's
      electricity needs.
      QFs totaling 3,000 megawatts cut their production in recent weeks for
      lack of
      payment. This loss of output was a significant cause of the blackouts
      that hit
      California this week.
      Observers believe the CalEnergy court decision could give other QFs
      an
      opportunity to sell power in the open market, presumably to the state
      government
      that now is California's biggest energy buyer. An hour after the
      court decision
      yesterday, some 400 megawatts of power came back into the market, the
      ISO said.
      However, additional QF power sales on the open market could
      substantially
      increase the state's tab. Already, the state has allocated more than
      $4 billion
      for electricity purchases.
      Separately, Edison said in a Securities and Exchange Commission
      filing that its
      unpaid power bills could contribute to a write-off of as much as $2.7
      billion
      for 2000. Because of uncertainty caused by the energy crisis, the
      company hasn't
      yet reported year-end earnings.



      Power regulators debate who should be exempted from blackouts
      By KAREN GAUDETTE
      Associated Press Writer
      03/22/2001
      Associated Press Newswires
      Copyright 2001. The Associated Press. All Rights Reserved.

      SAN FRANCISCO (AP) - State power regulators said Thursday they are
      working to
      exempt all California hospitals, regardless of size, from rolling
      blackouts.
      The Public Utilities Commission met with representatives from
      hospitals and
      investor-owned utilities after Los Angeles lawyer David Huard filed
      an emergency
      motion with the PUC on behalf of more than 500 hospitals throughout
      the state.

      Under PUC rules, hospitals with more than 100 beds are exempt from
      losing
      electricity during power emergencies. But during rolling blackouts
      Monday, at
      least a dozen hospitals from Long Beach to Clearlake were forced to
      use their
      backup generators.
      Pacific Gas and Electric Co. and Southern California Edison Co. say
      they blacked
      out those hospitals specifically because they have backup generators.
      Both
      utilities said the temporary blackouts were part of their overall
      efforts to
      spread the burden of blackouts over more of their customers.
      Linda Ziegler, director of business and regulatory planning for SoCal
      Edison,
      said the utility is following state law and will implement new
      guidelines if the
      PUC changes them.
      But hospitals say there is a 10-second lapse before emergency
      generators kick
      in, which could harm patients in the midst of delicate surgical
      procedures such
      as organ transplants or brain surgery.
      "You wouldn't fly a plane with only your emergency backup systems in
      place,"
      said Ann Mosher, a spokeswoman for California Pacific Medical Center
      in San
      Francisco. "Backup generators are just that, they're not designed to
      keep the
      hospital up and running at full capacity."
      Ziegler said that power still goes out for reasons beyond the energy
      crisis,
      from incidents like lightning or a knocked-down power pole.
      "If it's a serious problem for the hospital it's certainly something
      they should
      be address just from an ongoing basis," she said.
      The exemption would cover all hospitals within the territory of the
      state's
      investor owned utilities PG&E, Southern California Edison and San
      Diego Gas and
      Electric.
      Hospitals within the range of municipally owned utilities, such as
      the Los
      Angeles Department of Water and Power, are separately regulated.
      For more than two decades, prisons, hospitals with more than 100 beds
      and
      emergency services such as fire and police departments have been
      classified as
      "essential" services, and are exempted from blackouts by order of
      state power
      regulators.
      After rolling blackouts began darkening the state in January, many
      other public
      service groups began seeking relief from power interruptions,
      including transit
      systems, schools and water districts.
      ---
      On the Net:
      http://www.cpuc.ca.gov



      Federal Judge Orders Reliant To Keep Selling Pwr To Calif
      03/22/2001
      Dow Jones Energy Service
      (Copyright (c) 2001, Dow Jones & Company, Inc.)

      SACRAMENTO, Calif. (AP)--A federal judge issued a preliminary
      injunction
      Wednesday ordering a major electricity wholesaler to continue selling
      to
      California despite its fear that it will not get paid.
      U.S. District Judge Frank C. Damrell Jr. said Californians were at
      risk of
      irreparable harm if Reliant Energy (REI) stopped selling power to the
      Independent System Operator, which oversees the state's power grid.
      The ISO buys
      last-minute power on behalf of utilities to fill gaps in supply.

      Damrell dismissed Reliant's attempt to force the state Department of
      Water
      Resources to back the ISO's purchases for the state's two biggest
      utilities. The
      state has been spending about $50 million a day on power for Pacific
      Gas and
      Electric Co. and Southern California Edison, both denied credit by
      suppliers
      after amassing billions of dollars in debts.
      The judge said he had no authority to force the DWR to pay for that
      power.
      Gov. Gray Davis has said the state isn't responsible for purchasing
      the costly
      last-minute power ISO buys for Edison and PG&E, despite a law
      authorizing state
      power purchases on the utilities' behalf.
      ISO attorney Charles Robinson said the ruling gives ISO operators "a
      tool to
      assist them in keeping the lights on in California."
      "Had the decision gone the other way, one could expect other
      generators to
      simply ignore emergency orders," Robinson said.
      Damrell's preliminary injunction will remain in effect until the
      Federal Energy
      Regulatory Commission rules on the matter.
      Damrell denied the ISO's request for preliminary injunctions against
      three other
      wholesalers - Dynegy Inc. (DYN), AES Corp. (AES) and Williams Cos.
      (WMB) - which
      agreed to continue selling to the ISO pending the FERC ruling.
      Spokesmen for Reliant, Dynegy, AES and Williams were out of the
      office Wednesday
      night and didn't immediately return calls from The Associated Press
      seeking
      comment on the ruling.
      The ISO went to court in February after a federal emergency order
      requiring the
      power sales expired. The judge then issued a temporary restraining
      order,
      requiring the sales, but dropped it after the suppliers agreed to
      continue sales
      to California pending his Wednesday ruling.
      The ISO said it would lose about 3,600 megawatts if the suppliers
      pulled out,
      enough power for about 2.7 million households. One megawatt is enough
      for
      roughly 750 homes.
      Grid officials said Reliant's share alone is about 3,000 megawatts.
      Reliant said
      the amount at issue actually is less than a fourth of that, because
      most of its
      output is already committed under long-term contracts.
      Reliant, which currently provides about 9% of the state's power,
      worries it
      won't get paid due to the financial troubles of PG&E and Edison. PG&E
      and Edison
      say that together they have lost about $13 billion since June due to
      soaring
      wholesale electricity costs that California's 1996 deregulation law
      bars them
      from passing onto customers.


      Calif Small Pwr Producers To Shut Plants If Rates Capped
      By Jason Leopold
      Of DOW JONES NEWSWIRES
      03/22/2001
      Dow Jones Energy Service
      (Copyright (c) 2001, Dow Jones & Company, Inc.)

      LOS ANGELES -(Dow Jones)- Many of California's independent power
      producers late
      Wednesday threatened to take their small power plants offline this
      week if state
      lawmakers pass legislation that would cap the rates the generators
      charge for
      electricity they sell directly to the state's three investor-owned
      utilities.
      At issue is a bill that would repeal a section of the state's Public
      Utilities
      Code, which links the 688 so-called qualifying facilities'
      electricity rates to
      the monthly border price of natural gas.

      Lawmakers, however, are poised to pass the legislation.
      State regulators are then expected to approve a measure that would
      restructure
      the fluctuating rates the QFs charge PG&E Corp. (PCG) unit Pacific
      Gas &
      Electric, Edison International (EIX) unit Southern California Edison,
      and Sempra
      Energy (SRE) unit San Diego Gas & Electric from $170 a megawatt-hour
      to
      $69-$79/MWh, regardless of the price of natural gas.
      Whereas each of the 688 QF contracts differed, largely because
      natural gas
      prices are higher in Southern California than Northern California,
      the state
      wants the QFs to sign a general contract with the utilities.
      The cogeneration facilities, which produce about 5,400 megawatts of
      electricity
      in the state, said the rates are too low and they won't sign new
      supply
      contracts with the utilities.
      "For $79/MWh, natural gas would have to be $6 per million British
      thermal unit
      at
 the Southern California border," said Tom Lu, executive director
      of
      Carson-based Watson Cogeneration Company, the state's largest QF,
      generating 340
      MW. "Our current gas price at the border is $12.50."
      Other gas-fired QFs said the state could face another round of
      rolling blackouts
      if lawmakers and state regulators pass the legislation, which is
      expected to be
      heard on the Senate floor Thursday, and allow it to be implemented by
      Public
      Utilities Commission next week.
      Lu, whose company is half-owned by BP Amoco PLC (BP) and is owed $100
      million by
      SoCal Ed, said the proposals by the PUC and the Legislature "will
      only make
      things worse."
      David Fogarty, spokesman for Western States Petroleum Association,
      whose members
      supply California with more than 2,000 MW, said the utilities need to
      pay the
      QFs more than $1 billion for electricity that was already produced.
      State Loses 3,000 MW QF Output Due Of Financial Reasons


      The QFs represent about one-third, or 9,700 MW, of the state's total
      power
      supply. Roughly 5,400 MW are produced by natural gas-fired
      facilities. The rest
      is generated by wind, solar power and biomass.
      About 3,000 MW of gas-fired and renewable QF generation is offline in
      California
      because the power plant owners haven't been paid hundreds of millions
      of dollars
      from cash-strapped utilities SoCal Ed and PG&E for nearly four
      months.
      Several small power plant owners owed money by SoCal Ed have
      threatened to drag
      the utility into involuntary bankruptcy if the utility continues to
      default on
      payments and fails to agree to supply contracts at higher rates.
      The defaults have left many of the renewable and gas-fired QFs unable
      to operate
      their power plants because they can't afford to pay for the natural
      gas to run
      their units. Others continue to produce electricity under their
      contracts with
      the state's utilities but aren't being paid even on a forward basis.
      The California Independent System Operator, keeper of the state's
      electricity
      grid, said the loss of the QF generation was the primary reason
      rolling
      blackouts swept through the state Monday and Tuesday.
      Gov. Gray Davis, recognizing the potential disaster if additional QFs
      took their
      units offline, held marathon meetings with key lawmakers Monday and
      Tuesday to
      try and hammer out an agreement that would get the QFs paid on a
      forward basis
      and set rates of $79/MWh and $69/MWh for five and 10 year contracts.
      He also
      said he would direct the PUC to order the utilities to pay the QFs
      for power
      they sell going forward.
      "After next week the QF problem will be behind us," Davis said
      Tuesday. "We want
      to get the QFs paid...the QFs are dropping like flies...and when that
      happens
      the lights go out."
      But this just makes the problem worse, said Assemblyman Dean Florez,
      D-Shafter,
      a member of the Assembly energy committee.
      "I don't know how we are going to keep the lights on," Florez said in
      an
      interview. "Many of these congenerators are in my district. They said
      if the
      legislation doesn't change they are going offline. This compounds the
      issue of
      rolling blackouts, especially now when we need every megawatt."
      Davis, who didn't meet with people representing the QFs, said he was
      handing the
      QF issue to the PUC because lawmakers failed to pass legislation that
      would have
      set a five-year price for natural gas and allow the QFs to sign
      individual
      contracts with the utilities. In addition, SOCal Ed opposed the
      legislation,
      saying the rates should be below $50/MWh.
      Some renewable power producers said they aren't vehemently opposed to
      the new
      rate structure because it guarantees them a higher rate than what was
      originally
      proposed.
      QFs Want Third Party Supply Contracts


      John Wood, who represents the SoCal Ed Gas Fired Creditors Committee,
      one of a
      handful of groups that have formed since January to explore options
      on getting
      paid by the utilities, said his group of gas-fired QF creditors want
      to be
      released from their supply contracts and sell to third parties.
      "Under our plan, we would be permitted to sell electricity to third
      parties
      (including the state Department of Water Resources) until a
      resolution to the
      crisis can be accomplished," wood said.
      Hal Dittmer, president of Sacramento-based Wellhead Electric in
      Sacramento,
      which is owed $8 million by PG&E, has 85 MW of gas-fired generation
      units
      offline.
      Under the state's plan, Dittmer said he risks going out of business.
      "I can't buy natural gas for what I would be paid under this
      decision," he said.
      "The state needs to quit kidding themselves that they don't need to
      raise
      electricity rates. All of this is being driven by an artificial
      construct that
      California can avoid raising rates."

      -By Jason Leopold, Dow Jones Newswires; 323-658-3874;
      jason.leopold@dowjones.com


      Power Strain Eases but Concerns Mount Energy: Officials say summer
      prices will be high, and a state report shows that contracts with
      generators are far short of goals.
      DAN MORAIN; JENIFER WARREN
      TIMES STAFF WRITERS
      03/22/2001
      Los Angeles Times
      Home Edition
      A-3
      Copyright 2001 / The Times Mirror Company

      SACRAMENTO -- California's fragile electricity system stabilized
      Wednesday, but
      a Davis administration report suggested troubles ahead because the
      state could
      be forced to buy most of its power for the coming summer on the
      costly and
      volatile spot market.
      After two days of statewide blackouts, power plants that had been
      shut down were
      cranked up. Unseasonable heat tapered off. The operators of the
      statewide power
      grid relaxed their state of emergency.

      But plenty of ominous signs remained. Many small producers remained
      shut down,
      skeptical about Gov. Gray Davis' plan for utilities to pay them.
      State Controller Kathleen Connell issued a sharp warning about the
      high cost of
      the state's foray into the power business and announced that she will
      block an
      administration request that she transfer $5.6 billion into an account
      that could
      be tapped to pay for state purchases of electricity.
      And a report from the administration summarizing contracts between
      Davis and
      independent power generators showed that the state has signed
      contracts for only
      2,247 megawatts of electricity, significantly less than the 6,000 to
      7,000
      megawatts previously claimed.
      While there are agreements in principle for the full amount, the
      report notes
      that generators can back out of the contracts for a variety of
      reasons,
      including the state's failure to sell bonds to finance power
      purchased by July
      1. The Legislature has approved plans to sell $10 billion in bonds,
      but none
      have yet been issued.
      "We are exposed enormously this summer," Senate Energy Committee
      chairwoman
      Debra Bowen (D-Marina del Rey) said after looking at the report. "We
      owe the
      people the truth about how difficult this summer is going to be. We
      don't have a
      power fairy."
      Perhaps most significant, the report suggests that the contracts fall
      significantly short of Davis' stated goal of buying no more than 5%
      of the
      state's summer needs on the spot electricity market, where prices can
      be many
      times those of long-term contracts.
      After reading the report, Frank Wolak, a Stanford University
      economist who
      studies the California electricity market, said the numbers suggested
      that the
      state's long-term contracts will cover less than half of what the
      state will
      need this summer.
      "We're definitely short this summer, next summer and the summer of
      2003," he
      said.
      California was forced to start buying electricity in December--at a
      cost of $50
      million a day--because producers refused to sell to Southern
      California Edison
      and Pacific Gas & Electric. The two utilities amassed billions of
      dollars in
      debt when prices for wholesale power soared on the spot market.
      Vikram Budhraja, a consultant retained by Davis to negotiate deals
      with
      generators, said the report represents a "work in progress." He said
      the state
      may yet sign new contracts.
      However, Wolak said the contract figures confirm what he and others
      have been
      dreading: that summer is going to be rife with rolling blackouts
      unless serious
      steps to cut demand are taken immediately.
      Wolak and other experts say large industrial customers must be
      switched to
      real-time meters and pricing to persuade them to use the bulk of
      their energy at
      times of low demand.
      The head of the Energy Foundation, a San Francisco-based nonprofit
      that promotes
      sustainable sources of power, made the same proposal to Davis on
      Wednesday.
      "The government need not ask customers to swelter in the dark this
      summer,"
      foundation President Hal Harvey argued in a letter.
      He also proposed a crash campaign to boost sales of efficient
      appliances and
      lightbulbs. He said the state needs to take over the utilities'
      contracts with
      alternative energy providers to ensure they stay in business, and
      sign new
      contracts for 1,500 megawatts of new wind power--the cheapest,
      fastest and
      cleanest source of new supply.
      Davis had proposed a formula Tuesday to force private utilities to
      pay the
      alternative producers, some of which have not been paid since
      November. But some
      of them warned Wednesday that Davis' plan offers them little
      incentive to turn
      on their generators.
      Alternative energy producers supply more than a quarter of the
      electricity
      consumed in California.
      Many producers generate electricity from wind, sun and geothermal
      sources. But
      most of them generate power using natural gas--and the cost of
      natural gas has
      been soaring. Several natural gas users said Davis' plan, which caps
      rates,
      won't cover their fuel costs.
      Davis assumes that the price of natural gas will fall. But small
      generators say
      they don't have sufficient purchasing power or sophistication to
      gamble on
      future prices.
      The Public Utilities Commission is expected to approve Davis'
      proposal next
      week. It offers producers two choices: 7.9 cents a kilowatt-hour if
      they agree
      to supply power for five years, or 6.9 cents a kilowatt-hour over 10
      years.
      "The price of natural gas is higher than that," said Marty Quinn,
      executive vice
      president and chief operating officer of Ridgewood Power LLC, which
      owns three
      natural gas-fired co-generation plants. "If we operate, we'll lose
      money."
      Ridgewood is not operating, having been cut off by gas suppliers. The
      company
      sued PG&E last month seeking overdue payments and release from its
      contracts
      with the utility.
      A hearing is scheduled in El Centro today in another lawsuit filed by
      a small
      energy producer, an Imperial Valley geothermal producer that sued
      Edison for
      refusing to let it break its contract and sell on the open market.
      CalEnergy
      says Edison owes it about $140 million for energy sold since
      November.
      A company spokesman, Jay Lawrence, said CalEnergy was going ahead
      with its suit
      despite Davis' proposal. "We've had promises before," he said.
      In other developments:
      * A federal judge in Sacramento on Wednesday ordered Reliant Energy
      of Houston,
      a major producer, to continue selling power to California during
      emergencies,
      despite the company's argument that it may not be fully reimbursed.
      The order
      will remain in effect for 60 days or until the U.S. Federal Energy
      Regulatory
      Commission decides a related case.
      * Connell said the state budget surplus has shrunk to $3.2 billion
      because the
      state has spent roughly $2.8 billion on electricity. She criticized
      the
      administration for withholding basic information about state
      finances, and said
      she will begin an audit on Monday of the Department of Water
      Resources, which is
      responsible for purchasing power.
      Davis' aides said Connell took her action because the Democratic
      governor
      endorsed one of Connell's foes this week in the race for Los Angeles
      mayor,
      former Assembly Speaker Antonio Villaraigosa. A Connell aide scoffed
      at the
      notion.
      * Sen. Dianne Feinstein (D-Calif.) said she "never has had a
      response" from
      President Bush after writing him last month for an appointment to
      discuss the
      California energy crisis.
      In a wide-ranging lunch talk with reporters in Washington, she
      deplored the fact
      that "huge, huge profits are being made" in the California crisis,
      and said "an
      appropriate federal role" would be to guarantee a reliable source of
      power until
      the state can get nine new generators online.
      *
      Times staff writers Mitchell Landsberg in Los Angeles and Robert L.
      Jackson in
      Washington contributed to this report.
      (BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
      Power Points
      Daily Developments
      * Wholesale electricity suppliers overcharged by about $5.5 billion
      between May
      and last month, and that money should be refunded to taxpayers and
      utilities,
      according to a Cal-ISO report.
      * The state may have to buy most of its power for summer on the
      costly spot
      market, which could drive consumers' bills up, a Davis administration
      report
      concludes.
      * State Controller Kathleen Connell said she will block a request by
      the Davis
      administration for $5.6 billion for state purchases of electricity.
      Verbatim
      "We owe the people the truth about how difficult this summer is going
      to be. We
      don't have a power fairy."
      Debra Bowen (D-Marina del Rey), Senate Energy Committee chairwoman


      CPUC Must Address Rates In QF Repayment Order - SoCal Ed
      03/21/2001
      Dow Jones Energy Service
      (Copyright (c) 2001, Dow Jones & Company, Inc.)

      LOS ANGELES -(Dow Jones)- Any order from the California Public
      Utilities
      Commission requiring utilities to pay small, independent generators
      going
      forward must determine how that could be done within the existing
      rate
      structure, a spokesman for Edison International (EIX) utility
      Southern
      California Edison said Wednesday.
      The utility was responding to a PUC proposed decision that would
      require
      utilities to pay small generators, called qualifying facilities, $79
      a megawatt
      hour within 15 days of electricity delivery. The decision will be
      voted March 27
      by the CPUC.

      "We're still reviewing (the decision) and should have more to say in
      a day or
      two. To the extent that the commission orders us to pay going forward
      of course
      we will. But it needs to address how we will pay the QFs," a SoCal
      Edison
      spokesman said.
      SoCal Edison and PG&E Corp. (PCG) unit Pacific Gas & Electric Co. are
      struggling
      under nearly $13 billion in uncollected power costs due to an
      inability to pass
      high wholesale power costs to customers under a rate freeze.
      Gov. Gray Davis Tuesday blasted the utilities for not having paid
      their QF bills
      in full since December. Pacific Gas & Electric Co. has made some
      partial
      payments to QFs, but SoCal Edison has paid nothing. Together, they
      owe the QFs
      about $1 billion, but the order doesn't address that debt.
      An Edison executive said, in reaction to the governor's sharp
      comments, that the
      company simply doesn't have the money to pay creditors.
      "The root problem here is there just isn't enough money in the
      current rate base
      to pay our bills," said Edison Senior Vice President of Public
      Affairs Bob
      Foster. "We understand the financial distress (the QFs) face; we are
      facing
      financial distress ourselves."
      The proposed PUC order would also require the state's investor-owned
      utilities
      to offer the small generators five- and 10-year contracts for power
      for $79/MWh
      and $69/MWh, respectively.
      The QFs "may be able to live with" the PUC proposal, but the five-
      and 10-year
      contract prices may be inadequate if natural gas prices at one of the
      California
      borders are high, said Jan Smutny-Jones, president of the Independent
      Energy
      Producers Association. Natural gas prices into California are
      currently higher
      than anywhere in the country.
      But some say the proposed decision may not be enough to prevent the
      QFs from
      filing involuntary bankruptcy proceedings against the utilities for
      the money
      they are still owed.
      "There's still a lot of skepticism. To say our position has changed
      based on the
      CPUC decision or the governor's announcement is not accurate. A lot
      still has to
      happen," said Jay Lawrence, a spokesman for a renewable creditors
      committee.
      -By Jessica Berthold, Dow Jones Newswires; 323-658-3872;
      jessica.berthold@dowjones.com -0- 22/03/01 01-27G



      State Says It's Accelerating Plan to Buy Power Utilities' Grid
      Government: Talks with Edison are reported near completion, but
      agreement with heavily indebted PG&E has a way to go.
      RONE TEMPEST; DAN MORAIN
      TIMES STAFF WRITERS
      03/21/2001
      Los Angeles Times
      Home Edition
      A-22
      Copyright 2001 / The Times Mirror Company

      SACRAMENTO -- As blackouts hit California for a second day Tuesday, a
      key
      consultant to Gov. Gray Davis said negotiations to buy the power grid
      owned by
      the state's largest utilities "are proceeding at an accelerated
      pace."
      Wall Street consultant Joseph Fichera said talks with Southern
      California Edison
      could be wrapped up within days, although those with PG&E are much
      less
      advanced.

      The administration and PG&E have not reached even an agreement in
      principle, he
      said. PG&E, which has more debt than Edison, says its transmission
      lines are
      more extensive than those of its Southern California counterpart.
      The state wants to buy the utilities' transmission lines and other
      assets for
      about $7 billion to provide cash to the utilities, help stabilize the
      electricity supply and ease the power crunch that has plagued
      California for
      months. To research the grid purchase, Fichera said, the state has
      had to pore
      over 80,000 documents just to assess the utilities' liabilities.
      "We are working at a good pace," said Fichera, chief executive of the
      New York
      firm Saber Partners. " . . . If we get to a deal-breaker, it might be
      longer."
      By making Fichera, who is also a consultant to the Texas Public
      Utilities
      Commission, available to reporters Tuesday, the Davis administration
      was clearly
      trying to reassure the public that progress is being made on the
      governor's plan
      to pull the state out of the crisis.
      Since mid-January, when the big utilities' credit failed and
      suppliers stopped
      selling to them, the state has spent nearly $3 billion buying
      electricity from a
      handful of large suppliers in Texas, Oklahoma, Georgia and North
      Carolina. Not a
      cent has gone to the hundreds of alternative energy suppliers in
      California who
      provide about a quarter of the state's electricity.
      The Monday and Tuesday blackouts occurred partly because many of the
      cash-strapped alternative suppliers, including solar, biomass and
      wind power
      units, cut their normal supply to the system in half. They say Edison
      and PG&E
      have not paid them since November; the utilities say they are out of
      cash.
      Assemblyman Fred Keeley (D-Boulder Creek) said the plight of the
      alternative
      suppliers has dragged on because of the complexity of dealing with
      "almost 700
      individual contractors."
      Another delaying factor, said Keeley, who with state Sen. Jim Battin
      (R-La
      Quinta) worked for almost three months to come up with a legislative
      plan to
      lower the small producers' prices, was "the huge enmity . . .
      manifested between
      the utilities and the qualifying facilities. These people just don't
      like each
      other."
      This week's blackouts provided two painful lessons for the Davis
      administration:

      * When it comes to electricity, size doesn't matter--every kilowatt
      counts.
      During peak use, a small wind power facility in Riverside County can
      make the
      difference between full power and blackouts.
      * There is no such thing as a partial solution. Unless the whole
      energy equation
      is balanced, the parts don't work.
      For the Davis plan to work, several key elements need to come
      together or
      utility customers will almost certainly face rate increases above the
      19%
      already set in motion * The cost of power purchased by the state must
      be reduced
      through long-term contracts with the big out-of-state producers.
      These contracts, the details of which the Davis administration has
      kept
      confidential, are still being negotiated by Davis consultant Vikram
      Budhraja of
      the Pasadena firm Electric Power Group. The administration says it
      has concluded
      40 contracts with generators, about half of which have been signed.
      According to the most recent statistics released by the Department of
      Water
      Resources, which buys power for the state, current prices are still
      well above
      the rate state Treasurer Phil Angelides says is necessary for a
      planned
      $10-billion bond offering to succeed.
      The bonds, set for sale in May, will be used to reimburse the state
      for the
      money it will have spent by that time to buy electricity. The state
      is currently
      spending at a rate of $58 million a day to buy power. If prices stay
      high, the
      $10 billion in bonds will not cover the state's power purchases by
      the end of
      the summer.
      Angelides says he cannot proceed with bridge financing for the bonds
      until the
      Public Utilities Commission devises a formula to guarantee that a
      portion of
      utility bills will be dedicated to bond repayment. Angelides has
      estimated that,
      under the January law that put the state in the power buying
      business, the state
      must be reimbursed $2.5 billion annually, and that $1.3 billion is
      needed to
      service the debt.
      PUC Administrative Law Judge Joseph R. DeUlloa is expected to
      announce his
      ruling on the reimbursement rate later this week, leading to a PUC
      vote on the
      matter as early as next week.
      * The rates charged for electricity by the alternative producers,
      known as
      qualifying facilities, must be cut at least in half, down from an
      average of
      more than 17 cents per kilowatt-hour. In his news conference Tuesday,
      Davis said
      he will ask the PUC to set QF rates at 6.9 cents for 10-year
      contracts and 7.5
      cents for five-year contracts.
      Meanwhile, PUC Chairman Loretta Lynch, a Davis appointee, said
      Tuesday that the
      commission will vote next week on a proposed order requiring Southern
      California
      Edison and Pacific Gas & Electric to pay the QFs for electricity in
      the future.
      Lynch said a recent PUC assessment showed that the utilities have
      enough cash on
      hand for that.
      "We are trying to make sure the folks providing the power get paid,"
      Lynch said.
      "The qualified facilities have demonstrated that they haven't been
      paid and that
      it is impairing their ability to provide power."
      The utilities contend that if they pay the small providers what they
      owe them,
      there will not be enough money left to pay other creditors.
      "There is not enough money in the current rate structure to pay the
      [alternative
      producers], pay the [Department of Water Resources] and pay the
      utilities for
      their generation," said John Nelson, a spokesman for PG&E.
      * The utilities must sell to the state the power they produce
      themselves, mainly
      from hydro and nuclear sources, at a rate only slightly above the
      cost of
      producing it. This is tied to the ongoing negotiations between the
      Davis
      administration and the utilities to restore the near-bankrupt
      utilities to
      solvency.
      *
      Times staff writers Julie Tamaki, Miguel Bustillo and Tim Reiterman
      contributed
      to this report.


      Davis OKs Subsidy of Pollution Fees Smog: As part of secret deal to
      get long-term energy contracts, state would pay for some of the
      credits that allow excess power plant emissions. Critics renew call
      for full disclosure.
      DAN MORAIN
      TIMES STAFF WRITER
      03/21/2001
      Los Angeles Times
      Home Edition
      A-23
      Copyright 2001 / The Times Mirror Company

      SACRAMENTO -- As part of his closed-door negotiations to buy
      electricity, Gov.
      Gray Davis has agreed to relieve some generators from having to pay
      potentially
      millions of dollars in fees for emitting pollutants into the air,
      Davis said
      Tuesday.
      Davis announced two weeks ago that his negotiators had reached deals
      with 20
      generators to supply $43 billion worth of power during the next 10
      years.

      However, the Democratic governor has refused to release any of the
      contracts or
      detail various terms, contending that release of such information
      would hamper
      the state's ability to negotiate deals with other generators and
      therefore
      ultimately would raise prices Californians pay for electricity.
      Sources familiar with the negotiations, speaking on condition of
      anonymity, said
      the agreement reached with Dynegy Inc., a power company based in
      Houston, is one
      that includes language requiring that the state pay the cost of
      credits that
      allow emissions. Dynegy spokesman Steve Stengel declined to discuss
      the
      company's deal with the state.
      "We couldn't get them to sign contracts; it was a sticking point,"
      Davis said of
      the decision to pay the fees of some generators. "We had to lock down
      some power
      so we were not totally dependent on the spot market."
      The fees in question are part of an emission trading system known as
      RECLAIM.
      Under the system, companies are allotted a certain amount of
      allowable
      pollution. If their operations pollute more, companies are required
      to purchase
      credits on an open market. Currently the credits cost about $45 per
      pound of
      pollution--an amount that can lead to a bill of well over $10 million
      a year for
      a power plant.
      The South Coast Air Quality Management District, which regulates
      pollution in
      the Los Angeles Basin, is considering steps to significantly lower
      the cost of
      the system--a step that could considerably cut the state's potential
      cost, Davis
      said.
      Senate Energy Committee Chairwoman Debra Bowen (D-Marina del Rey)
      defended the
      decision to cover the power company's costs.
      "It is a question of whether it brings down the price of power," she
      said. "If
      it brings down the price of power, I don't have a problem with it."
      Nevertheless, word that the contracts could bind the state to pay
      pollution fees
      caused some critics of Davis' policy to renew calls for Davis to
      reconsider the
      secrecy surrounding the power negotiations. The payment provision
      underscores
      the fact that the contracts involve more than merely the prices the
      state will
      pay for its megawatts, the critics note.
      "The Legislature should have known about it," said Senate President
      Pro Tem John
      Burton (D-San Francisco). "It is going to cost taxpayers money. It
      makes you
      wonder. . . . This was a policy issue that was never discussed with
      the
      Legislature."
      V. John White, a lobbyist for the Sierra Club, who also represents
      alternative
      energy producers, called the contract proposal "a horrible
      precedent."
      "Until we know exactly what the state has agreed to and how much of a
      subsidy
      this represents, we can't determine how serious the breach of
      principle this
      is," White said.
      Another critic of the secrecy of the negotiations, Terry Francke,
      general
      counsel for the California First Amendment Coalition, said the
      provision in
      question "raises the possibility that there are other [concessions]"
      that have
      not yet come to light.
      In the summer, when demand for power is highest, some generators
      probably will
      exceed pollution limits set by regional air quality management
      districts.
      To avert blackouts, state officials might ask the companies to keep
      plants
      running. In such cases, some sources familiar with aspects of the
      contracts
      said, the contract language could be interpreted to suggest that the
      state would
      cover any fines--although Davis said Tuesday the state will not cover
      the cost
      of fines.
      A recent Dynegy filing with the Securities and Exchange Commission
      underscores
      the rising cost of pollution-related measures. The company, which is
      partners
      with NRG Energy in three California plants in El Segundo, Long Beach
      and
      Carlsbad in San Diego County, said its "aggregate expenditures for
      compliance
      with laws related to the regulation of discharge of materials into
      the
      environment" rose to $14.3 million in 2000, from $3.6 million in
      1999.
      A South Coast Air Quality Management spokesman said Dynegy's
      facilities appear
      to be fairly clean--although Sierra Club lobbyist White said Dynegy
      has been
      seeking a permit at one of its plants to burn fuel oil, which is
      dirtier than
      natural gas.
      Davis said he intends to "make this information public," but he added
      that "we
      do not want to put the public's interest in jeopardy by asking them
      to pay
      higher prices."
      "Nobody likes the notion that [the administration is] not being fully
      forthcoming," Davis said. "But I also have a corollary responsibility
      that I
      don't stick these generators with a higher rate."


      FERC ORDERS WILLIAMS ENERGY AND AES TO EXPLAIN THEIR REFUSAL TO MAKE
      CERTAIN RMR UNITS AVAILABLE TO CALIFORNIA ISO LAST YEAR
      03/21/2001
      Foster Electric Report
      5
      (c) Copyright 2001, Foster Associates, Inc.

      Following a preliminary, non-public investigation, FERC directed AES
      Southland
      Inc. and Williams Energy Marketing & Trading Co. (IN01-3) on March 14
      to show
      cause why they did not violate section 205 of the Federal Power Act
      (FPA) by
      failing to provide power to the California ISO from two reliability
      must-run
      (RMR) generator units during a period in April and May 2000. The
      investigation
      responded to a matter referred by the Cal-ISO. If a violation is
      found, Williams
      Energy and AES could be required to refund excess profits of $10.9
      million (as
      calculated by FERC) and face restrictions on their market-based rate
      authority
      for a year.
      The show cause order involves two generation units (Alamitos 4 and
      Huntington
      Beach 2), owned and operated by AES. Williams Energy markets all
      output from the
      Alamitos and Huntington Beach plants, including the two units at
      issue here,
      pursuant to a tolling agreement filed with the Commission. The
      Cal-ISO
      designated the two units as RMR units that it could call on when
      necessary to
      provide energy and ancillary service essential to the reliability of
      the
      California transmission network. The Cal-ISO makes both a fixed
      payment to the
      RMR owner or operator to compensate for the RMR unit's availability
      and a
      variable payment for the RMR unit's output (if the unit is not
      otherwise
      participating in the market). Williams Energy and the Cal-ISO
      executed RMR
      agreements, filed as rate schedules with the Commission, allowing the
      Cal-ISO to
      dispatch units "solely for purposes of meeting local reliability
      needs or
      managing intra-zonal congestion." The ISO may dispatch a non-RMR unit
      if the
      designated RMR unit is not available. Under its RMR agreement with
      the ISO,
      Williams is paid the greater of its contract price or marginal cost
      for
      operating RMR units. However, if a non-RMR unit has to be dispatched
      because a
      designated RMR unit is unavailable, Williams will be paid its bid
      price, not the
      RMR contract price.

      During the April to May 2000 period, the Cal-ISO sought to dispatch
      both
      Alamitos 4 and Huntington Beach 2 as RMR units to provide voltage
      support.
      However, according to the FERC order, Williams Energy refused to make
      Alamitos 4
      available from April 25 through May 5, and to make Huntington Beach 2
      available
      from May 6 through May 11, "for reasons not directly related to the
      necessary
      and timely maintenance of the units." Consequently, the Cal-ISO was
      forced to
      dispatch non-RMR units at a higher cost, namely, Williams Energy's
      bid price for
      service provided by the replacement units.
      By contrast, if the RMR units had not experienced outages and been
      available
      from April 25 through May 11, Williams Energy would have received
      either (1) the
      market revenues only from the respective units, which would have
      resulted in no
      payments for RMR output from the ISO to Williams Energy, or (2)
      Williams
      Energy's variable cost for operating the RMR units less the market
      revenues from
      the respective units' output. Accordingly, FERC observed, Williams
      Energy had "a
      financial incentive to prolong any outages of Alamitos 4 and
      Huntington Beach 2
      in April and May 2000."
      The bid price for the non-RMR units was at or near the Cal-ISO's
      then-effective
      bid cap of $750/MWh, FERC continued. Therefore, Williams Energy
      received
      payments from the Cal-ISO of more than $11.3 million, or about $10.3
      million
      greater than the estimated average variable operating cost of the
      non-RMR units
      (approximately $63/MWh) during the period in question. This indicates
      a refund
      amount, including interest, of nearly $10.9 million.
      The information in this order and a non-public appendix, the
      Commission
      declared, suggests that AES declared outages at the two RMR units and
      maintained
      Huntington Beach 2 in a manner inconsistent with good utility
      practice, and that
      Williams Energy took action to extend the outage at Alamitos 4 and to
      make
      Huntington Beach 2 unavailable for "pretextual reasons."
      Based on this information coupled with Williams Energy's financial
      incentive not
      to make the Alamitos 4 and Huntington Beach 2 units available, FERC
      found
      serious questions about whether (1) AES and Williams Energy violated
      applicable
      RMR contracts and tariffs on file with the Commission pursuant to FPA
      section
      205 when they refused to make Alamitos 4 and Huntington Beach 2
      available for
      dispatch by the Cal-ISO; (2) whether Williams acted inconsistently
      with its
      market-based rate authority and the market monitoring information
      protocols of
      the Cal-ISO's tariff regarding the unavailability of the RMR units
      during the
      period at issue; and (3) whether AES violated a tolling agreement on
      file with
      the Commission pursuant to section 205.
      The Commission identified two remedies for these potential
      violations: a refund
      by Williams Energy and/or AES of revenues received greater than the
      amount that
      would have collected from the ISO if the RMR units had been
      available, and a
      condition on Williams Energy's market-based rate authority.
      Specifically, for a
      one-year period, if an RMR unit were not available when dispatched by
      the
      Cal-ISO, a non-RMR unit dispatched in its place would only receive
      payment
      according to the terms of the applicable RMR contract. In other
      words, Williams
      Energy would not receive the bid price for operation of the
      substitute, non- RMR
      unit.
      The Commission directed Williams Energy and AES to show cause, within
      20 days,
      why they should not be found to have committed the above-described
      violations
      and why the specified remedies should not be imposed.
      Further, to ensure procurement of all relevant information, the
      Commission
      instituted a formal, non-public investigation into the operation,
      maintenance
      and sales of power from the Alamitos and Huntington Beach plants in
      2000 and
      2001.


      Calif Consumers Failing To Conserve Pwr Despite Blackouts
      03/20/2001
      Dow Jones Energy Service
      (Copyright (c) 2001, Dow Jones & Company, Inc.)

      LOS ANGELES -(Dow Jones)- California consumers haven't been
      conserving enough
      electricity to relieve strain on the power grid and reduce demand in
      the state,
      a spokesman with the Independent System Operator said Tuesday.
      The ISO said that despite two straight days of statewide rolling
      blackouts,
      consumers aren't using less electricity, which means additional
      megawatts will
      be taken off the grid. As a result, blackouts could last longer and
      impact
      additional communities, the ISO said.

      ISO spokesman Pat Dorinson said Monday "conservation in California is
      no longer
      an option," but consumers in the state aren't heeding the call to
      reduce
      consumption.
      Conservation efforts during rolling blackouts Monday and Tuesday were
      far less
      than Jan. 17 and Jan. 18, when blackouts swept through Northern
      California due
      to transmission constraints. Jim Detmers, the ISO's vice president of
      operation,
      said consumers saved the state about 1,000 megawatts of electricity,
      enough
      power for 1 million houses.
      The ISO said conservation efforts Monday were about 500 MW or less.
      "We would be very happy if we saw the same amount this time," Detmers
      said.
      The state's Energy Commission said consumers think it's no longer
      important to
      save electricity until blackouts are imposed.
      "People have been saving generally, but it isn't a big bump from hour
      to hour,"
      a spokesman for the Energy Commission said.
      Gov. Gray Davis launched a massive conservation campaign this month,
      promising
      consumers a rebate on their summer electricity bill if they save at
      least 20% of
      electricity, compared with last summer.
      The governor said he believes conservation this summer will amount to
      possibly
      saving 5,000 MW and averting the chance of rolling blackouts.
      -By Jason Leopold; Dow Jones Newswires; 323-658-3874;
      jason.leopold@dowjones.com


      Gas Co.'s Success Opens Debate Southern California energy supplier
      has reaped
      millions of dollars in state incentives for keeping down its costs.
      Though
      consumers get a share of the windfall, regulators are asking whether
      they should
      get more of the bonus, which is expected to be huge this year, as a
      form of
      price relief. The natural gas provider says it deserves to keep its
      reward.
      TIM REITERMAN
      TIMES STAFF WRITER
      03/18/2001
      Los Angeles Times
      Home Edition
      C-1
      Copyright 2001 / The Times Mirror Company

      SAN FRANCISCO -- While consumers suffer soaring energy bills and the
      big
      electric utilities lurch toward insolvency, the news is not all dire
      at Southern
      California Gas Co.
      Through vigorous deal making, the Sempra Energy subsidiary has
      consistently
      beaten the volatile natural gas market during the last year, and the
      company
      stands to reap millions of dollars in savings through a state
      incentive program
      that rewards utilities for keeping costs down.

      For several years, the utility has been splitting the savings 50-50
      with
      ratepayers whenever the company's gas costs fall slightly below
      market levels.
      Those savings, Gas Co. executives acknowledged, have shot to
      unprecedented
      heights during the state's power crisis.
      Now, in this climate of high consumer gas bills and runaway market
      prices,
      regulators are taking another look at the program. The question
      before the
      Public Utilities Commission: Should Gas Co. ratepayers, who endured
      huge bill
      increases this winter, get a bigger share of the savings?
      The total windfall under the incentive program has in some years
      exceeded $20
      million. But the amount for the last 12 months is expected to
      multiply many
      times over, company executives said, partly because the Gas Co. has
      done so well
      in the wild market by selling, lending and trading gas as well as
      buying it.
      "The recent market conditions . . . could possibly result in some
      unintended
      consequences that result in shared savings of benefits that may be
      more
      appropriately allocated entirely to ratepayers," the PUC's consumer
      protection
      arm, the Office of Ratepayer Advocates, reported Oct. 30, even before
      the latest
      upward market spirals.
      Gas Co. representatives express frustration, saying they have done
      what the
      state has requested under its gas-cost incentive program: Buy
      smarter, and pass
      the savings along to its 5 million residential and small-business
      customers. The
      company contends it has worked hard to keep bills down and should be
      rewarded
      for taking risks to obtain gas at the lowest possible cost.
      "The PUC, every time we do well, raises the bar on us," said Jim
      Harrigan,
      director of gas acquisition. "I don't necessarily agree with it."
      By virtue of its purchasing power and storage and pipeline capacity,
      the Gas Co.
      has become a big player in the regional natural gas market. In the
      company's
      bustling trading room at its Los Angeles headquarters, 15 employees
      track price
      movements, pipeline supplies and even the weather via computer, while
      cutting
      deals and arranging gas shipments.
      Although the Gas Co. buys the commodity for its customers, the
      company also
      sells to marketers, other utilities and producers. State officials
      say the
      number of transactions by the company has risen steeply to 10,000 to
      20,000 a
      year, including gas sales along California's border, where prices
      have rocketed.

      The PUC created the cost incentive program for the state's three
      major gas
      utilities--San Diego Gas & Electric Co. in 1993, Southern California
      Gas the
      next year and PG&E Corp.'s Pacific Gas & Electric Co. in 1997. Like
      Southern
      California Gas, SDG&E is a subsidiary of Sempra Energy.
      The program was designed to give utilities added motivation for
      obtaining gas at
      the best price for customers. It replaced lengthy and contentious
      reviews by the
      PUC, which assessed whether utilities had purchased gas at reasonable
      prices and
      sometimes ordered them to return millions of dollars to customers.
      An annual audit of the Gas Co. program and a staff evaluation
      requested by the
      PUC recently concluded that the program has achieved many of its
      goals, but it
      also proposed adjustments that would give customers a greater share
      of the
      rewards.
      "These incentives were designed in less volatile times," said program
      supervisor
      Mark Pocta of the Office of Ratepayer Advocates, which conducted the
      audit.
      "There is a question of how much should go to ratepayers and
      shareholders." His
      office also plans to assess whether the Gas Co.'s trading had any
      negative
      effects on the gas market, resulting in diminished supplies or higher
      prices for
      other utilities and their customers.
      Under the program, the Gas Co. shares risks and rewards with its
      ratepayers, but
      since the program was launched, it has consistently produced awards.
      If the cost
      of gas is 0.5% or more below a benchmark based on monthly gas market
      indexes,
      the company and its customers split the savings 50-50.
      California's gas utilities are not allowed to profit on their raw
      commodity
      costs; they merely pass along those costs to ratepayers with no
      markup. The
      savings under the incentive program are automatically reflected in
      consumers'
      monthly gas bills but are not itemized.
      At the end of the year, the utilities request their share of the
      savings, and
      the PUC has routinely granted approval. Then the companies, and thus
      their
      shareholders, are paid through customer utility bills.
      The resulting bill increases typically have been modest, less than
      1%. But as
      the awards increase, regulators say, the effect on customers will
      become more
      significant unless the present structure is changed.
      "There's no question, when you start to talk about $100 million [or
      more in
      savings], and add [the company's award] into rates in a year, it will
      make a
      noticeable difference," said Los Angeles economist Jeff Leitzinger,
      president of
      Econ One, who has done consulting for the Gas Co.
      Still, he said, ratepayers should bear in mind that they already
      benefit from
      below-market gas and transportation costs.
      In the early years of the program, records show, the Gas Co.'s awards
      went from
      zero to $3.2 million, $10.6 million, $2 million and $7.7 million.
      Last year's
      award of $9.8 million is awaiting PUC approval.
      This year's proposed award, covering the period through the end of
      this month,
      has not yet been submitted by the Gas Co. But the utility has
      provided monthly
      figures and oral updates on a confidential basis to PUC officials,
      who declined
      to provide figures.
      Harrigan of the Gas Co. said the savings are expected to multiply
      "many times
      over," largely because the company was well-equipped for the market
      fluctuations
      and tried to insulate its customers from high gas prices.
      "Any trading company, especially one with assets like we have, has
      benefited
      from volatility in the market," he said.
      Harrigan said, however, that he does not believe the company's level
      of activity
      has adversely affected the market and that its trading pales in
      volume to that
      of unregulated energy companies.
      Anne Smith, the Gas Co.'s vice president of customer service and
      marketing, said
      the utility will not release figures for this year's incentive
      program until
      they are filed with the PUC in June.
      "I don't want to interrupt that process," Smith said, noting that the
      PUC
      ultimately will determine the company's award. "I think they need to
      focus on
      what [the Gas Co.] has done for the ratepayers. It has been immense."
      Although the typical monthly gas bill has risen to $80 from $50 a
      year ago, Gas
      Co. customers tend to have lower rates than those of other California
      utilities.

      The company's gas procurement cost in February was 66 cents per
      therm, or 100
      cubic feet. That's more than twice last year's cost but only about
      half what
      sister company SDG&E paid for its 740,000 customers in February. It's
      also much
      lower than the $1.09 per therm PG&E pays.
      "We were as upset about the overall [gas price] increase as anyone
      else,"
      Harrigan said. "I would rather see the prices of a year ago, even
      though we
      managed to do a little better in the [recent] environment."
      When it comes to keeping down costs, regulators say, the Gas Co. has
      advantages
      over other utilities in the marketplace. For one, the company has so
      much
      pipeline capacity at major gas basins that it purchases a relatively
      small
      portion of its needs--about 10% to 15%--at the California border,
      where prices
      in December briefly rose to the equivalent of $6 per therm, or 20
      times those a
      year earlier.
      This presents opportunities.
      "At the beginning of the month, they forecast a certain amount of gas
      they have
      to buy," said Pocta of the Office of Ratepayer Advocates. "If they go
      out and
      buy and do not need to use as much because the weather is more
      moderate than
      expected, they can either inject the gas into storage or they can
      make sales at
      the border."
      With gas price run-ups like those seen in the last year, Pocta said,
      "there is a
      question: Should that benefit be shared, or flow entirely to
      ratepayers?"
      Customers, he pointed out, may be entitled to additional benefits
      because they
      pay for the interstate and intrastate pipeline capacity and the gas
      storage that
      give the company the flexibility to make advantageous deals.
      "By the same token, we want [the Gas Co.] . . . to go into the market
      and
      generate cost savings that can be passed on to the customers," he
      added. "We
      want them to have incentives. The question is how to balance them."
      Under deregulation, the Gas Co. adopted the nontraditional role of
      marketer,
      according to a PUC Energy Division report in January. The company
      makes gas
      sales at various locations. It engages in exchanges. It makes futures
      transactions to help stabilize costs.
      "They look for ways to lower the gas cost," said Richard Myers,
      program
      supervisor at the Energy Division. "Before they were lots more
      risk-averse. Now
      they feel they can take risks and make money for shareholders, and it
      is a
      benefit for ratepayers at the same time."
      The incentive programs are tailored to individual utilities, so it is
      difficult
      to compare them. Records show that the shared savings at SDG&E, a
      much smaller
      utility, declined steadily from $9.2 million in the 1996-97 cycle to
      $560,000 in
      1999-2000.
      Spokesman Ed Van Herik said the falloff largely represents a drop in
      gas
      purchases, especially as the company sold off its own gas-fired
      electricity-generating plants. He said the company does not yet know
      how much
      savings have accrued in the last year.
      In an annual report to the PUC in February, PG&E said it had no
      savings under
      the incentive program and thus it is not entitled to any award for
      the 1999-2000
      cycle.
      The Utility Reform Network, a San Francisco-based consumer advocacy
      group, said
      it will closely watch the PUC's evaluation of the incentive program
      at the Gas
      Co.
      "We want to make sure, given the dramatic changes in the gas market
      and prices,
      ratepayers are not left out of the [additional] benefits," TURN
      attorney Marcel
      Hawiger said. "We'll look to see whether the mechanism should be
      changed."
      Severin Borenstein, director of the Energy Institute at UC Berkeley,
      said the
      program should be changed to provide more incentive for utilities to
      enter
      long-term contracts that would smooth out volatility in the market.
      "Unfortunately, under the system," he said, "the only incentive is to
      beat the
      [spot] market."


      Use this file to download and print all the articles in this section
      (See attached file: Dow Jones
      Interactive-california-03233001-selected.doc)



      IMPLICATIONS FOR OTHER MARKETS

      (For easier printing of all the articles in this section use the file
      at the end of the section)



      New York:   New York at the crossroads
      Wednesday, March 21, 2001


      Energy Insight



      (Embedded image moved to file: pic24389.pcx)



      By Dave Todd



      dtodd@ftenergy.com



      U.S. Energy Secretary Spencer Abraham declared this week that the Big
      Apple is on the verge of being bitten hard by power cuts and rising
      energy prices.


      Delivering the keynote address at the U.S. Chamber of Commerce's
      national energy summit in Washington Monday, Abraham said,
      "California is not the only state facing a mismatch between supply
      and demand," what with "electricity shortages predicted for New York
      City and Long Island this summer" and low capacity margins
      threatening electricity reliability elsewhere across the country. But
      how likely is it that New Yorkers will face blackouts of the sort
      confronting Californians?


      Not very, says energy trade specialist Edward Krapels, managing
      director of Boston-based METIS Trading Advisors. Krapels, a
      consultant helping major Northeastern utilities, such as Consolidated
      Edison, design market-hedging programs, adamantly decried what he
      said are facile comparisons between conditions in New York and
      California, there being "more differences than there are
      similarities" between those two industrial cornerstones of the
      country's economy in respect to energy security management.


      "First of all, New York has a more varied portfolio of energy
      generation sources than California," he said. California has hydro,
      nuclear and gas, but when it lost a lot of hydro, the state needed
      gas to pick up the slack, and the "capacity just wasn't there." In
      New York's case, the state has oil and coal still in the mix and its
      overall dependence on gas is much lower than California's, Krapels
      added.


      New York avoids making same mistakes


      Portfolio diversity is one pillar of any effective plan to help New
      York avoid the same errors made in redesigning California's
      marketplace. New York's Independent System Operator (ISO), in a new
      report warning that the state is at an "energy crossroads" in terms
      of its capacity adequacy in the immediate future, argues that a
      concerted effort is required to arrest declining in-state generation
      capacity reserve margins, and a strategy must be put in place,
      whether or not new generation comes on-line, in accordance with
      current anticipated scenarios.


      A measure of New York's essential difficulty is that, between 1995
      and 2000, statewide demand for electricity grew 2,700 MW, while
      generating capacity expanded by only 1,060 MW. With no major new
      generating plants in downstate New York fully approved, the gap is
      expected to continue to widen. To avoid "a replication of
      California's market meltdown" the New York ISO calculates the state's
      daily generating capacity needs to grow by 8,600 MW by 2005, with
      more than half of that located in New York City and on Long Island.
      Expressing concern this may be too big a burden for the current
      bureaucratic process to bear, the ISO wants to see a state-appointed
      ombudsman named to help would-be merchant power plant investors plow
      through red tape.


      "Increasing New York's generating capacity will also lessen the
      state's escalating and risky reliance on out-of-state sources of
      electricity," the ISO added. "Since 1999, New York State has been
      unable to cover its reserve requirements from in-state sources."


      Not everyone agrees with that analysis, insofar as it argues for
      circling the wagons inward. Some analysts believe the ultimate
      solution lies not in tying in more inwardly dedicated power, but in
      expanding the marketplace by breaking down inter-jurisdictional
      barriers. In any case, New York energy regulatory authorities and
      those responsible elsewhere in the U.S. Northeast, such as PJM
      (Pennsylvania-New Jersey-Maryland) Interconnection and the New
      England Power Pool, are in vastly better shape in terms of
      "cross-border" cooperation than California and its neighbors in that
      efforts are being made among various authorities toward developing an
      integrated regional electricity market. In California, by contrast,
      the state's focus?for example, in the case of new gas-fired power
      plant development?has been to ensure dedicated supply to the
      California market alone, rather than on a regional marketplace.




      (Embedded image moved to file: pic05075.pcx)

      The New York ISO's new broad-based analysis of market-restructuring
      needs argues that the relatively stronger health of its reformed
      environment is "due in large part to the ability of New York's
      utilities to enter into long-term power contracts."


      What needs to be done most, it says, is to move aggressively to build
      some of the more than 29,000 MW of "proposed new generation in the
      siting pipeline."


      In the meantime, the 30,200 MW of electricity New Yorkers used on a
      peak day last summer shouldn't be eclipsed on too many days this
      coming summer (given early long-range weather forecasts). Demand,
      however, is expected to increase at an annual average rate of up to
      1.4%.


      So while New York City, the rest of the state and adjacent parts
      might breathe easy this year, it could be a brief rest from the fray.
      Meanwhile, a 4% shortfall is still being planned for this summer that
      is not yet provided for, as authorities hurriedly seek to arrange new
      generation plants around Manhattan, on Long Island and even on barges
      offshore.


      One way or another, whether it is the weather or the politics of
      siting new energy facilities, it's going to be a hot time in the
      city.


      Long-term solutions hit brick wall


      Meanwhile, attempts at longer-term solutions continue to run into
      trouble. Last week, Connecticut state regulators came out against a
      proposal to run a new underwater cable under Long Island Sound that
      Hydro-Quebec subsidiary TransEnergie U.S. Ltd. wants to build to pump
      more juice into Long Island Power Authority's load pocket. Despite
      strong promises from TransEnergie to be diligent in avoiding damage
      to oyster beds in Long Island Sound, the proposal failed to convince
      authorities, who were persuaded the pipeline project could lead to
      diversion of electricity from Connecticut.


      In similar fashion, private companies wanting to build 10 small
      independent power plants and temporary generators offshore New York
      City are running into intense opposition from environmental groups
      and citizen orga
nizations?some of whom have taken their cases to the
      state assembly in Albany.


      The David vs. Goliath nature of such controversies has further
      alerted energy companies to the difficulties of addressing complex
      energy supply issues that may ultimately devolve to people not
      wanting things in their backyard, regardless of what the alternative
      might mean to their fellow citizens or the greater public good.


      But suddenly, in New York, California's troubles?while still distant
      in their intensity? may not be so far away. By some estimates, this
      summer's bills for Consolidated Edison customers could be up as much
      as one third or more over last year's charges.


      Letting the time slip when it comes to building new infrastructure
      isn't going to make the pain go away.



      NEW YORK:  NY-ISO REPORT SAYS STATE NEEDS 4,000 - 5,000 MW OF NEW
      GENERATION SOON TO AVOID SEVERE SHORTAGES; NY-ISO ALSO ASKS FERC TO
      EXTEND BID CAP AND TEMPORARY EMERGENCY PROCEDURES
      03/21/2001
      Foster Electric Report
      2
      (c) Copyright 2001, Foster Associates, Inc.

      Raising the specter of an East Coast version of the California
      crisis, the New
      York Independent System Operator, Inc. (NY-ISO) is warning of serious
      electricity shortages, air quality deterioration and stunted economic
      growth
      without immediate approval of between 4,000-5,000 MW of new
      generating capacity
      in the state. Of this amount, 2,000-3,000 MW is needed to serve New
      York City.
      Another 8,600 MW of new capacity will have to be built by 2005, the
      NY-ISO said
      in a recent report, Power Alert: New York's Energy Crossroads.
      "New York is heading towards a very serious situation unless it acts
      immediately
      to get new supply sited within its borders," said NY-ISO president
      William
      Museler in a statement accompanying the report. "This report is
      essentially a
      caution light at New York's energy crossroads."

      Sources in the New York Public Service Commission have downplayed the
      NY-ISO's
      warning, asserting that a process for bringing on new generation is
      well
      underway, with more than 85 projects in the approval pipeline.
      In a related development, the NY-ISO asked FERC to approve a proposed
      tariff
      amendment (ER01-1517) extending existing bids caps in some of its
      markets until
      10/31/02, and a separate and related amendment (ER01-1489) extending
      the
      NY-ISO's so-called temporary extraordinary procedures (TEP) that
      allow the ISO
      to make price adjustments and take other corrective actions if it
      finds evidence
      of market power abuse.
      The NY-ISO Report --The NY-ISO likened the situation in New York to
      that faced
      by California, where a relentless increase in demand has not been met
      with an
      equal increase in supply. The NY-ISO said that between 1995 and 2000,
      statewide
      demand for electricity rose by 2,700 MW, while generating capacity
      increased by
      only 1,060 MW. With no major new generating plants in downstate New
      York fully
      approved for construction at this time and generation demand in the
      state
      expected to grow around 1.3 percent annually for the next several
      years, the
      NY-ISO said this gap will continue to widen.
      The inevitable result of this trend is large rate increases for New
      York's power
      consumers. The NY-ISO's modeling suggests that "by 2005, statewide
      prices are
      likely to be more than 20-25 percent lower in the case in which new
      plants are
      built than in the case where they are not." In New York City, "the
      price to
      consumers of electric power could be reduced by as much as 28 percent
      when
      compared to the case of no new supply or load management programs."
      Besides large rate increases, the NY-ISO asserted that a failure to
      site and
      build new plants in New York will threaten power reliability in the
      state and
      lead to increasing reliance on out-of-state resources. The report
      said that if
      no new in-state generation comes on line in the next five years, the
      state's
      generation reserve margins will shrink from the current 14.9 percent
      above peak
      demand "to a dangerously low 8.4 percent by 2005." Pointing to
      California's
      situation, the report added that increased reliance on power imports
      "can
      subject electrical suppliers and customers in New York to
      transmission
      restrictions and political and economic considerations beyond the
      control or
      influence of responsible New York State entities."
      To avoid these harsh consequences, the NY-ISO said New York's new
      siting law,
      known as the Article X process, needs to be modified. Since the law
      was passed
      18 months ago, the report noted that only two plants have been
      approved (both
      upstate) and neither has yet been built. The problem, according to
      the NY-ISO,
      is that the siting process "requires the cooperation of multiple
      state
      agencies." To expedite the process, the report suggested the "clear
      designation
      of a lead agency and the adoption of an `ombudsman program' to
      expedite and
      coordinate the work of the agencies responsible for the Article X
      process must
      be made." The NY-ISO added that an expedited approval process would
      improve the
      environment because older, more polluting power plants would be
      replaced by
      cleaner gas-fired units.
      On a more positive note, the NY-ISO reported that New York's
      restructured power
      market "is far healthier than that in California, due in large part
      to the
      ability of New York `s utilities to enter long-term power contracts.
      The basic
      structure of the New York market will also reduce unwarranted price
      spikes and
      other market disruptions through mitigation programs which
      automatically correct
      price spikes due to market power abuses."
      "Nevertheless, California `s experience raises a caution flag for all
      New
      Yorkers," the report continued. "The deregulated market in New York
      cannot
      achieve lower costs through competition without an increase in
      generating
      capacity similar in magnitude to the recommendations of this report,
      along with
      simultaneous efforts to institute greater conservation, better load
      management
      and alternative energy supply initiatives. Additionally, closer
      integration with
      regional suppliers of power is both inevitable and beneficial."
      The report also recommended (1) accelerating conservation, real-time
      metering
      and price-sensitive load programs; and (2) upgrading the state's and
      the
      Northeast's transmission infrastructure.
      The Proposed Tariff Amendments -- New York's Article X siting process
      and
      continuing tight supplies were also cited in the NY-ISO's request to
      extend from
      4/30/01 until 10/31/02 its $1,000/MWh bid caps. FERC first approved
      the
      1,000/MWh bid caps in July 2000 (see REPORT No.197, pg.6), and
      subsequently
      extended them.
      The NY-ISO's board "is sensitive to the Commission's concerns about
      undue
      intervention in energy markets," the filing related. "Nevertheless,
      the NY-ISO
      is submitting this request because it believes that delays in New
      York state's
      `Article X' process for licensing and siting new generating capacity
      is
      inhibiting supply from increasing to match continued demand growth. .
      . .
      Moreover, although the NY-ISO proposes to implement several
      demand-side measures
      this summer, it is not yet clear whether they will make demand
      sufficiently
      price-responsive to avoid periods of high prices that would not occur
      if there
      were an efficient demand-side response."
      Thus, the NY-ISO insisted that the requested extension is needed to
      provide more
      time for the development of additional generation and to gauge the
      effectiveness
      of the NY-ISO's proposed demand-side response mechanisms "in order to
      avoid
      exposing consumers to price spikes that are not a product of the
      interplay of
      competitive market forces."
      Other problems cited in the NY-ISO's filing which keep New York's
      power market
      from being fully competitive include continuing capacity and
      operating
      constraints at the state's Central-East interface, and questions over
      adequate
      gas supply.
      "The NY-ISO remains acutely aware that taking steps to deal with
      price
      abnormalities can have undesirable consequences," the filing
      continued.
      "Nevertheless, the NY-ISO believes that the $1,000/MWh cap that has
      been used in
      the PJM's markets since inception does not appear to have had an
      adverse impact
      there. . . . The permanent bid caps in PJM, and the interim bid caps
      in ISO New
      England (proposed for extension through the end of 2001) also make
      continuation
      of the NY-ISO's bid caps more important in order to maintain
      uniformity across
      the Northeastern markets. The NY-ISO also continues to believe that
      suppliers
      will not be materially harmed by the continuation of bid caps, which
      are likely
      to come into effect very rarely and are set at levels that prevent
      only
      artificially high run-ups in prices."
      The NY-ISO's request to extend its TEP procedures (which also were
      previously
      extended) through 10/31/02 cited similar problems with New York's
      power markets,
      but claimed that the NY-ISO "has made great strides" toward
      eliminating market
      design and software flaws. "The TEPs were, and remain, an
      indispensable tool for
      responding to and correcting market flaws and other instances where
      the markets
      are not operating as the NY-ISO and the Commission intended," the
      filing
      insisted.


      MASSACHUSETTS:  Attorney general says summer poses electricity
      concerns
      By JOHN McELHENNY
      Associated Press Writer
      03/19/2001
      Associated Press Newswires
      Copyright 2001. The Associated Press. All Rights Reserved.

      BOSTON (AP) - The state's top consumer advocate warned that
      Massachusetts may
      see "California-type" electricity blackouts this summer when
      temperatures rise
      and residents turn on air conditioners and fans.
      "It would be a mistake to feel this is a cold weather problem," said
      Attorney
      General Thomas Reilly in an interview with The Associated Press. "Our
      major
      problem will come this summer."

      State deregulation of the electric industry has been among the
      factors blamed
      for local power outages in California, and on Monday, California for
      the first
      time suffered rolling blackouts across the entire state.
      Massachusetts relaxed regulations on its own electric industry in
      1998 to
      attract more companies to stir competition. But that hasn't happened
      yet,
      largely because the current high cost of oil and gas make it
      expensive to
      produce electricity.
      "The promise of deregulation was that there was going to be
      competition," said
      Reilly, a Democrat. "That competition in the wholesale market is not
      happening."

      Hot summer weather drives up electricity use as residents turn on air
      conditioners and fans, and Reilly said a few particularly hot days
      could strain
      the grid that provides the region's power.
      A spokeswoman for the region's power grid said electricity use is
      expected to
      rise 1.5 to 2 percent this year, but the region should have enough
      power because
      of six new power plants that have begun generating electricity in the
      past 18
      months.
      "The situation is unlike California because we have new generation
      coming on
      line that is outpacing demand," said Ellen Foley, spokeswoman for ISO
      New
      England Inc., which manages the grid of 330 generators connected by
      8,000 miles
      of high voltage transmission lines.
      Still, a particularly hot day and an unforeseen power generation
      breakdown could
      prompt ISO to ask residents to conserve electricity, a situation that
      arose once
      last summer, Foley said.
      In order to avoid any power outages and protect consumers, Reilly
      repeated calls
      for electric companies to build more power lines and to offer more
      options for
      new customers who have signed up since deregulation. Those customers
      typically
      pay more than long-term customers.
      Electric transmission companies should also be allowed to enter into
      two-year
      contracts with suppliers, instead of the six-month contracts many
      have now, to
      avoid short-term price spikes for consumers, Reilly said.
      The Attorney General's Office acts as an advocate for consumers.
      Michael Monahan, a spokesman for NSTAR, which provides electricity to
      more than
      1 million customers, is upgrading some of its power lines and last
      year built a
      new line to Cape Cod, but currently has no lines under construction.
      "I wholeheartedly concur with the attorney general that it's
      something we have
      to focus on," Monahan said, but he added, "The indications I see are
      that we
      have an ample supply of electricity."
      California's statewide outages were ordered on Monday after a
      transformer fire,
      high demand and a lack of electricity imports pushed power reserves
      to near
      zero.
      California partially deregulated its electric industry in 1996, two
      years before
      Massachusetts.
      ---
      On the Net:
      Attorney General's Office: http://www.ago.state.ma.us
      NSTAR: http://www.nstaronline.com
      ISO New England Inc.: http://www.iso-ne.com


      NEVADA:  Discussion of bill stopping power plant sales to continue
      Wednesday
      By JOHN WILKERSON
      Associated Press Writer
      03/19/2001
      Associated Press Newswires
      Copyright 2001. The Associated Press. All Rights Reserved.

      CARSON CITY, Nev. (AP) - Lawmakers hit more delays Monday in trying
      to pass a
      measure that pulls the plug on the sale of Nevada power plants to
      avoid
      California-style energy problems.
      "The goal of this bill is only stopping the divestiture of power
      plants and
      making sure it's constitutional," said Senate Commerce and Labor
      Chairman
      Randolph Townsend, R-Reno. "And that's not as easy as it sounds."

      Townsend's comment just before his committee began working on SB253
      was
      prophetic - witnesses kept bringing up the need for more flexibility
      in the
      measure.
      Translation: Don't kill all deals by stopping Reno-based Sierra
      Pacific Power
      and Las Vegas-based Nevada Power from selling their Nevada power
      plants until
      June 2003 - and possibly until 2006.
      Pete Ernaut, a lobbyist for Reliant Energy which has been trying to
      buy a power
      plant, said unforeseen market changes could make a plant sale before
      2003 a deal
      that would be in the public's interest.
      "If you put a two-year moratorium on these plants, all these deals
      are going to
      go away," he said. "When the cow leaves the barn, it's difficult to
      catch."
      Townsend had hoped to wrap up committee work on SB253 on Monday. Now
      it's up for
      review again Wednesday in the Commerce and Labor Committee.
      Reliant isn't the only company trying to keep power plant purchases
      alive.
      Earlier this month, executives of Pinnacle West Energy told the
      committee that
      it's in the public's interest to allow Sierra Pacific Resources to
      sell its
      Harry Allen power plant.
      The Harry Allen plant produces about 72 megawatts out of the 2,900
      megawatts of
      energy that Nevada utilities generate. Pinnacle has plans to expand
      that to 700
      megawatts by 2004.
      Other provisions not strictly related to the plant divestitures, such
      as ways in
      which Sierra Pacific and Nevada Power can recover the cost of undoing
      the sales
      contracts, don't have to be included in SB253, Townsend said.
      Townsend said the other concerns dealing with the energy crisis and
      utility
      deregulation can be handled in later bills - but the power plant sale
      issue must
      be handled now.
      Nevada's PUC and the Federal Energy Regulatory Commission had
      directed Sierra
      Pacific and Nevada Power to sell the plants as a condition of the
      companies'
      merger in 1999 under the parent company Sierra Pacific Resources.
      Critics of the plant sales say the plants generate about half the      
state's
      electricity - and if they're sold, the unregulated new owners could
      sell the
      power to other states and put Nevada into the energy dilemma
      California faces of
      shrinking supply and rising prices.
      The Southern Nevada Water Authority has presented an analysis stating
      that rate
      payers will save from $1.7 billion to $3.5 billion by July 2001 if
      the power
      plant sales are stopped.
      Nevada's Consumer Advocate's Office previously had projected a
      conservative
      estimate of $915 million in savings.


      MAINE:  Panel of experts would review impact of energy deregulation
      By GLENN ADAMS
      Associated Press Writer
      03/19/2001
      Associated Press Newswires
      Copyright 2001. The Associated Press. All Rights Reserved.

      AUGUSTA, Maine (AP) - In the wake of rolling blackouts in California
      and rate
      spikes in their home state, Maine's top legislators proposed a study
      Monday into
      the effects of deregulation of the energy industry.
      "Deregulation of electricity is a new idea and we still have a lot to
      learn,"
      Senate President Michael Michaud said as he called for the analysis.

      A panel of industry insiders, elected officials and consumers would
      study issues
      such as what standard rate consumers can expect and the likelihood of
      energy
      shortfalls over the next three years, and whether Maine consumers are
      vulnerable
      to anti-competitive activities.
      In addition, the Blue Ribbon Commission would look into whether
      changes in
      Maine's deregulation law are needed to encourage more generating
      capacity,
      improve conservation and spur competition.
      The study is being proposed as consumers remain mindful of a power
      crisis in
      California that resulted from high wholesale energy costs, a consumer
      rate cap
      and too few power plants in that deregulated state.
      Maine's deregulation law is designed to avoid such pitfalls, said
      Rep. William
      Savage, D-Buxton, House chairman of the Legislature's Utilities
      Committee.
      Maine's law does not cap consumer prices, as California's does, and
      the state
      has more than enough generating facilities to meet the state's energy
      needs,
      Savage said.
      Since Maine's deregulation law took effect in March 2000, Bangor
      Hydro-Electric
      Co. rates have increased 19 percent. The Public Utilities Commission
      approved a
      residential standard rate increase as recently as last month.
      Federal energy regulators are reviewing their decision to allow steep
      fee
      increases for utilities and power wholesalers that fail to arrange
      enough
      capacity to meet customers' peak load. Gov. Angus King and all four
      members of
      Maine's congressional delegation oppose the hike.
      The PUC has approved standard rate increases for energy delivered by
      Central
      Maine Power Co. to medium-sized and large industrial users.
      On the other hand, some towns and school districts are saving money
      on energy
      through deals they can get in the deregulated market.
      In the meantime, legislation has been introduced in response to some
      of the
      changes that have occurred in Maine's deregulated energy industry.
      One would use some of the money from the sale of power-generating
      assets to
      offset an increase in rates paid by large industrial users, said Sen.
      Norman
      Ferguson, R-Hanover, Senate chairman of the Utilities Committee.
      Supporters of the utility study that was proposed Monday said they
      are not
      looking to make changes in Maine's deregulation law, but if it needs
      fixing it
      could be done during next year's session.
      The lawmakers' primary interest is to find out how trends in a new
      environment
      designed to encourage competition will affect consumers, and to try
      to identify
      what consumers can expect in the few years ahead.
      House Speaker Michael Saxl, D-Portland, said the Legislature "has a
      fundamental
      public policy interest in making sure rate-payers and businesses are
      protected
      against exorbitant rate hikes."
      Michaud, D-East Millinocket, said he's interested in finding out how
      future
      changes in electric prices and availability might affect businesses
      and
      consumers in northern Maine.
      "The economy in my part of the state is the most vulnerable, and I
      want to make
      certain we are leaving no stone unturned in our effort to prevent any
      shocks to
      the economy in northern, western and eastern Maine," Michaud added.
      The commission would include House and Senate members from each
      party, a utility
      executive, and representatives of energy producers, providers, a
      large
      commercial consumer and individual consumers.


      OREGON:  State Senate moves to combat energy crisis
      03/16/2001
      Associated Press Newswires
      Copyright 2001. The Associated Press. All Rights Reserved.

      SALEM, Ore. (AP) - In an attempt to avoid a California-like energy
      crisis, the
      Oregon Senate approved a bill Friday that would quicken the process
      of siting
      power plants that use gas and renewable resources.
      "It's important for Oregon. It makes sure that energy will be
      available to
      everyone," said Sen. Lee Beyer, D-Springfield.

      The measure, SB843, would shorten the siting process for power plants
      that use
      gas and renewable resources, like wind, from a year and a half to a
      matter of
      months.
      The speeded-up process would be in effect for two years.
      "If we can act now, we can actually start to solve power supply
      problems by this
      summer," said Sen. Jason Atkinson, R-Jacksonville
      California's strict regulations on the construction of new power
      plants has
      contributed to its current shortage and legislators took note. Beyer
      said though
      California was definitely a wake-up call, the measure is a reaction
      to the
      larger power picture in the Northwest.
      With low rainfall, hydroelectric generators will have trouble meeting
      demand,
      Beyer said. Gas-fired and wind plants could come online as soon as
      this fall and
      would provide relief.
      "We are not in a position to sit back and do nothing about the energy
      crisis the
      Northwest and the country are experiencing," said Senate Minority
      Leader Kate
      Brown, D-Portland.
      Conservationists, however, caution that lawmakers should be careful
      not to rush
      to provide power at the expense of environmental standards.



      WISCONSIN:  Two utilities to add 975 megawatts in plan to avoid
      energy crisis
      By The Associated Press
      03/22/2001
      Associated Press Newswires
      Copyright 2001. The Associated Press. All Rights Reserved.

      Plans of two state utilities to add 975 megawatts to Wisconsin's
      electric power
      grid as a way of avoiding an energy crisis similar to California's
      were
      questioned Thursday by a consumer advocate who said too many power
      plants may be
      in the works.
      "Certainly nobody wants to see blackouts like you have in California
      but there
      is the danger Wisconsin could be overbuilding," said Steve Hiniker,
      executive
      director of the Citizens' Utility Board, which represents consumer
      interests in
      utility rate cases. He noted that plant construction costs ultimately
      are born
      by the utility customers.

      Alliant Energy Corp. announced its proposal Wednesday - in a filing
      with the
      state Public Service Commission - to spend $1 billion to build one
      coal and two
      gas-fired power plants.
      Alliant has proposed building a 500 megawatt coal-fired plant and a
      100 megawatt
      natural-gas fired plant by 2006. It also wants to build a 200
      megawatt natural
      gas-fired facility in 2011. Wisconsin has not built a coal-fired
      plant in more
      than two decades.
      Alliant has not determined the plants' locations.
      Also, Madison Gas & Electric, the state's smallest investor-owned
      utility, said
      Wednesday that it had signed deals to buy 175 megawatts of power from
      three
      generating plants in Wisconsin and Illinois.
      "Three out of the four past summers, we've had public appeals for
      conservation
      due to shortages somewhere in the state. We need to take steps to
      avoid that,
      and the California situation makes that even more clear," said
      Alliant spokesman
      Chris Schoenherr. "Getting more iron in the ground will give us more
      flexibility
      in the state to be able to react."
      Alliant acknowledged the new plants will probably mean rate
      increases, but it
      was too early to say how much rates would go up.
      California's problems, which this week resulted in the first
      deliberate
      blackouts since World War II, stemmed from underestimating the
      state's power
      needs, forcing utilities to sell their power plants but not allowing
      them to
      secure long-term supply contracts, and freezing rates, among other
      things.
      But Wisconsin's situation is far different.
      The state has moved slower than California toward deregulation, and
      there has
      been no desire here to speed up the process in recent years as power
      reliability
      became a problem.
      The PSC estimates that Wisconsin will need an additional 3,000
      megawatts of
      power over the next decade.
      Hiniker said Wisconsin needs to coordinate its planning to avoid
      overbuilding.
      The costs of new power plants are passed on to ratepayers, meaning
      electric
      bills will increase as new generation is added. In addition,
      coal-generated
      power plants are a major source of air pollution in the state.
      "We don't have the advance planning that has kept Wisconsin from
      overbuilding in
      the past," said Hiniker. "This is something the PSC should be doing."
      MG&E's deals are:
      -A 10-year contract to buy 75 megawatts from Calpine Energy Services
      starting in
      May 2004. The power will come from the natural gas-fired plant Rock
      River Energy
      Center, near Beloit.
      Calpine Energy Services is a unit of San Jose, Calif.-based Calpine
      Energy Corp.
      The plant is being built by Northbrook, Ill.-based SkyGen Energy LLC,
      which
      Calpine bought last year from SkyGen President Michael Polsky and
      Wisvest Corp.,
      a unit of Wisconsin Energy Corp.
      -A 10-year contract to buy 50 megawatts of power from the Rainy River
      Energy
      Corp. starting in May 2002. The power is coming from a natural
      gas-fired plant
      near Joliet, Ill. owned by LS Power Co. Rainy River is a unit of
      Duluth-based
      Minnesota Power Inc.
      -A five-year contract to buy 50 megawatts from an El Paso Merchant
      Energy plant
      near Cordova, Ill., in western Illinois.
      The owner of the natural gas facility is the Cordova Energy Center
      Co., which is
      a unit of Iowa-based MidAmerican Energy Holdings.
      Alliant also offered support in the Wednesday filing for a $7 billion
      plan of
      Milwaukee-based Wisconsin Energy, which includes five new power
      plants in Oak
      Creek and Pleasant Prairie.
      --
      On the Net:
      CUB: http://www.wiscub.org/
      Alliant Energy: http://www.alliant-energy.com
      Wisconsin Public Service Commission: http://www.psc.state.wi.us
      Wisconsin Energy: http://www.wisenergy.com/
      Madison Gas & Electric: http://www.mge.com



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