Please see the following articles:

Bay City News, Wed 3/21: "Blackouts Not Expected 
Today"

Dow Jones Newswire, Wed 3/21: "Calif State Controller:General Fund Surplus Dn 
To $3.2B"

CBS.MarketWatch.com, Wed 3/21: "Davis says regulators will act to pay QFs
Electricity providers insist they need to be paid"

Long Beach Press, Wed 3/21: "Rash power bill may need fix"

SF Chron, Wed 3/21: "PUC considers rewarding producers that sign long-term 
contracts"

Sac Bee, Thurs, 3/22:  "State claims $5.5 billion overcharge: Refunds by 
wholesale generators sought"

Sac Bee, Thurs, 3/22:  "Power solution eludes Davis: Lawmakers grow edgy as 
crisis drags on"

Sac Bee, Thurs., 3/22:  " Legislators learn some details of power contracts"

San Diego Union, Thurs, 3/22:  "Federal judge orders major power wholesaler 
to sell to California"

San Diego Union, Thurs., 3/22:  "Controller: State's power spending imperils 
its financial health"

San Diego Union, Wed, 3/21:  "Governor says utilities must pay in advance for 
some power"

LA Times, Thurs, 3/22:  "Energy Overcharge of $5.5 Billion Is Alleged"

LA Times, Thurs, 3/22:  "Power Strain Eases but Concerns Mount"
LA Times, Thurs, 3/22:  Graphics: Overcharges Alleged 

San Fran Chron, Thurs, 3/22:  "Net Complex A Dilemma For San Jose 
SERVER FARM: Plant would tax grid"

San Fran Chron, Thurs, 3/22:  "Contracts Won't Meet Summer Demands 
DETAILS: 2004 before full impact felt"

Mercury News, Thurs, 3/22:  "California overcharged $5.5 bln for wholesale 
power"

Orange Cty Register, Thurs, 3/22:  Commentary:  "If the Power Goes Off"

 
Orange Cty Register, Thurs, 3/22:  Commentary:  "Socialized Electricity"

San Fran Chron, Thurs, 3/22:  "Bush's Energy Policy Will Backfire, 
Feinstein Warns / She wants federal price controls now"

Dow Jones Newswires, Thurs, 3/22:  "Reliant Still In Power Pact Talks With 
Calif. DWR"

Dow Jones Newswires, Thurs, 3/22:  "CPUC Must Address Rates In QF Repayment 
Order - SoCal Ed"

Dow Jones Newswires, Thurs, 3/22:  "Calif Small Pwr Producers To Shut Plants 
If Rates Capped"

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Blackouts Not Expected 
Today

Bay City News 

Following two consecutive days of rolling blackouts, California's power 
picture looks much brighter today, but conservation is still needed. 
The California Independent System Operator is urging consumers to continue 
conservation measures during today's Stage One Electrical Emergency. 
"The conservation efforts of Californians, particularly Tuesday evening, were 
significant and helped to reduce the duration and impact of yesterday's 
blackouts,'' according to officials. "The California ISO asks customers to 
continue their voluntary reductions during this time of tight supply." 
More than 11,500 megawatts of in-state generation remain unavailable with 
power plants completing repairs and needed maintenance. However, several 
generating units returned to service today and the level of imported power 
has increased, boosting the supply. 
"The ISO is cautiously optimistic that customer outages will be avoided 
today,'' according to officials. 
Today's Stage One alert is in effect through midnight tonight. 
Stage One Emergencies are declared when power reserves fall below 7 percent. 
Stage Two kicks in when reserves fall below 5 percent. Stage Three is 
initiated when reserves drop to below 1.5 percent.
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Calif State Controller:General Fund Surplus Dn To $3.2B


03/21/2001
Dow Jones Energy Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)

LOS ANGELES -(Dow Jones)- California State Controller Kathleen Connell 
Wednesday said the state's general fund surplus has dropped to $3.2 billion 
from $8.5 billion in January, mostly because of electricity purchases made by 
the state's Department of Water Resources, a press release said. 
Connell also denied Gov. Gray Davis' request to transfer an additional $5.6 
billion from the general fund to the Special Fund for Economic Uncertainties, 
the release said.
Connell noted that, given the rapid depletion of the general fund on power 
purchases, the state would need to borrow $2.4 billion in order to tranfer 
the $5.6 billion from the general fund to the special fund. 
"We started this year with a generous budget surplus. The energy crisis has 
taken much of that away, and this transfer on top of the electricity 
purchases would put the fund at risk," Connell said. 

Connell called on Davis to ensure that the CDWR completes by the end of May 
2001 the revenue bond sales that will be used to buy power and repay the 
general fund. 
She also asked that the CDWR notify her of all power purchases made and 
contracts negotiated thus far and requested that she be told within 7 days of 
any purchases and contracts negotiated in the future. 
Connell also said she wanted to be told within 24 hours of any power buys 
that exceed $55 million and asked that the Department of Finance be directed 
to prepare new general fund cash flow estimates for the next 30 and 60 days, 
and for the end of the fiscal year. 
The state's Department of Water Resources has been buying power since January 
in lieu of Edison International (EIX) utility Southern California Edison and 
PG&E Corp (PCG) utility Pacific Gas and Electric Co, because suppliers 
refused to sell to the nearly-bankrupt utilities. 
-By Jessica Berthold; Dow Jones Newswires; 323-658-3872; 
jessicaberthold@dowjones.com 

Gov. Davis' office said, in response to Connell's comments, that the state 
budget was solid and the economy remained strong. 
"We will be getting the money back we've paid for energy and it should have 
no significant effect on the state's finances from the Wall Street 
perspective," said Davis press secretary Steve Maviglio. 
-By Jessica Berthold; Dow Jones Newswires; 323-658-3872; 
jessicaberthold@dowjones.com
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Davis says regulators will act to pay QFs
Electricity providers insist they need to be paid
By Russ Britt, CBS.MarketWatch.com 
Last Update: 9:45 PM ET Mar 20, 2001
LOS ANGELES (CBS.MW) - California Gov. Gray Davis said regulators will act 
Tuesday on a plan to guarantee that independent power generators are paid.
Independent power producers provide about 30 percent of California's 
electricity from a variety of sources including wind, solar and other 
sources. Because many of the companies, known as Qualifying Facilities, or 
QFs, haven't been paid they've begun to withhold power, contributing to 
blackouts in the state Monday and Tuesday. 
"We are anxious to pay the QFs because they're falling like flies," Davis 
said at a news conference late Tuesday. "If they don't get paid, the lights 
will go out."
Davis said the state's PUC order will require the state's nearly bankrupt 
utilities to enter five-year contracts with the QFs at rates of 7.9 cents per 
kilowatt hour, or 10-year contracts for lower rates. The structure is similar 
to rates Davis claims he was able to negotiate for long-term power contracts 
from out-of-state generators.
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Rash power bill may need fix
By Will Shuck
From our Sacramento Bureau
SACRAMENTO Even as lawmakers lament the slow pace of solving California's 
energy crisis, the cost of haste has cropped up in their first major act, a 
multibillion dollar measure that put the state in the power-buying business. 

AB1X, the highly touted bill that put California in the power-buying 
business, may have been so rashly crafted that it will take another piece of 
legislation to fix it, an influential senator said Tuesday. 
At issue is vague wording that makes it unclear when and to what extent 
Southern California Edison and other utilities have to repay the state for 
buying power. 
State Sen. Debra Bowen, chairwoman of the Senate Energy, Utilities and 
Communications Committee, said the bill apparently has left room for utility 
lawyers to argue that their companies needn't repay the state until they have 
covered other costs. 
But Bowen, a Redondo Beach Democrat who represents downtown and western Long 
Beach, said "the legislative intent is crystal clear" that the state wanted 
to be repaid directly for supplying about a third of the power utility 
companies deliver to their customers. 
"We need a cleanup bill" to set the matter straight, she said. 
Although AB1X illustrates the flaws that come with speed, Bowen said, the 
Legislature can't afford to delay. 
"I think we are much too slow in our response," she said. "But that has to be 
balanced against things we've done in a tearing hurry and then have had to 
fix later." 
No matter what the Legislature does in the coming weeks, she said, California 
is in for a tough summer, and only determined conservation efforts will put 
much of a dent in a precarious supply-demand equation.
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PUC considers rewarding producers that sign long-term contracts 
Greg Lucas, Lynda Gledhill, Chronicle Sacramento Bureau
Wednesday, March 21, 2001 
,2001 San Francisco Chronicle 
Sacramento -- Some cash-strapped producers of wind, solar and other 
alternative forms of energy will get long-delayed financial relief under a 
proposed order by state regulators, Gov. Gray Davis said yesterday evening. 
A proposed order by the Public Utilities Commission is designed to reward 
energy producers who sign long-term contracts with utilities at lower rates. 
Alternative energy producers that voluntarily enter such contracts, which 
would start on April 1, would be paid within 15 days, said Davis, who 
requested the order. Those that do not would have to wait until the utilities 
that buy their power return to solvency. 
Davis blasted Pacific Gas & Electric Co. and Southern California Edison for 
not paying the alternative generators -- know as qualified facilities, or 
"QFs" -- even though the companies have been collecting money through rates. 
"It is wrong and irresponsible of the utilities to pocket and withhold the 
money designed to compensate the QFs," Davis said. "It's immoral and has to 
stop." 
Alternative producers -- ranging from massive co-generation facilities at oil 
refineries to tiny biomass plants -- produce about a third of the state's 
supply of electricity. But many are shutting down because utilities have not 
paid them since November. 
The loss of some 3,000 megawatts from tapped-out alternative energy producers 
contributed to the blackouts that snarled California yesterday and Monday, 
according to the Independent System Operator, which manages the state's power 
grid. 
The PUC's proposed order -- which will be considered at the board's Tuesday 
meeting -- offers the generators a choice of agreeing to a five-year contract 
at $79 per megawatt or a 10-year deal at $69 per megawatt, Davis said. 
The order does not address the more than $1 billion already owed to the more 
than 600 alternative energy producers around the state. Davis said to favor 
one creditor over another in past debt could bring on bankruptcy proceedings 
from other creditors. 
The Legislature would also need to act to make the order work. 
"It is critical to keep these facilities up and online," said Sen. Debra 
Bowen, D-Marina del Ray, who estimates that Edison has $1.5 billion in cash 
on hand, and PG&E $2.5 billion. "The utilities owe it to the people of the 
state to pay them." 
Edison said yesterday that it opposed any attempt to place alternative 
producers ahead of their other creditors. 
But Tom Higgins, a senior vice president for Edison International, which owes 
alternative producers some $835 million, said his company was talking to the 
governor's office about possible payment structures. 
Alternative energy producers, particularly those that use high-priced natural 
gas to fire their generators, say that without an immediate infusion of cash 
they must close their plants. 
"We've been obsessed with the health of the utilities and (have) forgotten 
the health of everyone else," said V. John White, legislative director of the 
Clean Power Campaign, which lobbies for alternative energy producers. 
CalEnergy Operating Corp., which operates eight geothermal plants in the 
Imperial Valley producing 268 megawatt hours for Edison has sued the utility 
asking to be paid and to be temporarily released from their contract with 
Edison which has paid them nothing since November. 
CalEnergy has a court hearing tomorrow on its Edison contract. Edison owes 
the company $75 million, and the debt increases by $1 million a day. 
"We've lived up to our end of the bargain but Edison hasn't. We're now not in 
a position to make a property tax payment on April 10 and we're the largest 
employer in the county," said Vince Signorotti, CalEnergy's property manager. 
Unlike Edison, PG&E is paying its creditors 15 cents on the dollar. 
"We have offered over the past five days to prepay for future power not yet 
delivered to keep as many of them operating as possible, but the state needs 
to decide how its going to divvy up the limited money under the frozen 
rates," said John Nelson, a PG&E spokesman. 
The PUC's sudden attempt to recast the rates paid to alternative generators 
comes after several months of inaction, partly a result of waiting for 
legislative negotiations on the issue to conclude. Those negotiations 
eventually failed to move forward. 
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State claims $5.5 billion overcharge: Refunds by wholesale generators sought
By Dale Kasler
Bee Staff Writer
(Published March 22, 2001) 
In its boldest attempt yet to extract refunds from wholesale power 
generators, the state's grid operator accused the generators Wednesday of 
overcharging Californians by $5.5 billion for electricity since last May. 
The state's Independent System Operator, which manages the state's 
transmission grid, plans to tell a federal regulatory agency today that power 
generators consistently took advantage of their stranglehold on the 
California market to ratchet up prices. 
The federal agency, the Federal Energy Regulatory Commission, recently 
threatened to order generators to refund $134.8 million for overcharges, 
mostly covering January and February. But those refunds amounted to just a 
fraction of what the grid operator was seeking. The ISO, which has been 
complaining about market abuses for several months, says FERC must do more. 
"We're happy that (FERC) took this first step, but we think there's a long 
way to go," said Anjali Sheffrin, the ISO's director of market analysis. "As 
far as I'm concerned, it's been too little, too late. ... The refunds they 
have acted on (so far) have been minimal." 
She said the report covers five major power suppliers and 16 other power 
importers. 
FERC Commissioner William L. Massey said it would be improper for him to 
comment on a report that has not yet been filed. But when told of the $5.5 
billion total, Massey told the Los Angeles Times: "That doesn't shock me in 
any way." 
"Prices over the past 10 months in California have greatly exceeded the 
federal standards of just and reasonable prices, and I think they have 
exceeded the standards by possibly billions of dollars," he said. 
However, most FERC critics are skeptical that the federal agency, which is a 
strong believer in letting free markets run their course, would order a 
refund anywhere near as large as $5.5 billion -- even though it has found 
that California prices at times have been "unjust and unreasonable." 
The big power generators, saying their charges were reasonable, are disputing 
the $134.8 million refunds proposed so far and have vowed to fight the ISO's 
latest effort. 
If the ISO were to prevail, the $5.5 billion in refunds could go a long way 
toward remedying California's energy mess. 
They could help restore the financial health of Pacific Gas and Electric Co. 
and Southern California Edison, which have nearly been bankrupted by the 
prices charged by the power generators. They also could ease the strain on 
the state treasury, which is spending billions to purchase electricity for 
Californians because PG&E and Edison can't. 
Sheffrin said her department studied sales made by the power generators to 
ISO, which makes last-minute power purchases to balance supply with demand, 
and the California Power Exchange, the now-bankrupt entity where most of 
California's wholesale electricity was bought and sold until December. 
She said the study made "very generous" allowances for natural gas expenses, 
costly air-pollution credits and other factors, including the scarcity of 
electricity. The result was $5.5 billion worth of charges "in excess of 
competitive costs," she said. 
In many cases, the companies used their market clout to submit bids that were 
"way beyond their costs," she said. 
"It was insufficient competition," Sheffrin said. "They got away with a lot." 
She said the refund request isn't just a shot in the dark. FERC, she noted, 
"has already found that prices in the California wholesale energy market have 
been unreasonable. We took it upon ourselves ... to show FERC how they got to 
be so high." 
FERC proposed refunds totaling $124 million for January and February sales, 
declaring that generators' prices were too high. 
In a separate case the federal agency, for the first time, accused two 
generators last week of taking plants offline to force prices up. 
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Power solution eludes Davis: Lawmakers grow edgy as crisis drags on 
By Emily Bazar and Amy Chance
Bee Capitol Bureau
(Published March 22, 2001) 
Gov. Gray Davis likes to compare the state's energy crisis to a complicated 
"three-cornered" billiard shot. 
But as California plunged into another round of power blackouts this week, 
Davis has yet to line up the angle on an ultimate solution. 
The state's short-term power bill is nearing $4.2 billion, and legislators 
are balking at the administration's requests for additional money. 
Getting even the least controversial pieces of the puzzle through the 
Legislature is taking weeks longer than expected. 
While the Democratic governor has insisted secrecy about details of his power 
purchases is necessary to protect the state's bargaining position, other 
state officials are complaining vigorously about the lack of information. 
And critical deals the governor hoped to reach with energy suppliers and 
utility companies are proving difficult to close. 
"I think we all got lulled into a little complacency a few weeks ago. All 
these things seemed to be going along, and the governor was making all these 
warm and fuzzy comments," said Assemblyman John Campbell, R-Irvine. 
"But it only takes one deal to go sideways and we're all blacked out," he 
added. "The governor is running around basically saying, 'Trust me.' I'm not 
sure he's deserving of the trust at this point." 
Davis and his aides insist they are working around the clock on plans to 
boost power generation, encourage conservation and reach an agreement with 
utilities that will keep them out of bankruptcy. 
The utility plan, they say, is the equivalent of a large corporate merger 
that simply can't be accomplished overnight. Davis notes that earlier 
deregulation efforts might have benefitted from a little more time. 
Although the state has reached a broad "agreement in principle" with Southern 
California Edison to obtain its power transmission lines in exchange for help 
paying off its debts, a final, detailed deal has not been reached. The 
initial agreement with Edison was announced Feb. 23. 
And the governor has yet to achieve a tentative agreement with Pacific Gas 
and Electric Co., which is driving a harder bargain over price and other 
elements of a potential rescue plan. 
Joseph Fichera, one of several consultants receiving more than $11 million 
from the administration for advice on the energy crisis, said many people 
don't realize the complexity of the deal they're brokering. 
In their bid to achieve a public takeover of the investor-owned utilities' 
transmission lines, he said, negotiators have to pore over thousands of 
documents related to the transmission lines alone. 
"We are doing what is normal in a transaction of this magnitude, which is 
investigate, document, circulate, redocument, agree, move forward," said 
Fichera, an investment banker with Saber Partners in New York City. "The 
governor has put a 'I want this yesterday' fire" under his negotiating team. 
The negotiator, however, declined to say when he expects final agreements to 
be reached with the companies. 
"It could be days, it could be weeks," he said. 
There were signs, meanwhile, of trouble brewing on another front: the giant 
bond sale the state must make to repay the money it has spent so far on 
electricity and to finance future long-term contracts for energy. 
State Treasurer Phil Angelides said Wednesday the utilities are appealing a 
ruling by the state Public Utilities Commission that essentially ensures the 
state will be repaid, a move that he said threatens to delay the sale 
indefinitely. 
"If the utilities have decided to adopt a scorched earth policy until they 
get what they need and want, then it will be a significant problem," 
Angelides said. 
PG&E spokesman Ron Low said the governor is simply placing too many demands 
on a rate structure that doesn't compensate the utilities for their current 
costs. 
"Political rhetoric is not going to change the math," he said. 
In the Legislature, lawmakers are growing grumpier. Most were taken by 
surprise Monday when blackouts were ordered across the state, weeks before 
summer temperatures were expected to set in and strain the power system. 
"I'm more worried than ever," said Assemblyman Bill Leonard, R-San 
Bernardino. "A lot of the elements we thought we had a handle on in January 
are unraveling." 
A deal the governor said had been worked out weeks ago between the state and 
more than 600 small alternative energy suppliers collapsed last week. 
The alternative generators have not been paid by the utilities for months, 
and state leaders attempted to bargain down the price utilities pay those 
generators for power. 
But administration officials complained privately that lawmakers instead 
sweetened the pot for the suppliers to the point that the measure no longer 
helped solve the overall financial situation pushing the utilities toward 
bankruptcy. Under a proposal announced Tuesday by Davis, the Legislature 
would authorize the PUC to require the utilities to pay the alternative 
suppliers at prices more closely resembling the original deal. 
But the governor ran into immediate opposition, as some suppliers said said 
he would not pay them enough to cover their fuel costs. 
"We would go from not being paid, to losing money," said Hal Dittmer of 
Wellhead Electric, a Sacramento-based supplier that has been shut down for 
more than a month. "Almost everybody who burns natural gas is going to shut 
down. (Davis) got it wrong." 
Democrats outside the Davis administration, meanwhile, are complaining about 
the amount of money the state Department of Water Resources is spending on 
expensive, last-minute power purchases. Within a week, $4.2 billion will have 
been committed. 
State Sen. Steve Peace, D-El Cajon, chairman of the joint Legislative Budget 
Committee, is warning the Davis administration that he will block additional 
funds for last-minute purchases of power until the PUC makes progress 
recovering money that already has been spent. He intends to hold a hearing on 
the issue this morning. 
On Wednesday, state Controller Kathleen Connell told Davis she will refuse to 
make a routine budget transfer he had requested, saying she is concerned that 
there is "no outside check and balance" on the money the administration is 
spending to buy electricity on the spot market. 
As the statewide elected official who pays the state's bills, Connell said 
she has yet to receive information from the Department of Water Resources 
about how much it is spending. 
"We really need an accounting as to the total amount of liability they have 
accumulated," she said. "I understand they're in an emergency situation ... 
but it begins to imperil the state's ability to manage its cash flow." 
Meanwhile, a bill to provide $1 billion for conservation programs, aimed at 
reducing power needs this summer, also has languished for several weeks in 
the state Senate. While Davis has focused his attention elsewhere, Republican 
lawmakers have opposed the measure as too expensive. Democrats argue that 
each two-week delay prevents the state from saving as much energy as one 
"peaker" plant will produce this summer. Peaker plants are designed to help 
meet the peaks of electricity demand. 
"I'm the eternal optimist, but we have to keep working on all fronts," said 
Sen. Byron Sher, D-Palo Alto, who hopes to take his energy conservation bill 
up for a vote in the Senate again today. "It's a formidable challenge." 
Bee staff writer Dale Kasler contributed to this report. 
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Legislators learn some details of power contracts
By John Hill
Bee Capitol Bureau
(Published March 22, 2001) 
The veil of secrecy surrounding the state's electricity contracts lifted 
Wednesday -- a little. 
Gov. Gray Davis gave state legislators a report laying out some of the 
details of long-term contracts designed to help the state pull out of its 
energy crisis. But the report left legislators and others clamoring for more. 
"The information raises more questions," said Assemblyman George Runner, 
R-Lancaster. "I liken it to watching a parade through a knothole in a fence. 
You get to look at one float, but you're not sure about what's coming up and 
what you've missed." 
Davis had previously disclosed that the state had signed or was close to 
signing 40 long-term contracts, at an average price over 10 years of $69 per 
megawatt-hour. 
The contracts are part of the state's strategy for trying to avoid a fiscal 
shellacking in the energy spot market while making sure there's enough 
electricity to avoid more blackouts. 
Davis also previously disclosed that the contracts were for an average of 
about 9,000 megawatts a year, and that the total cost exceeded $40 billion. 
But Davis has resisted telling more, saying the state would jeopardize its 
ability to get the best prices if electricity generators knew what their 
counterparts were getting. 
On Wednesday, the governor's office released a March 15 report from S. David 
Freeman, general manager of the Los Angeles Department of Water and Power, to 
the state Department of Water Resources. The state agency has been given the 
responsibility of making power purchases, and Freeman was brought in to lead 
the negotiations. 
As of March 15, the state had signed 19 contracts with seven suppliers for 
periods ranging from 14 months to 20 years, with many for three or five 
years, the report says. Some of the contracts are for electricity to meet the 
state's everyday power demand, while others are only for times of peak use, 
such as hot summer days. 
The state had "agreements in principle" for an additional 25 contracts. 
Runner said he has been told that two of these contracts have since been 
finalized. 
The amount of power provided reaches a peak in 2004 of more than 10,000 
megawatts. As the long-term contracts start to expire around then, the state 
is hoping that demand can be met with new contracts or spot purchases at 
prices expected to be much cheaper. 
The report says nine more long-term contracts were under discussion. 
Some of the contracts are with power generators, while others are with 
marketers who may get the power from a number of sources. 
In some cases, the state may supply the natural gas used to generate the 
electricity, or power costs may be pegged to the going rate for the fuel. 
Some suppliers can cancel if the state fails to sell bonds by a certain date 
to cover power costs or fails to maintain an investment grade credit rating. 
Some depend on the construction of power plants, but Freeman said they were 
firm commitments. 
"We were pretty careful not to put a hope and a dream in the portfolio," he 
said. 
More contracts will have to be signed to meet summer demand, and these 
agreements will probably be more expensive, the report says. 
One item not in Freeman's report was a secret deal to relieve several major 
generators from having to pay for polluting the air beyond allowable limits. 
The long-term power contracts include language that would have the state pay 
the costs of "pollution credits" that allow power plants to exceed their 
permitted levels of smog-forming pollutants, the governor's office confirmed 
Wednesday. Spokesman Steve Maviglio said that several generators are being 
relieved from having to pay those costs. 
V. John White, a Sierra Club lobbyist close to the negotiations, said Dynegy 
Inc., which has power plants in El Segundo, Encina and Long Beach, is one of 
them. Dynegy officials did not return calls to The Bee on Wednesday. 
Freeman said that generators were demanding hefty premiums for having to deal 
with air quality regulators in the summer and he figured it would be cheaper 
just to pay for the pollution credits. 
In other energy-related developments: 
With more power plants back online, grid operators dropped down to a Stage 1 
electricity alert. The state Independent System Operator was expecting 
supplies to gradually increase over the next few days. 
The state Public Utilities Commission issued a revised draft decision that 
would impose the prices outlined Tuesday by Davis for power produced by 
alternative energy companies -- $79 a megawatt-hour for five-year contracts 
or $69 a megawatt-hour for 10 years. The proposal is scheduled for a PUC vote 
March 27. 
A federal judge ruled that one of the nation's major electricity generators 
must continue supplying California with emergency power. 
In imposing an injunction on Reliant Energy Services Inc., U.S. District 
Judge Frank C. Damrell Jr. noted the "rolling blackouts (that have) darkened 
the California landscape" and said the loss of Reliant's production "poses an 
imminent threat." 
Bee staff writers Carrie Peyton, Chris Bowman and Denny Walsh contributed to 
this report. 
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Federal judge orders major power wholesaler to sell to California 




By Don Thompson
ASSOCIATED PRESS 
March 21, 2001 
SACRAMENTO ) 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 Services 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 to try 
to fend off blackouts. 
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. 








Controller: State's power spending imperils its financial health 
Governor says utilities must pay in advance for some power 
? 



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, AES and Williams, who agreed to continue selling 
to the ISO pending the FERC 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 the power is committed under long-term contracts. 
Reliant, which provides about 9 percent 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. 
At the same time, the state has faced a tight electricity supply, due in part 
to California power plant shutdowns for maintenance and to a tight 
hydroelectric supply in the Pacific Northwest. 
Managers of the state power grid imposed rolling blackouts across the state 
Monday and Tuesday as supply fell short of demand. Wednesday, cooling 
temperatures and the completion of repairs at several power plants allowed 
the state to avoid blackouts. 
State Controller Kathleen Connell said Wednesday that the energy crunch also 
imperils California's financial health. 
Connell said the state's power-buying on behalf of Edison and PG&E is is 
gutting its budget surplus. Since the state started making emergency power 
buys in January, the surplus has fallen from $8.5 billion to about $3.2 
billion, she said. 
Connell ordered an audit of the state's power-buying, saying Davis is 
withholding key financial information from her office and the Legislature. 
She is refusing a request by Davis and the Legislature to transfer $5.6 
billion into a "rainy day fund" she said was set up to impress Wall Street as 
the state prepares to issue $10 billion in revenue bonds to cover its 
power-buying. 
Transferring the money would leave the state general fund $2.4 billion in 
debt, Connell said. 
Sandy Harrison, spokesman for the state Department of Finance, and Keely 
Bosler of the Legislative Analyst's Office, said such transfers are routine 
and required by law. 
They put the state's budget surplus at $5.6 billion. 
"The law says she has to do it. The law does not give her the power to demand 
that kind of audit information," Harrison said. 
He said the state's budget isn't in danger because it will be repaid with the 
$10 billion in long-term debt. 
Wells Fargo & Co. chief economist Sung Won Sohn said he sees little progress 
in efforts to fix the state's power problems and end state electricity 
purchases. 
"If we're going to pour money into a bottomless pit, I would worry about the 
state's finances," he said. "At some point we're going to run out of money." 
The controller's criticism of fellow Democrat Davis won support from Assembly 
Republicans and Secretary of State Bill Jones, a Republican considering 
challenging Davis next year. 
Jones said he wants to announce his own plan to solve the state's energy 
woes, but can't unless Davis releases more financial details. 
Davis spokesman Steve Maviglio dismissed the criticism. 
"Political grandstanding doesn't generate one more kilowatt of energy for 
California in this time of emergency," he said. 
Maviglio said the administration has released the financial information it 
can without jeopardizing negotiations for long-term power contracts with 
wholesalers. 

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Controller: State's power spending imperils its financial health 



By Don Thompson
ASSOCIATED PRESS 
March 21, 2001 
SACRAMENTO ) California's power-buying on behalf of two strapped utilities is 
gutting its budget surplus and putting the state at financial risk, the state 
controller said Wednesday. 
The surplus dropped from $8.5 billion in January, when the state began buying 
electricity for Pacific Gas and Electric Co. and Southern California Edison, 
to $3.2 billion now, Kathleen Connell estimates. 
Connell ordered an audit of the state's power-buying, saying Gov. Gray Davis 
is withholding key financial information from her office and the Legislature. 
Wednesday marked the first time in three days the state avoided rolling 
blackouts. Power grid officials credited cooling temperatures and the 
completion of repairs at several power plants. 
Connell said the energy crunch now imperils the state's budget as well as its 
electric grid. 
California has been spending about $45 million a day ) $4.2 billion so far ) 
to buy power for Edison and PG&E, both denied credit by electricity 
wholesalers. 
The two utilities, California's largest, say they are nearly $14 billion in 
debt due to soaring wholesale power costs the state's deregulation law blocks 
them from recovering from customers. 
Meanwhile, the state has faced high natural gas costs and a tight power 
supply driven in part by power plant repairs in California and scarce 
hydroelectric power in the Pacific Northwest. 
Standard & Poor's has put the state on a credit watch due to its power 
purchases and chastised Davis, the Legislature and state regulators for not 
taking more aggressive steps to assure the utilities can pay their bills. 
On Wednesday, Connell said she is refusing a request by Davis and the 
Legislature to transfer $5.6 billion into a "rainy day fund" she said was set 
up to impress Wall Street as the state prepares to issue $10 billion in 
revenue bonds to cover its power-buying. 
Transferring the money would leave the state general fund $2.4 billion in 
debt, Connell said. 
Sandy Harrison, spokesman for the state Department of Finance, and Keely 
Bosler of the Legislative Analyst's Office, said such transfers are routine 
and required by law. 
They put the state's budget surplus at $5.6 billion. 
"The law says she has to do it. The law does not give her the power to demand 
that kind of audit information," Harrison said. 
He said the state's budget isn't in danger because it will be repaid with the 
$10 billion in long-term debt. 
Connell said the scope of the proposed transfer is unprecedented and amounts 
to a "shell game" that disguises the power purchases' impact on the state 
budget. 
Wells Fargo & Co. chief economist Sung Won Sohn said he sees little progress 
in efforts to fix the state's power problems and end state electricity 
purchases. 
"If we're going to pour money into a bottomless pit, I would worry about the 
state's finances," he said. "At some point we're going to run out of money." 
The controller's criticism of fellow Democrat Davis won support from Assembly 
Republicans and Secretary of State Bill Jones, a Republican considering 
challenging Davis next year. 
Jones said he wants to announce his own plan to solve the state's energy 
woes, but can't unless Davis releases more financial details. He said his 
plan may involve giving the utilities low-interest loans with their 
transmission lines held as collateral. 
Davis spokesman Steve Maviglio dismissed the criticism. 
"Political grandstanding doesn't generate one more kilowatt of energy for 
California in this time of emergency," he said. 
Maviglio said the administration has released the financial information it 
can without jeopardizing negotiations for long-term power contracts with 
wholesalers. 
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Governor says utilities must pay in advance for some power 



By Jennifer Coleman
ASSOCIATED PRESS 
March 21, 2001 
SACRAMENTO ) The state's two largest utilities will be ordered to pay 
environmentally friendly power generators in advance, a move Gov. Gray Davis 
hopes will bring a quick end to the power blackouts that darkened California 
this week. 
The statewide blackouts that stretched from San Diego to Oregon on Monday and 
Tuesday were caused in part by the failure of Southern California Edison and 
Pacific Gas and Electric Co. to pay millions of dollars they owe "qualifying 
facilities" or QFs, Davis said. 
Such suppliers use cogeneration ) steam from manufacturing plus natural gas ) 
or solar, wind and other renewable energy to generate electricity. This week 
California lost about half the power those generators normally provide. 








Controller: State's power spending imperils its financial health 
? 



Several of them said they hadn't been paid by Edison and PG&E in weeks and 
can't afford to keep operating their plants. 
Davis accused the utilities of taking in money from customers while failing 
to pay the QFs. The state has been spending about $45 million a day since 
January to buy power for customers of Edison and PG&E, which are so 
credit-poor that suppliers refuse to sell to them. 
"It's wrong and irresponsible of the utilities to pocket this money and not 
pay the generators," the governor said at a Capitol news conference Tuesday 
evening. "They've acted irresponsibly and immorally and it has to stop." 
PG&E called the governor's statements "inappropriate and unjustified," adding 
that it was negotiating a payment plan with the QFs. Edison said it is intent 
on paying creditors and working with the California Public Utilities 
Commission to pay QFs for future power sales. 
Controller Kathleen Connell warned Wednesday that the state's $2 
billion-a-month power purchases are jeopardizing California's budget. 
The state's budget surplus dropped from $8.5 billion in January, when the 
power purchases began, to $3.2 billion now, Connell estimates. She blamed 
Davis for withholding key financial information, and ordered an audit of the 
state's power spending starting next week. 
She blocked a request by the Legislature and Davis administration to transfer 
$5.6 billion from the state's general fund into a special "rainy day" fund, 
saying that would have left the general fund $2.4 billion in debt. 
The Legislative Analyst's Office said such transfers are routine; Connell 
agreed, but said the size of the transfer is unprecedented. 
"We started this year with a generous budget surplus," Connell said. "The 
energy crisis has taken much of that away and this transfer on top of the 
electricity purchases would put the fund at risk." 
Meanwhile, keepers of the state's power grid were optimistic California would 
get through Wednesday without another day of rolling blackouts. Two plants 
down for repairs returned to service. 
Several power plants that were taken down for repairs are also expected come 
online by the end of the week, reducing the likelihood of blackouts, said Jim 
Detmers, ISO vice president. 
Power may flow to homes and businesses, but it could soon cost consumers 
more, said Assemblyman Fred Keeley, one of the Legislature's leaders on 
energy issues. 
"I think it's intellectually appropriate and honest to tell people as soon as 
it's apparent" that a rate increase is warranted, the Boulder Creek Democrat 
said Tuesday, indicating that time had come. 
He estimated that the state Public Utilities Commission may soon have to 
raise rates by about 15 percent to cover the state's costs and its utilities' 
bills. 
"My sense is that people will appreciate having some certainty and being able 
to plan for it," he said. "They don't have to like it but I think they'll 
appreciate it." 
Davis said he is confident the utilities and the state can pay their bills 
without further rate increases for Edison and PG&E customers. 
In the meantime, the Independent System Operator, keeper of the grid, is 
counting on continued conservation by residents and businesses to avoid more 
blackouts. Conservation accounted for about 300 megawatts in savings during 
Tuesday's peak usage, enough to power 300,000 homes. 
Roughly a half-million homes and businesses were affected by Tuesday's 
blackouts, which snarled traffic and plunged schools and businesses into 
darkness across the state. 
The outages began at 9:30 a.m. and continued in 90-minute waves until about 2 
p.m., when the ISO lifted its blackout order. They were blamed for at least 
one serious traffic accident. 
Two cars collided at an intersection in the Los Angeles suburb of South El 
Monte where the traffic lights were out. Two people were seriously hurt, said 
California Highway Patrol Officer Nick Vite. 
In San Francisco's Chinatown, souvenir shops normally bustling with visitors 
were forced to shut down. Nearby, irritated customers waited for a bank to 
reopen. 
The blackouts, like Monday's, were caused by a combination of problems, 
including unseasonably warm weather, reduced electricity imports from the 
Pacific Northwest and numerous power plants being shut down for repairs. 
Adding to those troubles, the state lost about 3,100 megawatts from the QF 
plants. 
Senate Energy Committee Chairwoman Debra Bowen, D-Marina del Rey, estimated 
Tuesday that Edison has amassed more than $1 billion and PG&E more than $2 
billion that they have not paid to generators. 
Davis said the PUC planned to issue an order next week directing the 
utilities to pre-pay their future QF bills. 
PG&E said its prepayments hinge on an upcoming PUC decision on whether the 
utility's rates are sufficient to pay its bills and cover the state's power 
purchases on its behalf, which amount to $4.2 billion since early January. 
Edison and PG&E say they have lost more than $13 billion since last June to 
climbing wholesale electricity prices, which the state's 1996 deregulation 
law prevents them from passing on to ratepayers. 
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Energy Overcharge of $5.5 Billion Is Alleged 

Power: Money should be refunded to taxpayers and utilities, the state grid 
operator says, citing evidence of market manipulation. Suppliers deny the 
accusation. 

By TIM REITERMAN and NANCY RIVERA BROOKS, Times Staff Writers 

?????Wholesale electricity suppliers overcharged California by about $5.5 
billion between May and last month, and that money should be refunded to the 
state's taxpayers and financially strapped utilities, the state power grid 
operator said Wednesday.
?????Generators engaged in market manipulation and consistent patterns of 
bidding far above costs in the deregulated energy market, the California 
Independent System Operator found in a study of pricing data. The findings 
support the widespread belief that these suppliers reaped massive additional 
revenue by manipulating the market.
?????Spokesmen for the companies denied the accusation.
?????The study, prepared for a filing with federal regulators today, is 
central to Cal-ISO's efforts to seek reimbursement for what it considers 
excessive charges by electricity suppliers during the state's energy crisis.
?????"This might be the first time we told them the total impact and 
magnitude [of the overcharging]," said Anjali Sheffrin, Cal-ISO's director of 
market analysis. "We think the entire amount deserves consideration for 
refunds."
?????Using confidential bidding data on tens of thousands of electricity 
sales, Cal-ISO found that five companies that together supply about 30% of 
the power delivered to customers of the state's investor-owned utilities 
engaged in two types of behavior that tended to push up prices:
?????* They effectively withheld supplies by bidding at excessive prices, 
even though they could have made some money selling more electricity.
?????* Less frequently, they had power generation available but did not bid 
at all.
?????The study concluded that energy suppliers commonly offered their 
electricity at twice their cost. For example, Sheffrin said, the average 
markup in August was 100% during peak hours.
?????A spokeswoman at the Federal Energy Regulatory Commission, which 
oversees wholesale electricity pricing across the country, declined to 
comment Wednesday, saying, "This is part of an ongoing proceeding."
?????FERC member William L. Massey, who has considered previous commission 
actions on refunds to be inadequate, said it would be improper for him to 
comment on a report that has not yet been filed. But when told of the 
$5.5-billion total, Massey said: "That doesn't shock me in any way."
?????"Prices over the past 10 months in California have greatly exceeded the 
federal standards of just and reasonable prices, and I think they have 
exceeded the standards by possibly billions of dollars," he said.
?????Cal-ISO, which oversees grid operations and an emergency energy market, 
previously detailed $550 million in alleged overcharges for December and 
January and asked FERC for refunds. But the commission has proposed refunds 
of only a tiny fraction of that amount.
?????The study covered five major in-state power suppliers--Reliant Energy, 
Dynegy, Williams/AES, Duke Energy and Mirant, formerly Southern Energy--plus 
16 power importers, all of which deliver power to customers of Pacific Gas & 
Electric Co., Southern California Edison and San Diego Gas & Electric Co.
?????"All [21] overcharged, but some excessively and some by moderate 
amounts," Sheffrin said.
?????Cal-ISO's public filing will quantify the alleged overcharging by each 
company, but the companies will be identified only by a number. The code will 
be provided to FERC, Sheffrin said, and Cal-ISO lawyers will determine how 
much information about the companies will be made public.

?????State, U.S. Investigations
?????California electricity markets and the companies that buy and sell power 
in the state have been the subject of several investigations by state and 
federal authorities since wholesale electricity prices first skyrocketed in 
May.
?????Electricity suppliers have repeatedly denied manipulating the California 
market in any way, whether through above-cost bidding in spot markets or 
through physical withholding of electricity to drive up prices.
?????Reliant Energy is cooperating with FERC's requests for more data and is 
confident the commission will conclude that prices charged by Reliant were 
justified, said Joe Bob Perkins, president of the Houston-based company.
?????Perkins also bitterly disputed charges that Reliant has shut down units 
so that it can earn bigger profits on the power sold by the remaining plants. 
These charges have been leveled against all of the power-plant owners in the 
state.
?????Reliant Vice President John Stout said Cal-ISO's calculations typically 
don't include such fixed costs as salaries, taxes and the interest on bonds 
they sold to finance their power plants, which they acquired under terms of 
the state's landmark 1996 deregulation law.
?????In addition, he said, many high-priced power days have resulted from 
buyers bidding against each other for scarce supplies rather than sellers 
charging excessive amounts--like a house price being driven far above the 
listing price in a hot real estate market.
?????Williams Energy Services, a trading company that markets most of the 
power produced by plants owned by AES, also says it will be exonerated by 
FERC once the commission examines documentation being submitted, said Paula 
Hill-Collins, spokeswoman for the Tulsa, Okla., company.
?????"FERC has the obligation to investigate when these accusations are 
made," Hill-Collins said. "This is just a process of justification, not 
necessarily proof of guilt."
?????Williams/AES was recently ordered by FERC to prove that it did not take 
generating units out of service last year to drive up electricity prices, or 
refund $10.8 million to California utilities.
?????During the period studied, suppliers sold electricity in the California 
Power Exchange to Southern California Edison, PG&E and San Diego Gas & 
Electric Co. and in a backup market for last-minute electricity operated by 
Cal-ISO. But sky-high prices plunged Edison and PG&E deeply into debt, and 
most suppliers stopped selling to them in January, forcing the state 
Department of Water Resources to step in as the primary electricity buyer for 
the three big utilities' 27 million customers.
?????The Cal-ISO study, first summarized at an energy conference last week at 
UC Berkeley but not otherwise publicized, concluded that the companies 
exercised so-called market power to pump up electricity prices.
?????Severin Borenstein, director of the Energy Institute at Berkeley, said 
Cal-ISO's study is consistent with his research examining pricing practices 
in 2000.
?????"We found several billion dollars . . . in departures from competitive 
pricing," he said. "When the market was tight this summer, they were able to 
push up prices, and they did."
?????The early warning signs of electricity price spikes, the study found, 
appeared in May after two years of relatively stable prices of $30 to $40 per 
megawatt-hour under deregulation. Prices went up during the summer, dipped in 
September and October with lower demand, then took off in November and 
December as weather turned cold and the price of natural gas, which is used 
to generate much of the state's electricity, reached record levels.
?????"There were plant outages, and demand and supply became close," Sheffrin 
said. "Whatever price they bid had to be taken, and market power asserted 
itself."
?????Cal-ISO found that $3 billion of the alleged overcharges occurred 
between May and November.
?????On Friday, federal regulators ordered six wholesale power suppliers to 
refund $55 million to California if they cannot justify prices charged in 
February. The refund was limited to power sold that month in excess of $430 
per megawatt-hour during Stage 3 power alerts, when supplies are so tight 
that rolling blackouts are threatened. (One megawatt-hour is enough 
electricity to supply 750 typical homes for an hour.)
?????The previous week, FERC ordered 13 suppliers to justify or refund $69 
million for power sold in January at prices above $273 per megawatt-hour.
?????Massey opposed the potential refunds as too low because they were 
limited to hours in which a Stage 3 power emergency was in place and because 
the benchmark price set for each month was too high--combining to exempt more 
than 70,000 transactions from scrutiny.
?????"We're still looking for our lost wallet under the lamppost, which is 
Stage 3 alerts," said Massey, one of three commissioners on the five-member 
board (two seats are vacant).
?????Generators "have been given the free and clear," he said.
?????"These tinkling little refunds they have come out with recently are 
almost a joke," said Cal-ISO board member Mike Florio, senior attorney at the 
Utility Reform Network.

?????Resisting Price Caps
?????Cal-ISO contends that the last 10 months have proved that generators can 
no longer be allowed to receive electricity prices that are dictated by what 
the market will bear.
?????"FERC granted market-based rate authority on each of these suppliers' 
own showing that they could not manipulate prices, yet their actions have 
shown the contrary," Sheffrin said. "We feel FERC needs to look at the 
premise of allowing these generators to continue selling at market-based 
rates."
?????The commission is responsible for ensuring just and reasonable 
electricity rates. Although it has called California's power market 
dysfunctional and vulnerable to manipulation, the agency has resisted setting 
firm price caps sought by California's congressional delegation.
?????Chairman Curt L. Hebert Jr. strongly opposes caps, while Massey wants to 
use caps across the West as a "temporary timeout."
?????Energy Secretary Spencer Abraham, in a New York news conference 
Wednesday, reiterated his opposition to electricity price caps as a way to 
cope with California's energy crisis.
?????"If we put price caps in place, there will be more blackouts, and 
they'll be worse," Abraham said.
?????Cal-ISO is filing its market study as part of its comments on FERC staff 
recommendations on ways to thwart market manipulation. FERC's proposal 
includes strict coordination of power plant outages by Cal-ISO with reporting 
of suspicious closures to FERC, and generator-by-generator bid caps tied to 
costs.
--- 
?????Reiterman reported from San Francisco, Rivera Brooks from Los Angeles. 
Times staff writer Thomas S. Mulligan in New York contributed to this story.
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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. 

By DAN MORAIN and JENIFER WARREN, Times Staff Writers 

?????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.
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Net Complex A Dilemma For San Jose 
SERVER FARM: Plant would tax grid 
David Lazarus, Chronicle Staff Writer
Thursday, March 22, 2001 
,2001 San Francisco Chronicle 
URL: 
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/03/22/M
N236772.DTL 
San Jose, while trying to block construction of a new power plant, is set to 
approve a vast computer complex that could overwhelm California's already 
strained power grid. 
City officials gave preliminary approval last week to what would be the 
world's largest "server farm." The sprawling facility to handle Internet 
traffic would drain about 150 megawatts of power from the state electricity 
grid. 
If granted final authorization on April 3, the $1.2 billion project would add 
the equivalent of about 150,000 homes to California's power system, which was 
hit this week by rolling blackouts as demand for juice outstripped available 
supply. 
The server-farm issue highlights a vexing dilemma for the state. 
On the one hand, Gov. Gray Davis is calling for widespread conservation to 
help California overcome its current troubles. On the other, no one wants to 
curtail growth of the high-tech industry, which is an engine for economic 
vitality. 
"San Jose will make a lot of money from this project," said Craig Breon, 
executive director of the Santa Clara Valley Audubon Society. "But to not 
help the state out of its energy situation, there's a fair amount of 
hypocrisy going on." 
The server farm would be owned by U.S. DataPort, a San Jose data-management 
firm. As planned, it would occupy 10 buildings on more than 170 acres in the 
city's Alviso area. 
Total projected energy use would be 180 megawatts. About 30 megawatts would 
be generated by a small on-site facility, and the rest would have to be 
provided by Pacific Gas and Electric Co. 
"We're confident that the DataPort project will be approved because it's very 
important to San Jose and to the local economy," said San Jose Mayor Ron 
Gonzales. 
But PG&E already is saying that its power cupboard is bare. The utility "does 
not have sufficient existing electric infrastructure" to meet U.S. DataPort's 
needs, it said in a recent letter to San Jose officials. 
John Mogannam, U.S. DataPort's senior vice president of operations, countered 
that it could take as long as five years for the server farm to grow big 
enough to require the full 150 megawatts from the state grid. 
"Hopefully, by then the whole energy crisis will pass by, and we won't have a 
problem," he said. 
Mogannam stressed the positive aspects of the project, such as its ability to 
handle about 15 percent of global Internet traffic, the 700 jobs it would 
create, and the $70 million over 10 years it would generate for San Jose in 
property and utility taxes. 
"That's why the city likes it," he said. 
Indeed, San Jose officials are so enamored with such developments that they 
have all but turned a deaf ear to warnings that the server farm will 
exacerbate California's already dire power shortage. 
Andrew Crabtree, the city's senior planner, said the planning commission had 
barely touched the question of energy supply when it approved the server farm 
last week. 
"It wasn't incumbent on the commission to solve the state's energy-supply 
problems," he said. 
Rather, San Jose city planners focused on the environmental ramifications of 
the proposed facility, including air pollution from diesel generators and the 
impact on nearby wildlife. 
How it would affect dozens of burrowing owls in the area was a key topic of 
discussion. 
"We all recognized that there's a power shortage," Crabtree said. "But we 
couldn't do anything about that with this project." 
Except to make things tougher, of course. 
Server farms run 24 hours a day, seven days a week. They are an aspect of the 
high-tech boom that was never foreseen by energy experts, and which are now a 
major contributor to California's surging electricity demand. 
A server farm essentially is a large building filled with computers. Each 
computer handles the Web site or Internet traffic for hundreds of corporate 
clients that do not have the technical resources to look after such things 
in- house. 
Most server farms consume between 10 and 60 megawatts of power. At 180 
megawatts, the U.S. DataPort facility is billed as the most extensive data 
center on the planet. 
"There won't be another this size anywhere in the world," said Mogannam, the 
company's senior vice president. "This will be the biggest." 
With such a vast scale, however, comes additional concerns. For example, all 
that hardware will generate huge amounts of heat, requiring powerful air 
conditioners running around the clock to keep things cool. 
Patrick Dorinson, a spokesman for the Independent System Operator, which 
oversees California's electricity network, said server farms had "a big 
impact" on the state's tight energy supply. 
"We have an economy that's increasingly based on delivery of information," he 
observed. "We certainly need to make sure we're building adequate generation 
and transmission to get it there." 
As it stands, no major power plants have been built in California for the 
past 12 years, while dozens of server farms have sprung up throughout the 
state. 
The Yankee Group, a Boston consulting firm, estimates that the amount of 
space taken up by server farms nationwide rose to 9 million square feet from 
1999 to 2000. 
By 2003, it expects that figure to increase to 25 million square feet, or 
enough room for more than a hundred 10-story office buildings. 
San Francisco may be the exception. Supervisor Sophie Maxwell proposed 
interim zoning controls last week that would require server farms to receive 
special permission from City Hall to operate. 
San Jose, for its part, has no such reservations. It does, however, draw the 
line at big, fat power plants in the backyard of the city's leading corporate 
citizen. 
Gonzales is spearheading opposition to a proposed 600-megawatt generating 
facility in Coyote Valley because of its proximity to a residential area at 
the site of a planned Cisco Systems office complex. 
"There's plenty of opportunities to generate power in the city," he said. 
"This project is just in the wrong site." 
The matter is now in the hands of the California Energy Commission, which is 
expected to issue a ruling by May. 
Cisco, critics say, twisted the mayor's arm to fight the plant because it did 
not want a generating facility in its neighborhood. The area will be home to 
thousands of well-heeled tech workers. 
"It's politics," said Breon at the Audubon Society. "City officials are 
making political decisions rather than good planning decisions." 
Ted Smith, executive director of the Silicon Valley Toxics Coalition, a 
grassroots organization, is calling for a moratorium on construction of all 
new server farms in the South Bay until sufficient power can be found to keep 
them running. 
"Until they figure out how to build these things without draining the 
electricity grid even dryer it is, they shouldn't build them," he said. 
"The Internet industry is creating unintended consequences that will really 
screw up our future," Smith added. "They are so busy focusing on next 
quarter's profits that they don't stop and think about the consequences." . 
. 
SOME FAST FACTS ABOUT 'SERVER FARMS'
. 
-- What are they? "Server farms" are facilities dedicated exclusively to 
housing powerful computers for Internet use. 
-- Who uses them? Companies and individuals pay server farms to maintain 
their Web sites, handle Net traffic and store vast amounts of data -- 
functions that otherwise would require extensive hardware and technical 
support. 
-- Why do they use them? As Internet use explodes, server farms play an 
increasingly vital role in managing data and keeping information moving. 
-- What's the problem? Server farms drain considerable amounts of electricity 
to keep running. 
E-mail David Lazarus at dlazarus@sfchronicle.com. 
,2001 San Francisco Chronicle ? Page?A - 1 
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Contracts Won't Meet Summer Demands 
DETAILS: 2004 before full impact felt 
Lynda Gledhill, Chronicle Sacramento Bureau
Thursday, March 22, 2001 
,2001 San Francisco Chronicle 
URL: 
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/03/22/M
N230640.DTL 

Sacramento -- Long-term power contracts negotiated by the state won't cover 
California's entire demand for electricity until 2004, according to newly 
released details about the agreements. 
The information suggests that California might have to scrounge for 
electricity on the high-priced spot market for a couple more years even as it 
continues to push conservation efforts and construction of more generating 
plants. 
Details of the agreements released by Gov. Gray Davis' administration show 
that the contracts will provide for just over a third of the state's demand 
for power this year. Energy secured by the contracts will grow to meet the 
expected demand in three years. 
Short-term purchases of power have at least temporarily depleted the state's 
budget surplus and have raised the possibility of sharp rate increases 
sometime in the future for electricity customers. 
Davis administration officials are banking on the hope that conservation 
efforts and increased generating capacity will cover the shortfall along with 
purchases of electricity on the spot market. 
"We're facing an extreme challenge still this summer," said Severin 
Borenstein, head of the University of California at Berkeley Energy 
Institute. "Signing contracts doesn't create more electricity." 
The information released did not include the names of companies that the 
state has signed contracts with or the purchase prices. 
The sketchy details did not satisfy frustrated lawmakers, who said many 
questions remain, especially how much the state will end up paying under the 
terms of the contracts. 
"The fundamental question is how much is it costing the state of California 
to keep the lights on," said Assemblyman Tony Strickland, R-Thousand Oaks. 
"What we really need is total disclosure." 
The state started buying power in January, after generators began refusing to 
provide electricity to the state's investor-owned utilities. Pacific Gas and 
Electric Co. and Southern California Edison say they have more than $13 
billion in past debt. 
The state has been spending $49 million a day on power purchases since Jan. 
17, according to documents obtained by The Chronicle last week. 
Those documents said the average price of the contracts across 10 years is 
$69 per megawatt hour, including summer peak. The five-year average price is 
$79 per megawatt hour. 
According to one chart provided by the governor's office yesterday, the 
long-term contracts will fall about 35 million megawatt hours short in 2002. 
Based on the average price per megawatt hour the state has been paying since 
January, that could end up costing between $6.6 billion and $13 billion. 
The law creating the state purchasing authority allowed purchases up to $10 
billion and extends until 2003. 
The governor's office said 21 contracts have been signed and another 23 
agreements that have been reached but not yet signed. 
Several generators have said that they will not sign contracts with the state 
until the back debt by the utilities has been taken care of. 
"We have some real potential problems," said Senate President Pro Tem John 
Burton, D-San Francisco. 
Strickland and several media outlets, including The Chronicle, have filed 
public information requests to get more information about the prices of the 
contracts from the administration. 
Releasing the information would jeopardize the negotiations for future 
contracts, said Steve Maviglio, Davis' spokesman. 
Lawmakers, also frustrated by the lack of information given out by the Davis 
administration, were not given notice that the information was coming, and 
many said it was lost in their mail pile. 
The cover letter was on Los Angeles Department of Water and Power letterhead, 
not that of the administration. The letter was written by S. David Freeman, 
head of the Los Angeles system who was on leave for the month of February to 
help the state negotiate the contracts. 
Assemblyman George Runner, R-Lancaster, said the "ambiguity of the 
information raises more questions than it answers." 
"It's like watching a parade through a peephole," he said. "He's showing us 
another float, but I don't know what the parade looks like." 
Blaming the state's purchases of electricity, Controller Kathleen Connell 
said yesterday that the state's cash on hand had fallen from $8.5 billion in 
January to $3.2 billion. Connell ordered an audit of the state's power 
buying. 
Connell said she would block a transfer sought by the Davis administration of 
$5.6 billion from the general fund to the state's emergency reserve account, 
claiming it would lead to a ''serious cash flow crisis." 
The transfer, however, is not related to the energy crisis. The sum 
represents a routine rollover of unspent money from the previous fiscal year. 
State law requires that money to be sent to a special reserve account for 
emergencies. 
Davis officials acknowledged that $3.7 billion in energy purchases have had 
an impact on state coffers, but they say the state will be repaid once bonds 
are issued in the coming weeks. They also said the state typically has its 
lowest cash reserves at this time of year. That changes in mid-April when a 
flood of income tax revenue pours in. 
"The transfer has nothing to do with energy purchases," said Sandy Harrison, 
a spokesman for the Department of Finance. 
"It's not helpful to ratepayers, taxpayers and people who want their lights 
to stay on to have the issue muddied with this sort of inaccurate innuendo," 
Harrison said. 
In other developments yesterday: 
-- After two days of statewide rolling blackouts, power grid managers avoided 
outages. Demand was lower because of cooler temperatures around the state and 
supply increased as several power plants completed repairs. 
-- A federal judge in Sacramento ordered a major power generator to continue 
supplying power to California. Reliant Energy Services Inc. had insisted that 
it should not be forced to sell to debt-heavy utilities unless the state 
guaranteed the bills. 
Chronicle staff writer Greg Lucas contributed to this story. / E-mail Lynda 
Gledhill at lgledhill@sfchronicle.com. 
,2001 San Francisco Chronicle ? Page?A - 1 
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California overcharged $5.5 bln for wholesale power 
SACRAMENTO, Calif. (AP) -- Electricity wholesalers overcharged California 
$5.5 billion over the past 10 months, according to a report by managers of 
the state's power grid. 
The five companies, among other things, frequently offered electricity at 
prices double what it cost them to produce, concludes the California 
Independent System Operator study, which was published Thursday in the Los 
Angeles Times. 
``All overcharged, but some excessively and some by moderate amounts,'' said 
Anjali Sheffrin, the ISO's director of market analysis. 
The Times said the ISO planned to file the study with federal regulators 
Thursday and are demanding that the money be paid back. 
The companies denied the allegations, adding they expect the Federal Energy 
Regulatory Commission will determine their prices were justified. 
The commission has recently stepped up its scrutiny of power companies' 
behavior during California's power crisis, asking suppliers to justify $124 
million in sales during the first two months of the year or refund the money. 
Critics claim thousands of additional questionable sales are not being 
challenged. 
The ISO study alleges the wholesalers manipulated the market by bidding at 
excessive prices, effectively withholding supplies, or by not bidding at all 
when they had generation capability available. 
California has been spending about $45 million a day -- $4.2 billion since 
January -- to purchase power for Pacific Gas and Electric Co. and Southern 
California Edison. Both utilities, the state's largest, have been cut off by 
electricity wholesalers because their credit is almost worthless. 
State Controller Kathleen Connell said Wednesday that the state's 
power-buying is gutting its budget surplus. Since the state started making 
emergency power buys, the surplus has fallen from $8.5 billion to about $3.2 
billion, she said. 
A federal judge issued a preliminary injunction Wednesday ordering a major 
electricity wholesaler, Reliant Energy Services, to continue selling to 
California despite its fear that it will not be paid. 
U.S. District Judge Frank C. Damrell Jr. said Californians were at risk of 
irreparable harm if Reliant stopped selling power to the ISO, which buys it 
at the last minute on behalf of utilities to bolster supplies and try to fend 
off rolling blackouts. 
Such blackouts hit the state twice this week. On Wednesday, cooling 
temperatures and the completion of repairs at several power plants allowed 
the state to avoid blackouts. 
Standard & Poor's has put the state on a credit watch due to its power 
purchases and chastised Gov. Gray Davis, the Legislature and state regulators 
for not taking more aggressive steps to make sure the utilities can pay their 
bills. 
Edison and PG&E say they are nearly $14 billion in debt due to soaring 
wholesale power costs. The state's deregulation law blocks them from 
recovering the costs from customers. 
Connell ordered an audit of the state's power-buying, saying Davis is 
withholding key financial information from her office and the Legislature. 
She said she would refuse to transfer $5.6 billion into a ``rainy day fund'' 
she said was set up to impress Wall Street as the state prepares to issue $10 
billion in revenue bonds to cover its power buys. Transferring the money 
would leave the state general fund $2.4 billion in debt, Connell said. 
She called the scope of the proposed transfer unprecedented and said it 
amounted to a ``shell game'' that disguises the power purchases' effect on 
the state budget. 
Sandy Harrison, spokesman for the state Department of Finance, and Keely 
Bosler, of the Legislative Analyst's Office, said such transfers are routine 
and required by law. They put the state's budget surplus at $5.6 billion. 
``The law says she has to do it. The law does not give her the power to 
demand that kind of audit information,'' Harrison said. 
Harrison said the state's budget isn't in danger because it will be repaid 
with the revenue bonds. 
Connell's criticism of Davis, a fellow Democrat, won support from Assembly 
Republicans and Secretary of State Bill Jones, a Republican who may challenge 
Davis next year. 
Jones said he wants to announce his own plan to solve the state's energy 
woes, but can't unless Davis releases more financial details. 
Davis spokesman Steve Maviglio dismissed the criticism. 
``Political grandstanding doesn't generate one more kilowatt of energy for 
California in this time of emergency,'' he said. 
Maviglio said the administration has released the financial information it 
can without jeopardizing negotiations for long-term power contracts with 
wholesalers.

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If the power goes off 
Thursday, March 22, 2001 
For most of us, rolling power blackouts are a nuisance. For some people, it 
could mean life or death. 
"In Laguna Hills, cancer patient Ruben Marquez said the blackout interrupted 
and prolonged his dialysis treatment. He was unharmed," the Register reported 
on Monday's blackouts, which hit about 1.2 million Californians, including 
100,000 Orange County homes and businesses. 
What can people do to prevent disaster? 
"They and their families should have a backup plan," Rebecca Long, 
spokesperson for the Orange County Red Cross, told us. 
"The Red Cross recommends in general that you plan for this as you would for 
any disaster, making sure you have battery-operated radios and flashlights. 
We do not recommend candles for an emergency," because of the fire hazard. 
She recommended a Web site: www.prepare.org
People with special health needs, such as electric-powered respirators and 
oxygen machines, also should register with the power company.
"There's a whole classification" for such persons with health needs, Southern 
California Edison spokesperson Clara Potes-Fellow told us.
"The list is for us to alert them that the power could be discontinued. They 
arrange to have power through other means, batteries or generators. We 
recommend that they have a battery backup of eight hours. Therefore, if the 
rotating outages are one hour, they will have plenty."
Even though the power company has such people's names, she said, "we don't 
inform them in advance because we have just minutes from when the Independent 
System Operator," which directs where the electrons go, orders Edison to 
implement a power outage on the grid Edison owns. "By the time it took to 
call people, the outage would be over."
What's the problem at the ISO? "We notify as best we can," Pat Dorinson, ISO 
director of communications, told us. 
"The object is to keep the lights on. Sometimes it's just a moment's notice" 
before a blackout. "It makes [giving more notice] pretty difficult. We're 
looking into ways to make the system better." 
In the meantime, citizens will have to keep taking precautions.
We can't help noting that free market pricing, instead of politically-driven 
prices, would much more likely make electricity available, albeit at higher 
prices. 
We would expect, too, there would be hardship allowances, donations and 
level-pay plans to accommodate various types of needs.




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Socialized electricity 
Thursday, March 22, 2001 
Government control of state power won't add one watt for consumers' use




TOM MCCLINTOCK
Sen. McClintock, R-Thousand Oaks, represents the 19th state Senate District 
in the state Legislature. 

In a city where bad ideas never die, Sacramento is once again host to a 
variety of plans for the government takeover of California's power system. 
The private sector, it is said, has done such a terrible job of providing 
electricity that government must now step in to save the day. Thus, the 
Legislature is awash in proposals to spend billions of dollars of public 
money to acquire existing power facilities. Fifteen billion dollars has 
already been authorized for this purpose, and an additional $10 billion is 
pending in the Senate. 
Meanwhile, Gov. Davis is losing about a $1.5 billion a month day-trading in 
the electricity market. The irony is that after the expenditure of as much as 
$25 billion for "public power,'' not a single inch will have been added to 
the transmission lines, nor a single watt to the generating capacity of 
California.
The root of California's crisis is a catastrophic shortage of electricity. In 
a shortage, prices rise or blackouts occur. To reduce prices and avoid 
blackouts, the only permanent solution is to increase the supply. Merely 
changing the ownership of existing facilities leaves Californians with 
exactly the same shortage, only billions of dollars the poorer for it. 
Government takeover advocates argue that at least a government power 
authority will protect consumers against price gouging and poor management. 
Unfortunately, government power authorities don't insulate against price 
gouging. The biggest price gouger in this entire crisis has been the Los 
Angeles Department of Water and Power, which was generating electricity for 
$51 per megawatt hour and selling it back to California ratepayers for as 
much as $1,400. 
Nor does a government takeover assure better management. Just a few years 
ago, the LADWP was buried in $7 billion in debt. The Sacramento Municipal 
Utilities District was a managerial laughing stock, having squandered 
hundreds of millions of dollars for a nuclear plant it barely used.
"Say what you will,'' the government takeover advocates reply, "when push 
came to shove, the municipal utility districts of California are in great 
shape, while the private utilities are a basket case.'' But one needs to look 
at the reason. Ever since the state reorganized the electricity market in 
1996, the municipal utility districts were allowed to trade in a free market, 
while the private utilities were forced to buy power exclusively in a 
Soviet-style power exchange where the highest bid during an hour set all 
prices.
The municipal utilities were able to retain their generators. Government 
forced the private utilities to sell theirs. The municipal utilities were 
able to enter into long-term contracts. Government prevented the private 
utilities from doing the same thing. The municipal utilities were able to 
negotiate the lowest prices available for power. Government forced the 
private utilities to pay the outlandish prices on the government's power 
exchange. The municipal utilities were allowed to adjust their rates to 
reflect the actual cost of power to consumers. Government forced the private 
utilities to sell at astronomical losses.
The final argument is simply an ideological one: that power is just too 
important to be left in private hands. Really? Food is a great deal more 
important and private hands have kept this nation well fed for centuries. 
Picturing the Department of Motor Vehicles running the local supermarket 
should sober even the most euphoric of the government takeover advocates.
California's Independent System Operator is predicting a 6,000-megawatt 
shortfall this summer. When there is no electricity on the transmission 
lines, it really won't matter who owns them. During the hottest hours of the 
hottest days of the year, when as many as 6 million homes are without 
electricity, it may begin to dawn on most people that socialism doesn't work 
any better in California than it did in the Soviet Union.

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NEWS 
Bush's Energy Policy Will Backfire, Feinstein Warns / She wants federal price 
controls now
Carolyn Lochhead

03/22/2001 
The San Francisco Chronicle 
FINAL 
Page A.3 
(Copyright 2001) 
Sen. Dianne Feinstein, D-Calif., warned yesterday that when blackouts 
intensify in California this summer, the pressure will intensify on the Bush 
administration to explain why it rejected price controls on wholesale 
electricity. 
"If by this summer California is, as anticipated, facing these blackouts, and 
the federal government won't help, I don't think the American people are 
going to be very pleased," Feinstein told California reporters. 
Asked if help means the cost-based price controls Feinstein is pushing, she 
said, "Right now, yes." 
Feinstein said California Democrats will begin to escalate their criticism of 
the administration, predicting that support will build among Western senators 
for her legislation to impose price caps on wholesale electricity in exchange 
for lifting the rate cap on California consumers. 
If it passes, she said, "the administration is really going to have to face 
whether they're going to help or not help." 
Feinstein said House Democrats from the West Coast also told her they expect 
that White House inaction on price caps would help them gain seats in 2002. 
But she refused to speculate on the political fallout from the energy crisis 
against Democrats in California . 
Feinstein characterized Energy Secretary Spencer Abraham's adamant arguments 
against price controls as "recalcitrant," saying his statement to a Senate 
committee last week "essentially said California 's on its own." 
She speculated that because " California is dominantly Democratic, even 
somebody like me that works across party lines is beginning to wonder if this 
isn't an unnecessarily barbed stick at California ." 
White House spokesman Ken Lisaius disputed the charge, saying the Bush 
administration is doing all it can, but can't control that demand is 
outstripping supply. 
"The federal government cannot prevent blackouts, but can only help at the 
margins in situations like this," Lisaius said. "The only thing that can 
prevent blackouts is reduced demand, increased supply and good weather." 
Abraham has twice in the last week argued strongly against price controls, 
including the cost-based ones Feinstein advocates, saying they could increase 
blackouts by discouraging power sales into the Western electricity grid. 
He also said many power providers, including the federal Bonneville Power 
Administration in the home district of Sen. Gordon Smith, the Oregon 
Republican co-sponsoring Feinstein's bill, would be exempt from federal price 
caps. Feinstein disputed that, but Smith's office agreed. 
Abraham argued that price controls would not work in part because roughly 
half the Western electricity market would be exempt, including federal power 
marketing authorities such as Bonneville, rural electric cooperatives and 
municipal utilities such as the Los Angeles Department of Water and Power. 
On another front, House Republicans omitted from their budget projected 
revenues from opening part of the Arctic National Wildlife Refuge to oil and 
gas exploration. 
A Budget Committee spokeswoman said Chairman Jim Nussle, R-Iowa, determined 
that the $1 billion in revenues from the wildlife refuge the Bush 
administration included in its budget were not needed and that there was "no 
reason to put in something that controversial, that some of our members don't 
even like, when you don't have to." 
But Rep. Gary Miller, R-Diamond Bar (Los Angeles County) said House 
Republicans "are not backing off at all" from opening the wildlife refuge to 
drilling. "Our goal is to get it passed in the House," he said, saying the 
Budget Committee omitted the revenue projections because the drilling has not 
yet been approved. 


PHOTO; Caption: Sen. Dianne Feinstein wants to cap wholesale electricity 
costs and end caps on con- sumer rates. 
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Reliant Still In Power Pact Talks With Calif. DWR 
By Christina Cheddar

03/22/2001 
Dow Jones News Service 
(Copyright (c) 2001, Dow Jones & Company, Inc.) 
Of DOW JONES NEWSWIRES 
 
  (This report was originally published late Wednesday.) 
   
NEW YORK -(Dow Jones)- Reliant Energy Inc. (REI) remains in discussions with 
the California Department of Water Resources to sign long-term power 
contracts. 
However, issues regarding the creditworthiness of the agency remain, said Joe 
Bob Perkins, president of Reliant's Wholesale Division. 
"We want to be part of the solution," Perkins said. At the same time, Reliant 
is trying to protect itself from incurring additional unpaid accounts 
receivable, he said. 
The DWR has been buying power on behalf of California 's financially troubled 
utilities. However, Reliant has yet to sign a formal agreement with the 
agency because Reliant is concerned it won't be paid. 
During a conference call Wednesday, Perkins said he couldn't comment on a 
lawsuit between Reliant and the California Independent System Operator 
because he didn't know how it was progressing. 
Further court action on the case is expected Wednesday. 
The lawsuit stems from Reliant's desire not to be required to sell power to 
California if the state won't guarantee payment. The Houston energy company 
is concerned that it won't be paid for power being bought by the ISO on 
behalf of Edison International's (EIX) Southern California Edison unit and 
PG&E Corp.'s (PCG) Pacific Gas & Electric Co. unit. 
To date, Reliant is owed "some $370 million" from unpaid power sales to the 
utilities. 
Much of Perkins' presentation centered on how the power crisis in California 
emerged. 
Using data from research firm Cambridge Energy Research Associates, the 
company discussed the imbalance between California 's power demand and its 
power supply. 
Looking ahead to the summer, it isn't a question of whether rolling blackouts 
will occur, but "how many and how severe," Perkins said. 
Low hydroelectric availability, loss of imported power, warm weather, demand 
growth and plant outages could lead to a worst-case scenario in California , 
he said, adding that some estimates predict California could experience 1,100 
hours of power outages this summer. 
The skyrocketing power prices in the region are a reflection of the power 
market's imbalance, he said. 
Reliant submitted only "economically sound" bids for power, Perkins said. He 
expects the company can document why it charged the prices it did as required 
by regulators. 
"We have been very rigorous and very disciplined in what we have submitted," 
Perkins said. 
He added that retail customer price increases are one way of sending a signal 
to consumers to lower consumption. He cited studies that show a 20% retail 
price increase could reduce consumption by 2,000 megawatts. A megawatt is 
enough power to serve roughly 1,000 homes. 
-By Christina Cheddar, Dow Jones Newswires; 201-938-5166; 
christina.cheddar@dowjones.com 
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CPUC Must Address Rates In QF Repayment Order - SoCal Ed

03/22/2001 
Dow Jones Energy Service 
(Copyright (c) 2001, Dow Jones & Company, Inc.) 
(This article was originally published Wednesday) 
   
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 
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Calif Small Pwr Producers To Shut Plants If Rates Capped
By Jason Leopold

03/22/2001 
Dow Jones Energy Service 
(Copyright (c) 2001, Dow Jones & Company, Inc.) 
Of DOW JONES NEWSWIRES 
 
(This article was originally published earlier Thursday.) 
   
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