Please see the following articles:

Sac Bee, Tues, 5/1:  "$18 billion power tab projected: An immediate 
outcry greets Davis' plan for state energy purchases through June 2002"

Sac Bee, Tues, 5/1:  "PUC seeks to retain PG&E control"

Sac Bee, Tues, 5/1:  "Legislators propose tax on energy profits"

Sac Bee, Tues, 5/1:  "Dan Walters: Davis finally generates an energy plan, 
but will it work?"

Sac Bee, Tues, 5/1:  "Soaring energy bills hurt eateries: Many restaurants in 
capital area, 
despite good patronage, expect to raise menu prices"

Sac Bee, Mon, 4/30:  "Empowering the public                 (Editorial)
Obstacles keep cities out of energy"

Sac Bee, Tues, 5/1:  "Daniel Weintraub: An energy trader says it's time to 
limit profits"   (Editorial)

LA Times, Tues, 5/1:  "Power Companies Step Up Lobbying"

LA Times, Tues, 5/1:  "Power Marketer Ordered by FERC to Refund $8 Million"

LA Times, Tues, 5/1:  "Davis Turns to Bankruptcy Court for Help in Plan to Buy
Power Grid"

SF Chron, Tues, 5/1:  "Feds want surcharge to pay utilities' debts 
THE PLAN: Additional rate boost likely, cash would go to power suppliers"

SF Chron (AP), Tues, 5/1:  "Lawmakers offer bills aimed at cutting natural 
gas prices"

SF Chron (AP), Tues, 5/1:  "Developments in California's energy crisis"

SF Chron, Tues, 5/1:  "Second try for tax cut in Oakland 
Smaller utility levy likely after Brown veto"

SF Chron, Tues, 5/1:  "Feds want surcharge to pay utilities' debts 
THE PLAN: Additional rate boost likely, cash would go to power suppliers"

SF Chron, Tues, 5/1:  "Warning of a summer power 'Armageddon' 
Davis aide paints dire scenario in push for bonds to buy power "

Mercury News, Tues, 5/1: "Cheney rejects conservation"

Mercury News (AP), Tues, 5/1:  "Federal energy regulators propose surcharge 
plan
to pay utilities' debt"

Mercury News, Tues, 5/1:  "Record prices for power expected this summer in 
U.S."

Mercury News, Tues, 5/1:  "Davis calls generators on carpet"

Mercury News, Tues, 5/1:  "PG&E lobbied heavily just before bankruptcy"

OC Register, Tues, 5/1:  "Cheney outlines energy strategy for U.S."

OC Register, Tues, 5/1:  "Bush taking a supply-side policy on energy"

OC Register, Tues, 5/1:  "Power supplier will pay to settle"

OC Register, Tues, 5/1:  "Energy notebook: Bills target high natural-gas 
prices"

OC Register, Tues, 5/1:  "Leadership blackout
Gov. Davis seems unplugged in dealing with the crisis "            
(Commentary)

Individual.com (Bridgenews), Tues, 5/1:  "Calif. Gov Davis/ PG&E utility 
creditors may like grid sale --Davis sees Calif energy supply
outstripping need by fall '03 --Davis/ PG&E credit"

Individual.com (AP), Tues, 5/1:  "Davis Optimistic Despite Power Woes"


NY Times, Tues, 5/1:  "Cheney Promotes Increasing Supply as Energy Policy"

NY Times, Tues, 5/1:  "River's Power Aids California and Enriches the 
Northwest"

Wash. Post, Tues, 5/1:  "Bush Energy Plan Will Emphasize Production; Cheney: 
Conservation Is Part of Effort"

Energy Insight, Tues, 5/1:  "Western Dreaming: A Buyer's Cartel"

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$18 billion power tab projected: An immediate outcry greets Davis' plan for 
state energy purchases through June 2002.
By Emily Bazar and Jim Sanders
Bee Capitol Bureau
(Published May 1, 2001) 
Seeking to sell his energy rescue plan to reluctant Republicans, Gov. Gray 
Davis on Monday released a long-awaited financial plan that shows the state 
will spend more than $18 billion on electricity through June 2002, but can 
maneuver the energy crisis without additional rate increases or draining the 
state budget. 
His projections, however, were immediately attacked by lawmakers and industry 
experts, who called them overly optimistic and unrealistic. 
The plan, which Davis is using to bolster his energy effort with legislators 
and Wall Street, is based on a series of assumptions, among them that the 
state will pay significantly less for electricity on the spot market during 
the hottest summer months than it pays now, and that dozens of shuttered 
small generators will start selling discount electricity again. 
"No one has a crystal ball into the future," state Treasurer Phil Angelides 
told reporters. "The administration's plan makes some assumptions, as any 
plan must. The question is, are they reasonable assumptions, and what do we 
need to do collectively to make the plan succeed?" 
The Democratic governor has long faced criticism for refusing to divulge 
details about the state's power purchases, both on the expensive spot market 
and under long-term contracts. 
Last week, the issue was thrust into the forefront when Assembly Republicans 
told the governor they would not vote for a bill authorizing the sale of $10 
billion in revenue bonds to pay for the state's power purchases until they 
received additional information. 
If legislators don't pass the bill -- which requires a two-thirds majority 
and, therefore, Republican votes -- Angelides said the state might miss a May 
8 deadline for closing on a crucial $4.1 billion bridge loan. 
On Monday, Davis relented, releasing his response in the form of an 
inch-thick document filled with tables, bar graphs and projections. The plan 
gives the first detailed, month-by-month account of the state Department of 
Water Resources' expected power purchases through 2002. 
But the projections failed to win votes immediately in the Assembly 
Republican caucus, where Minority Floor Leader Dave Cox said he is not yet 
ready to support the proposed $10 billion in bonds. The caucus will meet 
today to decide what to do next, he said. 
"Many of the assumptions are questionable and there is no answer as to what 
will happen if the assumptions prove incorrect," said Assemblyman Keith 
Richman, R-Sun Valley. "I'm very concerned." 
Davis' plan relies on numerous estimates, including likely summer 
temperatures and annual rainfall, and an assumption that Californians will 
use 7 percent less energy this year than they did last year. 
Private consultants who helped draft the plan also predicted that most of the 
small generators that stopped producing electricity because they hadn't been 
paid for months will resume production at discounted rates. They argued that 
their assumptions are conservative and allow for unexpected changes. 
"There are lots of variables that are not simply assumptions," said Joseph 
Fichera, an investment banker with Saber Partners in New York City and a 
consultant to the administration. "I would say probably 80 percent is what we 
know are facts and 20 percent are expectations." 
Republican lawmakers and others were particularly uncomfortable with the 
administration's conclusion that the state will spend an average of $195 per 
megawatt-hour for electricity on the spot market in July, August and 
September, the hottest months of the year when electricity is expected to be 
sold at a premium. 
Some have predicted that the costs could go much higher. 
"There's a reasonable chance this summer that the state will be paying $1 
billion per week" for electricity, Severin Borenstein, head of the University 
of California Energy Institute, told state regulators last week. 
With summer prices forecast to be $500 to $700 per megawatt-hour, and the 
state Department of Water Resources expected to need more than 200,000 
megawatt-hours a day, it would be easy to rack up billion-dollar power bills, 
he said in an interview. 
The state spent $90 million on power on a single day last week, but prices 
declined somewhat afterward, according to the governor's press office. 
Davis' Cabinet secretary, Susan Kennedy, defended the estimated summertime 
cost, saying the state has secured enough long-term contracts to limit its 
exposure to the most expensive spot market prices. 
"It's almost impossible to say what's plausible and what isn't," said Mike 
Florio, an attorney with The Utility Reform Network, a Bay Area consumer 
group. 
It makes sense that power costs, overall, would drop as more long-term 
contracts kick in and the state buys less electricity on the spot market, he 
said. But many of those contracts are still being negotiated. 
"What this assumes about contracts that have not been signed is the really 
interesting question," he said. 
Assemblyman Tony Strickland, R-Thousand Oaks, said the Davis administration 
hasn't been able to provide assurances that if bonds are sold now, more won't 
be needed in the future. 
"Their assumptions are nothing more than educated guesses," Strickland said. 
"And the educated guess of the Legislature was that we wouldn't be in the 
power buying business in the first place." 
Kennedy conceded that the administration's plan has its limits, and won't 
prevent the state from experiencing rolling blackouts in the coming months if 
prices get too high or its assumptions are proved wrong. 
"The bottom line will be we will either need to borrow a little bit more or 
we're going to see more blackouts," she said. 

The Bee's Emily Bazar can be reached at (916) 326-5540 or ebazar@sacbee.com. 
Bee staff writers Carrie Peyton and John Hill contributed to this report.
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PUC seeks to retain PG&E control 
By Claire Cooper
Bee Legal Affairs Writer
(Published May 1, 2001) 
SAN FRANCISCO -- Warning that California consumers and the state economy 
could be in grave danger, the state Public Utilities Commission urged a 
federal bankruptcy judge Monday not to sever the commission's regulatory 
control of Pacific Gas and Electric Co. 
On April 9, three days after filing for Chapter 11 bankruptcy protection, 
PG&E petitioned the Bankruptcy Court to block parts of a recent PUC order. 
PG&E said the provisions conflicted with bankruptcy rules and interfered with 
its legal right to recover skyrocketing wholesale energy coasts. 
The provisions at issue -- adopted by the PUC on March 27 along with a 30 
percent rate increase -- imposed new accounting requirements on the 
utilities, but the consequences were potentially dramatic. Depending on the 
way certain costs are counted, PG&E may or may not be entitled to early 
termination of an electricity rate freeze adopted by the Legislature five 
years ago. 
PG&E said the accounting provisions changed the rules retroactively and 
artificially extended the rate freeze. 
But the PUC disagreed -- and said the issue is even larger. In a series of 
documents filed Monday, the commission characterized PG&E's petition as "the 
first step in (the company's) plan to deregulate itself." If PG&E succeeds in 
stripping California of its power to regulate its electric utilities, the 
commission said, "PG&E may be able to claim an artificial end to the rate 
freeze, which could result in drastically higher retail electric rates. The 
harm to California's consumers and economy could be grave." 
The commission said that the petition should be dismissed on grounds of 
"sovereign immunity" -- the state's right not to be sued by private parties 
-- and because the nation's bankruptcy laws bar interference with the state's 
exercise of its regulatory powers. 
"The accounting proposal the commission adopted was illegal before we filed 
for Chapter 11," PG&E spokesman Ron Low said Monday. "Now that we are in 
Chapter 11, it not only affects our shareholders, it also impacts our 
creditors." 

The Bee's Claire Cooper can be reached at (415) 551-7701 or 
ccooper@sacbee.com.
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Legislators propose tax on energy profits 
By Kevin Yamamura
Bee Capitol Bureau
(Published May 1, 2001) 
With power producers reaping profits that increased fivefold last year, some 
state lawmakers are pushing a tax on future earnings as the best way to keep 
generators honest. 
California would recoup 100 percent of power profits deemed unreasonable 
through a "windfall profits tax" proposed by state Sen. Nell Soto, D-Pomona. 
Her bill, SB 1x, cleared the Senate Appropriations Committee on Monday on a 
7-3 vote. 
The proposal would force generators to give the state any money collected 
above a reasonable limit determined by the state Public Utilities Commission. 
That money probably would be doled out in equal portions to state taxpayers, 
possibly through income tax returns, though details remain vague. 
The bill is aimed principally at five out-of-state companies -- AES Corp., 
Duke Energy Corp., Dynegy Inc., Mirant and Reliant -- that bought California 
power plants under deregulation and saw profits increase last year at an 
average of 508 percent, according to Democratic estimates. 
"What this bill says is, 'You can't come in and rip us off,' " said Senate 
President Pro Tem John Burton, D-San Francisco. 
Critics said the proposal would only discourage companies from building new 
power plants in California or producing power when the state needs it most. 
During the worst of California's energy blues, utilities and the state have 
paid generators and marketers well above 30 cents per kilowatt-hour. 
Soto has suggested an 8 cents a kilowatt-hour cap, meaning that any price 
charged above that would be considered unreasonable. If a generator were to 
charge 30 cents, for instance, it would have to return 22 cents to the state 
in the form of the new tax. 
Although the proposal could have the direct effect of knocking down soaring 
energy prices, it would also send a message that the state will not tolerate 
price gouging, some lawmakers said. 
"We have been royally mistreated," said Sen. Jack Scott, D-Altadena, a 
co-author of the bill. "And we have allowed a great deal of California money 
to leave the state at the expense of ratepayers, taxpayers and businesses." 
But energy producers challenged the bill, saying it would simply discourage 
companies from building plants in California or from upgrading existing 
facilities. 
The tax "does nothing to solve the fundamental problem in California, and 
that's mainly the lack of supply," said Richard Wheatley, a spokesman for 
Houston-based Reliant. 
"There is no way, given natural-gas prices today, that we could make any 
money under the price caps in this bill," said Carl London, a lobbyist for 
InterGen, a Boston-based generator. 
In turn, the state's businesses would suffer through sustained power 
blackouts because supply would remain low, said Carrie Lee-Coke, general 
counsel of the California Manufacturers and Technology Association. 
"There is one simple truth, and that is there is too little energy 
production," Lee-Coke said, calling Soto's bill the "wrong medicine" for 
California. 
Although electricity generated in California would be affected, it is unclear 
whether the state can legally impose restrictions on power from outside the 
state. 
Republicans on Monday opposed the plan, citing disincentives for power 
companies to boost supply and resultant blackouts. But the bill needs support 
only from majority Democrats to pass. 
"The economic reality is that the people cannot afford to be gouged any 
longer," Soto said. 

The Bee's Kevin Yamamura can be reached at (916) 326-5542 or 
kyamamura@sacbee.com.
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Dan Walters: Davis finally generates an energy plan, but will it work?


(Published May 1, 2001) 
After months of issuing buzzwords, sound bites and bold predictions that 
proved wrong, Gov. Gray Davis finally unveiled Monday what aides said was a 
comprehensive plan to shepherd California through the energy crisis. 
The thick compendium of charts, tables and narrative, prepared by a financial 
consulting firm and peddled to legislators and journalists by a squad of 
administration aides, was designed to bolster Davis' case for legislative 
approval of a $12.5 billion bond issue. About half the money would repay the 
state's beleaguered general fund, which has been drained for power purchases, 
and the rest would ease the impact on ratepayers' bills for future power 
purchases. 
Administration officials insisted it is a realistic scheme based on 
reasonable assumptions -- but legislators of both parties remained skeptical 
since the governor's previous assumptions and projections about the crisis 
had proved to be uniformly wrong. It remains uncertain, therefore, whether 
the bond issue bill that the administration says is vital will win 
legislative approval this week -- at least in the size Davis is seeking. Even 
Democrats are wary. 
Legislative analysts zeroed in on a couple of assumptions that are central to 
the workability of the plan: 
That Californians will severely curtail their energy use this summer in 
response to supply shortages, a big ad campaign and sharp price increases. 
That the state can buy spot market power this summer at rates far below what 
it has been paying and what the power futures market indicates will be the 
summer spot price. 
If either of those two assumptions is off the mark, the state could face 
severe and prolonged blackouts and/or could go billions of dollars deeper 
into debt. 
Administration aides insisted that their assumptions are reasonable, based on 
what is known now about power consumption habits and the availability and 
price of power for the summer, when demand usually rises sharply to run air 
conditioning. 
"This is not a guess," Susan Kennedy, a top Davis aide, told reporters in 
response to sharp questioning about the plan's projection of making spot 
market power purchases during the summer at an average of $195 per 
megawatt-hour, 40 percent less than what the state is paying now. The current 
futures market price for California-delivered power in July and August is 
about $500 per megawatt-hour, but administration officials insist they have 
contracted for much of the summer peak load at lower costs, leaving less 
exposure to the spot market. 
If it all works as Davis hopes, customers of the three major utilities -- 
about 70 percent of Californians -- will see a sharp boost in their rates 
soon, and that will be enough to finance the $20 billion in power purchase 
debts incurred by the utilities and the state so far, plus pay for future 
purchases. 
The bonds would pick up the costs not covered by the raised rates in the 
early years of the scheme, then be paid off later as rates remain high but 
power costs go down. A sharp decline in power costs later in the decade is 
another major assumption in Davis' plan, based on still another assumption 
that massive generating facilities will be built within a few years. 
The administration's new set of assumptions replaces suppositions that proved 
to be very wrong, such as Davis' oft-expressed belief that power rates would 
not have to be raised. And the new scheme also includes elements that Davis 
had rejected last year, such as long-term contracting for power and the 
ability of rate increases to drive down consumption. 
Will it work? Will ratepayers, taxpayers, voters, financiers, legislators and 
others be persuaded that Davis finally has his act together and that his 
scheme is workable and fair? And will consumer activists be placated by a 
plan that assumes ratepayers will shoulder the utilities' massive debts? Stay 
tuned. This crisis is still a long way from being a footnote to California 
history. 

The Bee's Dan Walters can be reached at (916) 321-1195 or dwalters@sacbee.com
.
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Soaring energy bills hurt eateries: Many restaurants in capital area, despite 
good patronage, expect to raise menu prices. 
By Cathleen Ferraro
Bee Staff Writer
(Published May 1, 2001) 
So far, it appears to be the economic slump that wasn't. 
Across the region, most restaurateurs say they aren't seeing patrons pull 
back on how often they eat out or what they order. That's significant because 
dining out is one of the first luxuries people typically eliminate when times 
get rough -- or even appear to be slowing down. 
At the same time, restaurant owners who say business is good remain anxious 
about the relentless energy crisis. They complain about big utility bills 
that promise to stay bloated through the summer and about higher operating 
costs from vendors now passing along their own inflated energy expenses. 
That all adds up to pricier menus. 
"I hoped not to increase prices, but there's no slack when basic utilities 
are so high now," said Barbara Mikacich, owner of Sacramento's Andiamo 
restaurant, which expects to come out with a new menu in June. 
With a few exceptions, local bakery cafes, pizza shops, swanky steakhouses 
and more are about to raise food prices while trying to cut back on energy 
use. Restaurants are taking such steps because they're bracing for more 
energy problems and fear that the economic downturn -- while not obvious now 
-- could be around the corner. 
"We're watching all the little things," said Mark Platt, operating partner at 
P.F. Chang's China Bistro in Roseville where sales are still strong. "But 
there's no dramatic way for us to save on our use of gas here. We have to use 
woks." 
No menu price hikes or staff layoffs are in the wind at P.F. Chang's, Platt 
said. But the popular restaurant has changed some of its routine tasks to 
offset gas and electric utility bills that have climbed from a combined 
$12,500 a month when it opened in September to $16,000 now. 
So each morning, cooks at P.F. Chang's no longer spend 20 minutes over 
gas-fired flames removing carbon from the bottom of nine main woks. Now they 
get the job done in five minutes. 
Meanwhile, the restaurant's timers have been adjusted so that lights and air 
conditioners turn on later in the day and shut off sooner. 
Elsewhere in Roseville, Carvers Steaks & Chops -- traditionally a lunchtime 
hot spot with developers, bankers and other professionals -- stopped using 
its five gas fireplaces. 
"We used to run them from 11 a.m. to 11 p.m., six days a week," said general 
manager Gary Kowalsky. "But we quit lighting them because they're strictly 
for ambience." 
Prompting that change is Carvers' combined utility bill. It used to run 
$6,000 a month but has jumped to $10,000. 
No layoffs are planned at Carvers. Menu price hikes took effect six weeks ago 
when the restaurant added 50 cents to $1 to the prices for steak dishes. 
At Casey's Bakery & Cafe on Sacramento's Folsom Boulevard, the gas bill has 
doubled since February, said owner Casey Hayden. So instead of running 
convection ovens "all day long," as he put it, the shop organizes jobs now so 
that more pastries and desserts bake at the same time, reducing use of the 
cafe's gas ovens. 
In mid-March, Casey's reduced its operating hours from six days a week down 
to just three, Friday through Sunday, in response to the energy crunch, 
stagnant walk-in business during the week and an increase in wholesale 
accounts. 
Sacramento's Cafe Melange at 24th Street and Second Avenue also slashed hours 
due to higher utility costs, closing now at 7 p.m. instead of 11 p.m. Owner 
Marrie Morris said she may raise prices in the next month or two. 
Heating and cooling the large warehouse environment of Fox & Goose Public 
House on R Street has always been challenging. But now the midtown restaurant 
is facing a Pacific Gas and Electric bill that topped $1,200 in March -- or 
double the amount from a year earlier. 
That strain on top of higher produce, dairy and labor costs has prompted Fox 
& Goose to print a new menu due out in June. It will include some of the most 
popular items from the now-closed Greta's Cafe -- previously operated by Fox 
& Goose owner Allyson Dalton -- and several higher priced items. 
"About 50 percent of the menu is going up, but nominally, 2 to 3 percent," 
said Dalton. 
Sacramento's Original Pete's pizza chain, which is slated to open a Davis 
outlet, its sixth, this week, cut off its janitorial service. The cleaning 
duties will be handled by staffers. The restaurant also turned off many 
lights and now runs just one oven instead of two during slow times. It, too, 
plans to raise menu prices soon. 
"We will take a very modest increase across the board, about 3 percent," said 
founder Steve Presson, who also noted "early warning signs" of an economic 
slowdown, including more customers writing bad checks, credit card numbers 
being denied and the use of fraudulent cards. 
Now with the threat of rolling summer blackouts, restaurateurs are even 
edgier because such power outages might discourage dining out, typically more 
popular during warm weather and extra daylight hours. 
A blackout at Carvers, the Roseville steakhouse, for example, would mean a 
shutdown of its gas valves and computer-operated cash register system, said 
manager Kowalsky. 
"I hope there's some resolution to all of this," he said. "I can't imagine 
anything worse than a building full of hungry people who you can't serve."
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Bee Editorial
Empowering the public
Obstacles keep cities out of energy


(Published April 30, 2001)

In a city the size of Davis, how many citizens does it take to kill an 
initiative to create a public power agency and remove PG&E as the supplier of 
electricity? Only three. That's because, under state law, a five-member 
government agency, the county Local Agency Formation Commission (LAFCO), 
which operates largely in obscurity, can reject the proposal before it even 
gets to the ballot box. 
Over the past several decades, laws such as this have made it harder for 
communities to leave the domain of the investor-owned utilities and turn 
power into a public enterprise. Sacramento's long struggle to create its 
municipal utility district (SMUD) began in the 1920s. It took two decades of 
fighting a resistant PG&E for SMUD to get into the distribution business. If 
today's laws were in effect back then, Sacramentans might still be fighting, 
or have given up long ago. 
Amid the pile of energy-related legislation in the capitol is one that seeks 
to remove these roadblocks to public power. At the heart of SB 23x by Sens. 
Nell Soto of Pomona and John Burton of San Francisco are two valuable 
reforms. If the private utilities don't manage to kill this bill, the future 
will provide interesting choices for communities that are beginning to assess 
their energy options. 
The first reform in SB 23x would be to prevent LAFCOs from blocking elections 
to decide whether to create a public power agency. LAFCOs now hold this veto 
power. This is how residents in and around the city of Davis were prevented 
last year from voting on a public power initiative on the ballot. They had 
thousands of signatures on their initiative petitions. But they didn't have 
three votes on LAFCO. SB 23x would give LAFCO an advisory role, so that 
voters can take their findings into consideration. 
The second reform would change what happens when a newly formed public power 
agency decides to purchase the local electric distribution lines from PG&E. A 
law passed in the early 1990s gave PG&E considerable leverage in court to 
challenge whether it's necessary for the municipal utility to buy its wires. 
PG&E seeks to substitute its will for that of the voters. SB 23x returns to 
the municipal utility the legal presumption that it can take over the lines, 
leaving the courts to settle on the appropriate price. This is the proper 
role of the courts. 
A new municipal utility doesn't necessarily have to buy the lines and get 
into the distribution business. It may simply buy power in bulk and pass on 
the savings to its citizens. The first step is for communities to assess 
their options. Davis residents are once again mulling secession from PG&E, as 
are activists in Fresno, communities within Orange County and San Francisco. 
It's too soon to say whether these seeds of a modern-day public power 
movement ultimately come to fruition. Yet the mere threat of secession acts 
as an appropriate check against the investor-owned utilities. Communities are 
not their hostages. SB 23x returns to communities the power of choice. 
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Daniel Weintraub: An energy trader says it's time to limit profits


(Published May 1, 2001) 

In a sea of angry finger-pointing, name-calling and ridicule, Keith Bailey 
stands out as an island of calm, a lonely voice of reason who understands 
that a company's long-term self-interest is about more than how much money it 
can make today. 
Most Californians probably have never heard of Bailey, a Kansas City native 
and chief executive officer of Tulsa-based Williams Cos. -- a private energy 
trader that has profited handsomely from the state's recent miseries. But 
Golden Staters from Gov. Gray Davis on down ought to embrace this Oklahoma 
resident. He might be the man who saves our future. 
Bailey is proposing that federal electricity regulators place temporary caps 
on the profits that he and his competitors may earn between now and fall 
2002, when supply and demand will be closer to balance and sanity might 
return to the West's energy market. 
His rationale is this: To save California's private electricity market, new 
power plants are desperately needed. But not enough of those plants will be 
built if generators are not confident they will be paid for the product they 
already are providing. 
Californians, though, don't want to promise payment without knowing they will 
be able to afford the bill. Short-term caps on profits, Bailey believes, are 
the best way to ease the state's fears, get everybody paid and move on to a 
system that works -- for suppliers and customers. 
"One of the things we are hoping to do with our proposal is create something 
that California can look at and say, 'So long as prices are determined on 
this basis, we're prepared to pay,' " Bailey said in an interview. "This is a 
mechanism that lets the state say, 'We're not signing a blank check. We don't 
know what the price is going to be, but we do know how it will be 
determined.' " 
Bailey's proposal is different from the limited price caps approved last week 
by the Federal Energy Regulatory Commission -- and far better for California. 
The federal caps would come with all sorts of strings attached, would kick in 
only during emergencies and would be focused on prices, not profits. Bailey 
is proposing that all power sold from now through summer 2002 be priced at 
the cost of producing it, plus a profit of 15 percent. That's more than a 
regulated utility would make but less than most private companies seek, and 
far less than electricity providers have been earning of late. 
Cynics might note that Bailey is proposing caps only after his company has 
squeezed all it can from California. The firm reported last week that profits 
doubled in the first quarter of 2001 over a year ago, with pretax income from 
its energy services nearly tripling, to $600 million. Much of the 4,000 
megawatts of electricity that Williams controls in California is already 
committed in long-term contracts -- so Bailey has relatively little to lose 
if what remains can only be sold at controlled prices. 
But here is at least one measure of Bailey's sincerity: His company still is 
owed $252 million for electricity it has provided California. And he's not 
insisting that the debt be paid before his proposed profit caps take effect, 
or even as part of the deal. 
"Clearly there is a past that has to be dealt with," he said. "Whether that 
ultimately gets dealt with in bankruptcy court or negotiations with the 
parties, it will sort itself out one way or another. Perhaps if we find 
prices that work going forward, that could be used as a framework." 
Bailey, an engineer by training, says no one should mistake his proposal for 
a lack of confidence in free markets. He still firmly believes that a 
deregulated energy market would be best for California and the rest of the 
West in the long term. He just wants to make sure there is a long term. 
Bailey is watching, and listening, to California. He hears talk of seizing 
power plants, of turning to a public power system. He describes these ideas 
as Draconian and says they would not solve the problem. But he also knows 
there is a limit to what Californians -- and their elected leaders -- can 
take. 
"I recognize we live in a democracy, and lots of things could happen," he 
said. 
What he is proposing, in effect, is a safety valve. He wants to limit the 
market in order to save it. 
"This is an extraordinary situation," Bailey said. "We need to help create 
some breathing room. ... We all have to work together, and this is the right 
thing to do." 
Bailey's proposal, made at a conference of energy producers and traders in 
Oklahoma last week, was almost lost amid all the focus on the price caps 
approved in Washington. But there is still time to give the idea the 
attention it deserves. Properly nourished, it could be the breakthrough that 
solves this crisis. Davis and others in California should seize the moment. 

The Bee's Daniel Weintraub can be reached at (916) 321-1914 or at 
dweintraub@sacbee.com.
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Power Companies Step Up Lobbying 


By JULIE TAMAKI and MIGUEL BUSTILLO, Times Staff Writers 

?????SACRAMENTO--As California's electricity crisis exploded this year, so 
did lobbying by energy companies.
?????Pacific Gas & Electric Co., which has filed for bankruptcy protection, 
spent $622,000 lobbying lawmakers and Gov. Gray Davis' administration during 
the first three months of the year, according to reports filed with the state 
Monday.
?????The reports show that seven energy companies spent more than $1 million 
on lobbying as they ramped up their response to the crisis. Houston-based 
power producer Reliant Energy, for example, spent nearly $100,000 on lobbying 
firms through March 31--almost four times the $25,523 it spent during all of 
last year.
?????The documents show that lobbyists for the firms were hard at work trying 
to influence a horde of energy-related measures, from legislation to set new 
rates for small power producers to a bill that put California in the 
electricity purchasing business.
?????PG&E spokesman Ron Low said his company racked up hundreds of thousands 
of dollars in expenses in its unsuccessful effort to reach an agreement with 
the state on the purchase of its transmission lines. An unprecedented number 
of energy-related bills added to PG&E's need to hire lobbyists, Low said.
?????"During the first quarter this year, more than 350 bills were introduced 
in the Legislature that deal with the energy industry," Low said. "Almost all 
those bills affected our customers and required staff analysis, testimony 
before legislative committees, and questions to be answered for legislators 
and their staff."
?????Sempra Energy, the parent firm of San Diego Gas & Electric, spent 
$192,000 lobbying lawmakers in Sacramento and regulators at the Public 
Utilities Commission, roughly half of what it spent all of last year.
?????The utility also made campaign contributions to political parties and 
Sacramento politicians, giving $250 to Lt. Gov. Cruz Bustamante, $750 each to 
Assembly members Keith Richman (R-Northridge) and George Runner Jr. 
(R-Lancaster) and $1,000 to Sen. Kevin Murray (D-Culver City), among others.
?????A lobbying report for the parent company of Southern California Edison 
was not available Monday evening. The reports were required to be filed both 
electronically and by mail, postmarked by midnight Monday.
?????Electricity merchants and generators also boosted their spending. El 
Paso Energy Corp., which owns one of the main natural gas pipelines into 
California, spent nearly $22,000. It reported lobbying Davis' office and the 
California Energy Commission.
?????Lobbyists hired by the company, according to the report, also spent $607 
on dinners held in January and February with five lawmakers and an Assembly 
staff member to discuss energy-related issues.
?????Assemblyman Roderick Wright, the Los Angeles Democrat who chairs the 
Assembly's Utilities and Commerce Committee, dined with a lobbyist 
representing El Paso on Feb. 21 at the Esquire Grill, a Sacramento 
restaurant, according to the report. Assemblyman Joe Canciamilla 
(D-Pittsburg), who heads a subcommittee exploring natural gas issues, also 
ate at the Esquire on El Paso's tab that night.
?????The Houston-based power firm Dynegy Inc. spent $32,261 on lobbying 
through March 31, compared to $24,000 during all of last year. Another 
Houston energy company, electricity marketer Enron Corp., spent $66,994.
?????Duke Energy is among the firms paying top dollar for Sacramento 
lobbyists as it seeks to build power plants in California to capitalize on 
the state's energy shortage. The company reported spending more than $62,000 
on lobbying through March 31--more than it spent all of last year.
?????"We would be remiss in not ensuring that our voice is heard in 
Sacramento," said Duke Energy spokesman Tom Williams, adding that his firm's 
proposed Moss Landing power plant would provide "30% of the new generation 
[of electricity] for the whole state of California in 2002."
?????"They're [lobbyists] not speaking for us, he added. "They're helping us 
know exactly who to speak with to make sure we're appropriately heard--and 
frankly, to ensure that we can get our power plants built."
--- 
?????Times staff writer Nancy Vogel contributed to this story.

Copyright 2001 Los Angeles Times 
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Power Marketer Ordered by FERC to Refund $8 Million 
Energy: Williams Energy agrees to pay but admits no wrongdoing in taking 
plants offline. 

By NANCY VOGEL and ROBERT J. LOPEZ, Times Staff Writers 

?????In the first action of its kind during the California energy crisis, 
federal regulators have ordered an out-of-state electricity marketer to 
refund $8 million in connection with allegations that plants were improperly 
shut down to hike power prices.
?????Tulsa-based Williams Energy Marketing & Trading has agreed to pay the 
refund under an order issued Monday by the Federal Energy Regulatory 
Commission.
?????The firm, which admitted no wrongdoing in the settlement agreement, was 
probed for allegedly forcing utilities to pay higher prices by taking key 
generating units in Long Beach and Huntington Beach offline in April and May 
of last year. 
?????Paula Hall-Collins, a Williams spokeswoman, said her company settled to 
end the matter. She said that the company would have been exonerated had it 
pursued the case.
?????"We decided to go ahead with the settlement in order to put it behind us 
and move forward to more productive matters concerning California power 
issues," she said.
?????While federal investigations of alleged overcharges by several firms are 
continuing, Monday's order marked the first time a major power merchant has 
been forced to pay back earnings since California forged into electricity 
deregulation in 1996.
?????Critics and the state's independent grid operator have accused power 
sellers of unjustly ratcheting up electricity prices in part by taking plants 
offline.
?????In the case of Williams, the federal energy panel investigated the 
shutdown of power plants that were obligated to provide electricity to the 
state.
?????Desperate for power, California's grid operator had to turn to another 
provider and pay as much $750 per megawatt-hour--more than 10 times the 
normal price. The $8-million refund will go back to the grid operator.
?????Williams markets power produced at California plants owned by AES Corp. 
of Arlington, Va.
?????Federal investigators probed the actions of both Williams and AES, but 
the refund order affects only Williams. Initially, FERC had sought a refund 
of about $10.8 million, but settled for $8 million in the compromise 
agreement. 
?????AES spokesman Aaron Thomas said the power plants in question were shut 
down because of mechanical problems. He noted that his firm derived no profit 
from the replacement power sold by Williams.
?????"We literally get paid to convert Williams' gas into Williams' 
electricity, which they then sell into the marketplace," Thomas said. "We're 
not paying any fines, and we didn't do anything wrong."
--- 
?????Times staff writers Rich Connell and Richard Simon contributed to this 
story.

Copyright 2001 Los Angeles Times 
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Davis Turns to Bankruptcy Court for Help in Plan to Buy Power Grid 
Utility: He seeks support from panel representing creditors of PG&E. The firm 
has rebuffed state's offers. 

By DAN MORAIN and RICHARD SIMON, Times Staff Writers 

?????SAN FRANCISCO--Foiled in his first attempt to buy Pacific Gas & 
Electric's transmission grid, Gov. Gray Davis said Monday that he has tried a 
new tactic: bypassing the company and attempting to build support for the 
deal in Bankruptcy Court.
?????Davis' plan to buy the grid appeared to have ended disastrously last 
month when the giant utility filed for bankruptcy protection. But Davis said 
his advisors now are trying to sell the idea to a committee of PG&E creditors 
that hold a stake in the utility's Chapter 11 proceeding.
?????The creditors committee, representing the hundreds of companies owed 
money by PG&E, does not by itself hold the power to accept or reject the 
deal, which Davis sees as a key to his plan to restructure the state's 
crippled electricity system. But the committee will play an important role in 
any reorganization plan that is ultimately hammered out in U.S. Bankruptcy 
Court.
?????Given that power, Davis sent advisors to brief the committee last 
Wednesday. The advisors told the committee about the deal they struck with 
Southern California Edison to buy its share of the statewide transmission 
grid, and the similar deal that PG&E rejected.
?????"I'm not saying they embraced it entirely," Davis said, after speaking 
at a conference of technology entrepreneurs put on by the J.P. Morgan 
investment bank. "But they liked parts of it, asked good questions, and I 
thought it was a good beginning."
?????Paul Aronzon, the lead lawyer for the creditors committee, stressed that 
the meeting with Davis' advisors would not lead directly to a deal. The 
governor's representatives "did not come out and say, 'Would you guys sell us 
the transmission grid?' " he said. Rather, Aronzon said, the advisors simply 
brought the creditors up to speed on what Davis has put on the table.
?????Davis has offered more than $7 billion to buy the transmission systems 
of Edison, San Diego Gas & Electric and PG&E. So far, only Edison has 
accepted the deal. The cash infusion would help the utilities restructure 
their debts, and ultimately relieve the state of the need to continue buying 
electricity on their behalf.
?????The Davis administration made public Monday its most detailed breakdown 
yet on the costs it expects to incur purchasing electricity over the next 
years.
?????However, the extra information failed to satisfy Republican lawmakers, 
who are holding up legislation needed to repay the state budget for the 
billions already spent on electricity.
?????California will spend $15 billion buying power this year, according to 
projections by Davis' advisors.
?????But that total will drop to $9 billion next year and $7 billion the next 
as long-term electricity contracts, energy conservation efforts and new power 
supplies combine to lower the state's costs.
?????With money from higher electric rates and a planned $12.5-billion bond, 
the state should be able to cover the costs of power and operate at a surplus 
starting in November 2002, the administration projected.
?????Several Republicans took note of the date: It is the month of the 2002 
gubernatorial election, when Davis is expected to seek a second term.
?????The figures were based on a dizzying number of assumptions about the 
state's energy future. The projections assume, for example, that Californians 
will reduce energy consumption by 7%, and that 90% of the state's alternative 
energy producers will soon generate electricity again. Now only about 65% are 
online.
?????Davis administration officials defended the figures, saying that they 
were conservative.
?????The reaction to the figures reflects a growing rift between Democrats 
and Republicans over how best to solve the state's problems. Efforts have 
been lurching unsteadily on several fronts, including the courts, the state 
Legislature and Congress, with considerable political head-butting taking 
place in the last two.
?????In Washington today, a key congressional panel is expected to take up 
emergency legislation intended to help California, although Davis and other 
Democrats have criticized the effort as useless.
?????The bill's 19 provisions would, among other things, provide federal aid 
to relieve a bottleneck in the state's transmission system, permit governors 
to obtain temporary waivers of environmental rules to boost power supplies, 
and direct federal disaster officials to help California prepare for 
blackouts.
?????A spokesman for Davis said the Republican-drafted legislation offers "a 
lot of things we don't need, and fails to address the one thing we do need," 
namely firm price controls on wholesale electricity sales.
?????Democrats and Republicans have strong, fundamental disagreements about 
how best to solve the crisis, with Democrats supporting price controls, if 
only temporarily, and many Republicans, including President Bush, opposed to 
tampering with the market.
?????Several Democrats who attended a White House ceremony Monday to mark 
Bush's first 100 days in office spoke briefly to the president about the 
energy situation.
?????"He was not very sympathetic," said Rep. Bob Filner (D-San Diego), an 
advocate of price controls. "They have their minds pretty well made up."
?????In one effort to seize the initiative, a divided state Senate 
Appropriations Committee approved a bill Monday that would impose a windfall 
profits tax on electricity sellers who gouge California consumers. Revenue 
from the tax would flow back to Californians in the form of a credit on their 
state income taxes, starting next April 15.
?????"Our backs are to the wall," said one sponsor of the bill, Sen. Jack 
Scott (D-Altadena). "We believe that this is one time when we can stand up to 
an avaricious energy generator and say, 'No more.' "
?????On a 7-3 vote, Democrats on the committee voted for the bill, SB1X, and 
Republicans lined up against it. The measure moved to the Senate floor, where 
it will require only a simple majority of 21 votes and is expected to pass.
?????Davis has said he is open to signing a windfall profits bill, but he has 
not publicly lobbied for its passage.
?????Also Monday, legislation was introduced in the Assembly to bolster 
natural gas supplies in the state. Tight supplies have led to soaring costs 
for natural gas, the fuel most commonly used to generate electricity in 
California.
--- 
?????Morain reported from San Francisco and Simon from Washington. Times 
staff writers Miguel Bustillo, Carl Ingram and Julie Tamaki in Sacramento, 
Tim Reiterman in San Francisco and Mitchell Landsberg in Los Angeles 
contributed to this story.

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Feds want surcharge to pay utilities' debts 
THE PLAN: Additional rate boost likely, cash would go to power suppliers 
Carolyn Said, Chronicle Staff Writer
Tuesday, May 1, 2001 
,2001 San Francisco Chronicle 
URL: 
http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2001/05/01/MN9985.DTL 
Federal energy regulators have proposed a surcharge on wholesale electricity 
sales in California to compensate generating companies, angering state 
officials who say the idea amounts to gouging consumers. 
The Federal Energy Regulatory Commission suggested collecting the money to 
reimburse electricity suppliers who have debts from Pacific Gas and Electric 
Co., Southern California Edison and San Diego Gas & Electric Co. Power 
companies accrued some $6 billion in unpaid bills from California's 
struggling utilities in late 2000 and early this year, until the state 
stepped in to take over the purchasing of power. 
"Under the pretense of helping California, (FERC) is proposing to steal 
additional money from California ratepayers to pad the pockets of the greedy 
energy companies," Gov. Gray Davis said in a statement. "FERC does not care 
one wit about the ratepayer. Their plan is a total capitulation to the energy 
companies." 
Sen. Dianne Feinstein, D-Calif., who has been an outspoken critic of FERC's 
policies in California, said the surcharge would "ensure that power 
generators get paid fully for their price gouging. That is outrageous and 
will further alienate Californians." 
The surcharge presumably would be levied on the California Department of 
Water Resources, which, as the state's purchasing agent, has already spent 
more than $5 billion on power since January. The DWR's costs, in turn, are 
likely to be borne by California's consumers and taxpayers. 
FERC would require the California Independent System Operator, which runs the 
state's power grid, to collect the surcharge. But state regulators could 
challenge the surcharge. 
"We have 30 days to comment to FERC and are considering our options," said 
Sean Gallagher, state counsel at the California Public Utilities Commission. 
"If (FERC's) concern is public policy and maintaining just and reasonable 
prices for consumers, I don't quite understand why they would get into the 
middle of a legal wrangle about past bills' getting paid," said Severin 
Borenstein, director of the University of California Energy Institute in 
Berkeley. "It is true the firms would like to get paid. I'm not sure what 
FERC has to do with helping them collect their money." 
A 'GOUGING TAX'
Consumer advocates characterized the surcharge as a "gouging tax" that 
underscores the Bush administration's close ties to energy firms, many of 
which are based in President Bush's home state of Texas. 
"This is evidence that FERC and the administration are more interested in 
protecting the energy industry than the consumers or taxpayers of 
California," said Doug Heller, a consumer advocate with the Los Angeles-based 
Foundation for Taxpayer and Consumer Rights. "It's back-billing us to pay 
prices that were unjust and unreasonable per the FERC's own analysis." 
FERC's Curt Hebert, a Mississippi Republican whom President Bush appointed 
chairman of the commission, was behind the surcharge proposal, which he told 
the Wall Street Journal was a way "to stabilize the market." Hebert did not 
return calls for comment. 
The surcharge was proposed in FERC's 39-page "mitigation" plan to alleviate 
wholesale electricity prices in California during power emergencies; the plan 
was released last week. FERC said it would accept public comment on the 
proposal for 30 days, after which it would decide whether to implement it. 
COMPLICATED ISSUES
Even the power industry, the presumptive beneficiary of the surcharge, did 
not express whole-hearted support for it. 
"I'm glad they brought it up," said Gary Ackerman, executive director of the 
Western Power Trading Forum, which represents all major buyers and sellers of 
wholesale electricity in California. "But it skirts the issue of what's state 
regulated and what's federally regulated. I'm not sure how federal regulators 
can pass a charge on wholesale costs which then ends up on consumers, without 
the state saying it's OK." 
Some of the proposal's wording is unclear. It discusses, for example, whether 
the surcharge money "should cover all past-due amounts or only future unpaid 
bills starting from the date the plan is begun." 
The reference to "future unpaid bills" is puzzling since, with the state of 
California picking up the tab, electricity suppliers no longer are 
accumulating unpaid bills from the utilities. 
"That could become a self-fulfilling prophecy; we don't want to go there," 
Ackerman said about the idea of "future unpaid bills." 
The FERC proposal also implies that electricity generators have reduced 
production in California, an allegation the power companies themselves deny. 
FERC asked for comments on whether the surcharge "would help to increase 
production by creating a greater assurance that generators will be paid." 
E-mail Carolyn Said at csaid@sfchronicle.com. 
,2001 San Francisco Chronicle ? Page?A - 1 
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Lawmakers offer bills aimed at cutting natural gas prices 
JENNIFER COLEMAN, Associated Press Writer
Tuesday, May 1, 2001 
,2001 Associated Press 
URL: 
http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2001/05/01/state0
949EDT0128.DTL&type=news 
(05-01) 06:49 PDT SACRAMENTO (AP) -- Gov. Gray Davis is relying on stringent 
conservation measures, increased electricity supply and quick Legislative 
authority to proceed with a $12.5 billion revenue bond issue to head off 
blackouts this summer. 
Davis administration officials briefed lawmakers Monday on the governor's 
plan to rescue Southern California Edison by buying the utility's 
transmission lines. 
The extra financial details Davis' representatives gave Assembly Republicans 
include forecasts of the Department of Water Resources' summer power 
purchases -- the same figures the state will use to find buyers for $12.5 
billion in bonds to pay for future power. 
Those forecasts, some Republicans said, count on too many things falling into 
place, including the assumption that all of the state's financially troubled 
alternative energy producers will be online. 
Though energy analysts have predicted skyrocketing energy costs for summer -- 
up to $1,500 per megawatt hour -- the governor's plan calculates an average 
cost of $195 per megawatt hour over June, July and August. 
That's because DWR cut long-term contracts covering a major part of the 
electricity needed during peak times, said Ron Nichols, senior managing 
director for Navigant Consulting Inc. 
Long-term contracts and conservation will minimize the effect of the expected 
high spot prices, Nichols said. 
In essence, Davis aides, much of the conservation will be spurred by sticker 
shock felt by consumers when they get their higher rates on their June bills. 
PG&E customers will see a 34 percent increase, Southern California Edison's 
will jump 32 and San Diego Gas and Electric rates will jump 44 percent. 
Davis' consultants predict the state can conserve up to 7,234 megawatts 
during peak demand -- about 16 percent of a 45,000 megawatt load that summer 
weather can bring on. One megawatt is roughly enough power for 750 homes. 
Much of that conservation, 2,484 megawatts, will come from three different 
conservation programs through the California Independent System Operator, 
keeper of the state's power grid. 
Davis' ''20/20'' conservation plan is expected to cut another 2,200 megawatts 
of demand. The rest of the cuts come from the sticker shock of higher 
consumer rates and by estimating how much less power Californians are using 
this year compared to last year. 
``If we're wrong, there are certain reserves built in,'' said Susan Kennedy, 
deputy chief of staff and secretary of cabinet. Either the state borrows more 
or there will be blackouts, she added, and if the price of power goes higher 
than expectations, the state won't be able to afford it. 
By the end of 2002, Davis estimates, DWR will spend $26.9 billion to buy 
power for customers of the three financially ailing utilities. Of that, $12.5 
billion will be paid for by revenue bonds that will add up to one cent per 
kilowatt hour to customer bills for 15 years. 
The Legislature approved the revenue bonds based on a formula that would set 
the amount of the issue. Now Davis' representatives say it's urgent that the 
Legislature approve a bill with a firm cap so they could begin the bond sale. 
``We need the unambiguous authority to sell bonds. We need it right now. We 
cannot afford any delays,'' Kennedy said. 
A bill putting a $10 billion limit on the bonds stalled in the Assembly last 
week after Republicans refused to vote for it until they received more 
details about Davis' power buys and long-term contracts. 
Republicans wondered about the ability of the alternative generators to be 
online, a sentiment shared by the industry. Currently, about one-third are 
off-line now because PG&E and Edison owe them more than $1 billion. 
The Public Utilities Commission ordered the utilities to pay those generators 
every other week starting April 1, but the large debts have the generators 
fighting to stay open, said Jan Smutny-Jones, executive director of the 
Independent Energy Producers. 
Davis' predictions aren't rosy, but realistic, said Joseph Fichera, a 
financial adviser for the governor. ``It minimizes the risk of blackouts, but 
you can never eliminate it.'' 
Also Monday, an Assembly subcommittee unveiled four bills Monday designed to 
increase supplies of natural gas, including streamlining approvals for gas 
storage and new pipelines. 
After conducting hearings on the market, the subcommittee is recommending the 
state streamline the PUC's process to approve underground natural gas storage 
facilities and new pipelines, allow lower-grade California natural gas to be 
used by industrial users and reform tariffs to see if they discourage 
investments in a variety of natural gas-related ventures. 
Meanwhile, the state remained free of power alerts Tuesday morning as 
reserves stayed above 7 percent. 
On the Net: 
The bill numbers are: AB78x by Canciamilla; AB73x by Canciamilla and 
Dickerson; AB23x, by Assemblyman Dennis Cardoza, D-Atwater, and Assemblywoman 
Barbara Matthews, D-Tracy; and AB42x, by Diaz. 
Read the bills at www.assembly.ca.gov 
,2001 Associated Press ? 
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Developments in California's energy crisis 
The Associated Press
Tuesday, May 1, 2001 
,2001 Associated Press 
URL: 
http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2001/05/01/state0
946EDT0127.DTL&type=news 
, , -- (05-01) 06:46 PDT Developments in California's energy crisis: 
TUESDAY:< ?-- An Assembly electricity oversight committee releases report on its ?investigation of alleged natural gas price and supply manipulation. ?-- The state remains free of power alerts as electricity reserves stay above ?7 percent. ?MONDAY:< 
-- Gov. Gray Davis' staff briefs Assembly Republicans on the plan to purchase 
Southern California Edison's transmission lines. The governor estimates that 
during peak hours this summer, Californians can conserve more than 7,000 
megawatts. That's enough power for more than 5 million homes. Davis' advisers 
say the Legislature needs to quickly approve a bill that would let the state 
issue bonds to buy power for customers of Pacific Gas and Electric, San Diego 
Gas and Electric and Edison. The bonds would also repay the general fund for 
the more than $5 billion the state has already spent on power. 
-- PG&E's transmission lines could still be bought by the state despite the 
utility seeking bankruptcy protection when an earlier deal with state 
negotiators fell through, Davis says. Davis tells reporters that a creditors 
committee of businesses owed money by PG&E asked the state for a briefing on 
talks to buy San Diego Gas and Electric Co.'s transmission lines. Davis says 
he believes there is still some possibility of buying PG&E's lines. 
-- Williams Energy agrees to pay $8 million to settle charges by federal 
regulators that the company withheld power to drive up prices. 
``We decided to settle to put this behind us and to put our full attention 
toward more productive matters in relation to California versus going through 
a costly and long hearing process,'' said Williams spokeswoman Paula 
Hall-Collins. She said Williams ``is confident that a full hearing of the 
facts would have exonerated us entirely.'' 
-- Members of the Assembly Subcommittee on Natural Gas Costs and Availability 
unveil legislation to cut natural gas prices. 
-- The state Assembly approves a bill that lets a private energy company 
purchase a shuttered PG&E power plant. The North American Power Group plans 
to reopen the Kern Power Plant that PG&E shut down in 1985. Once renovated, 
it will provide enough electricity about 180,000 homes. The bill moves to the 
Senate. 
-- The state remains free of power alerts as electricity reserves stay above 
7 percent. 
< 
WHAT'S NEXT:<
-- Davis' representatives continue negotiating with Sempra, the parent 
company of San Diego Gas and Electric Co., to buy the utility's transmission 
lines. 
THE PROBLEM:
High demand, high wholesale energy costs, transmission glitches and a tight 
supply worsened by scarce hydroelectric power in the Northwest and 
maintenance at aging California power plants are all factors in California's 
electricity crisis. 
Edison and PG&E say they've lost nearly $14 billion since June to high 
wholesale prices the state's electricity deregulation law bars them from 
passing on to consumers. PG&E, saying it hasn't received the help it needs 
from regulators or state lawmakers, filed for federal bankruptcy protection 
April 6. 
Electricity and natural gas suppliers, scared off by the two companies' poor 
credit ratings, are refusing to sell to them, leading the state in January to 
start buying power for the utilities' nearly 9 million residential and 
business customers. The state is also buying power for a third investor-owned 
utility, San Diego Gas & Electric, which is in better financial shape than 
much larger Edison and PG&E but also struggling with high wholesale power 
costs. 
The Public Utilities Commission has raised rates as much as 46 percent to 
help finance the state's multibillion-dollar power buys. 
,2001 Associated Press ? 
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Second try for tax cut in Oakland 
Smaller utility levy likely after Brown veto 
Tyche Hendricks, Chronicle Staff Writer
Tuesday, May 1, 2001 
,2001 San Francisco Chronicle 
URL: 
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/05/01/M
NE216500.DTL&type=news 
Oakland -- The Oakland City Council is set to scale back plans for a 
six-month cut in the city's utility users tax in the face of a first-ever 
veto by Mayor Jerry Brown, who said the city may not be able to afford the 
cut. 
A week after the council voted 5 to 2 to give residents relief on their 
skyrocketing gas and electric bills by reducing the tax the city imposes, 
council members said yesterday that they will reconsider the plan and may 
give a break only to the poorest Oaklanders. 
City Council President Ignacio De La Fuente, the author of the tax cut 
proposal, said he plans to revise the measure at tonight's council meeting. 
Under the revision, low-income residents would be exempt from the tax, which 
could cost the city an estimated $300,000. 
"The mayor has some legitimate concerns," De La Fuente said. He said he would 
postpone consideration of a cut for all residents until after the state has 
approved its budget for the coming year. 
The council's latest move came after Brown last week invoked his authority to 
block legislation, a power he was granted under the 1998 strong-mayor 
ordinance that he wrote and voters approved. 
In the letter, Brown said the six-month tax break would take $1.6 million 
from the city coffers and could be construed as a permanent tax cut, which 
under state Proposition 218 would require approval by two-thirds of the 
voters to reinstate. 
"In addition," the mayor wrote, "the current budget hemorrhaging in 
Sacramento threatens to reduce expected state revenues to the city on which 
the current city budget is based." Brown said he would support relief for 
those least able to pay. 
The council had planned to temporarily reduce the city's utility tax from 7. 
5 percent to roughly 6 percent for most residents and eliminate it entirely 
for low-income households that qualify for PG&E's assistance program. 
After the council approved the tax cut last week, city leaders heard a report 
from the city manager's budget analyst confirming that state money for 
California's cities might be reduced for the next fiscal year. 
"We all wanted to do this," said Councilwoman Jane Brunner, referring to 
herself and four other council members, including De La Fuente, who voted for 
the utility tax relief. 
"But they are saying that the (state's) energy costs may dip into some of the 
regular general fund money (for city and county governments). And that may be 
very significant." 
Councilwoman Nancy Nadel, who voted against the tax cut along with Dick 
Spees, said tax relief for low-income residents would cost the city roughly 
$300,000, which she called a more reasonable figure. The eighth council 
position was vacant last week but will be filled tonight when council member- 
elect Moses Mayne is sworn in. 
Brown's action marks the first time he has exercised his law-blocking power 
under Measure X, which allows the mayor to send new legislation back to the 
council for reconsideration if it is passed with fewer than six votes. 
If the council cannot muster six votes on its second review, the law would 
not take effect. 
Russo said the fact that Brown has not used his veto power until now, more 
than halfway into his four-year term, shows that he is able to work with the 
council. 
"I think it's significant that this is first time (he's used the veto)," said 
Russo. "It has been 2 1/2 years of some pretty controversial and contentious 
stuff." 
E-mail Tyche Hendricks at thendricks@sfchronicle.com. 
,2001 San Francisco Chronicle ? Page?A - 13 
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Feds want surcharge to pay utilities' debts 
THE PLAN: Additional rate boost likely, cash would go to power suppliers 
Carolyn Said, Chronicle Staff Writer
Tuesday, May 1, 2001 
,2001 San Francisco Chronicle 
URL: 
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/05/01/M
N9985.DTL&type=news 
Federal energy regulators have proposed a surcharge on wholesale electricity 
sales in California to compensate generating companies, angering state 
officials who say the idea amounts to gouging consumers. 
The Federal Energy Regulatory Commission suggested collecting the money to 
reimburse electricity suppliers who have debts from Pacific Gas and Electric 
Co., Southern California Edison and San Diego Gas & Electric Co. Power 
companies accrued some $6 billion in unpaid bills from California's 
struggling utilities in late 2000 and early this year, until the state 
stepped in to take over the purchasing of power. 
"Under the pretense of helping California, (FERC) is proposing to steal 
additional money from California ratepayers to pad the pockets of the greedy 
energy companies," Gov. Gray Davis said in a statement. "FERC does not care 
one wit about the ratepayer. Their plan is a total capitulation to the energy 
companies." 
Sen. Dianne Feinstein, D-Calif., who has been an outspoken critic of FERC's 
policies in California, said the surcharge would "ensure that power 
generators get paid fully for their price gouging. That is outrageous and 
will further alienate Californians." 
The surcharge presumably would be levied on the California Department of 
Water Resources, which, as the state's purchasing agent, has already spent 
more than $5 billion on power since January. The DWR's costs, in turn, are 
likely to be borne by California's consumers and taxpayers. 
FERC would require the California Independent System Operator, which runs the 
state's power grid, to collect the surcharge. But state regulators could 
challenge the surcharge. 
"We have 30 days to comment to FERC and are considering our options," said 
Sean Gallagher, state counsel at the California Public Utilities Commission. 
"If (FERC's) concern is public policy and maintaining just and reasonable 
prices for consumers, I don't quite understand why they would get into the 
middle of a legal wrangle about past bills' getting paid," said Severin 
Borenstein, director of the University of California Energy Institute in 
Berkeley. "It is true the firms would like to get paid. I'm not sure what 
FERC has to do with helping them collect their money." 
A 'GOUGING TAX'
Consumer advocates characterized the surcharge as a "gouging tax" that 
underscores the Bush administration's close ties to energy firms, many of 
which are based in President Bush's home state of Texas. 
"This is evidence that FERC and the administration are more interested in 
protecting the energy industry than the consumers or taxpayers of 
California," said Doug Heller, a consumer advocate with the Los Angeles-based 
Foundation for Taxpayer and Consumer Rights. "It's back-billing us to pay 
prices that were unjust and unreasonable per the FERC's own analysis." 
FERC's Curt Hebert, a Mississippi Republican whom President Bush appointed 
chairman of the commission, was behind the surcharge proposal, which he told 
the Wall Street Journal was a way "to stabilize the market." Hebert did not 
return calls for comment. 
The surcharge was proposed in FERC's 39-page "mitigation" plan to alleviate 
wholesale electricity prices in California during power emergencies; the plan 
was released last week. FERC said it would accept public comment on the 
proposal for 30 days, after which it would decide whether to implement it. 
COMPLICATED ISSUES
Even the power industry, the presumptive beneficiary of the surcharge, did 
not express whole-hearted support for it. 
"I'm glad they brought it up," said Gary Ackerman, executive director of the 
Western Power Trading Forum, which represents all major buyers and sellers of 
wholesale electricity in California. "But it skirts the issue of what's state 
regulated and what's federally regulated. I'm not sure how federal regulators 
can pass a charge on wholesale costs which then ends up on consumers, without 
the state saying it's OK." 
Some of the proposal's wording is unclear. It discusses, for example, whether 
the surcharge money "should cover all past-due amounts or only future unpaid 
bills starting from the date the plan is begun." 
The reference to "future unpaid bills" is puzzling since, with the state of 
California picking up the tab, electricity suppliers no longer are 
accumulating unpaid bills from the utilities. 
"That could become a self-fulfilling prophecy; we don't want to go there," 
Ackerman said about the idea of "future unpaid bills." 
The FERC proposal also implies that electricity generators have reduced 
production in California, an allegation the power companies themselves deny. 
FERC asked for comments on whether the surcharge "would help to increase 
production by creating a greater assurance that generators will be paid." 
E-mail Carolyn Said at csaid@sfchronicle.com. 
,2001 San Francisco Chronicle ? Page?A - 1 
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Warning of a summer power 'Armageddon' 
Davis aide paints dire scenario in push for bonds to buy power 
Lynda Gledhill, Greg Lucas, Chronicle Sacramento Bureau
Tuesday, May 1, 2001 
,2001 San Francisco Chronicle 
URL: 
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/05/01/M
N192706.DTL&type=news 
Sacramento -- Trying to drum up support to issue $12.5 billion in bonds to 
buy power, a top adviser to Gov. Gray Davis warned lawmakers yesterday of 
"Armageddon" this summer if key assumptions on energy generation and 
conservation fail to materialize. 
Presenting a 67-page document to lawmakers, Davis' top energy consultants 
said numerous assumptions -- such as increased conservation and more 
alternative generating facilities returning to full operation -- must pan 
out. 
Without that, Davis' Cabinet secretary, Susan Kennedy, said an "Armageddon 
scenario" would take place, according to numerous lawmakers in the meeting. 
That could include more blackouts or additional borrowing, Kennedy said in a 
briefing later with reporters. "Everything has to fall in place." 
But one key assumption was immediately blasted by an energy industry official 
as "completely unrealistic." 
The administration document forecasts that 90 percent of the state's 
alternative generators will be back on line by June. About one-third are 
currently not operating because they are not being paid by California's debt- 
ridden utilities. 
"That is complete lunacy at this point," said Jerry Bloom, a spokesman for 
the California Cogeneration Council. "The assumption simply does not reflect 
the reality of the market. It shows once again that the governor is not 
listening." 
Among the other assumptions is a 7 percent conservation rate and the approval 
of the deal between the state and Southern California Edison Co. for the 
purchase of the utility's transmission lines. Davis has set a target of 
conserving 10 percent. 
In San Francisco yesterday, Davis told a high-tech business conference that 
the state will have to walk a tightrope to get through the summer. 
"We are going to have to set the Guinness Book of Records in this state in 
order to avoid disruptions this summer," he said. 
State Treasurer Phil Angelides said the assumptions were "fair and rational" 
but warned many of the assumptions are beyond the state's control. 
"The biggest threat to making this plan work is if generators take prices 
from the current level, which is horrendous, to obscenely horrendous," he 
said after meeting with Assembly Republicans for an hour on the proposed bond 
sale. 
The dire scenarios were used by the administration officials to convince 
Assembly Republicans to approve a bond authorization, which is scheduled to 
come up for a vote on Thursday. 
GOP members balked at approving the huge bond issuance without further 
details from the administration. But yesterday's information simply raised 
more questions in many minds. 
"It's kind of like peeling back an onion -- as you peel something back you 
find something else out," said Assemblyman George Runner, R-Lancaster. 
Assemblyman Tony Strickland, R-Thousand Oaks, said Republicans want to be 
sure there won't be a continuing need to issue larger amounts of bonds in the 
future. 
"The governor's office is asking us to approve the biggest bond in American 
history, and we're just supposed to trust them on a lot of this stuff," he 
said. "What happens if the assumptions don't happen? Do we need another $7 
billion or $10 billion in loans? Is the existing rate structure enough or 
will they ask for more? We want to know." 
Republican votes are needed to approve the bond issuing authority on an 
urgency basis. 
The current bill only allows for $10 billion, but the administration now says 
it needs $12.5 billion. Kennedy said another request for more financing will 
be made later to close that gap. 
The predictions use the rate increase proposed by Davis, which averages about 
37 percent. His rate increase would pay off not only the revenue bond issued 
by the state, but also a $8 billion bond issued by the utilities to pay off 
some of their back debt. 
Angelides has pressed for the bonding authority because the commitments for 
short-term bridge loans -- which would provide the state with money during 
the several weeks it would take to issue the bonds -- expire on May 8. 
However, most of the GOP members of the Assembly said they have not been 
convinced of the need for the bridge loans. 
Runner said normal budgetary borrowing will keep the general fund whole until 
the bonds can be issued. Republicans believe the emphasis on the short term 
funding is to allow Davis to present a rosier budget later this month. 
Tim Gage, Davis' director of finance, said the authorization is needed 
immediately to give sellers confidence that the state is credit-worthy and 
can continue to purchase power. Currently, the state is being charged a 
credit premium, he said. 
"I'm deeply concerned if the bridge loan, the first step, doesn't come 
together it will do harm getting the energy bond to the market," Angelides 
said. 
Meanwhile, the state Public Utilities Commission yesterday accused Pacific 
Gas & Electric Co. of trying to use bankruptcy to escape state regulation and 
raise rates drastically. 
The PUC asked a federal bankruptcy judge to dismiss PG&E's challenge to 
accounting changes ordered by the state commission on March 27 that would 
make it harder for the utility to pass along to customers its $8.9 billion 
debt for electricity purchases. 
Chronicle staff writers Bob Egelko and Tanya Schevitz contributed to this 
story. 
E-mail Lynda Gledhill at lgledhill@sfchronicle.com and Greg Lucas at 
glucas@sfchronicle.com. 
,2001 San Francisco Chronicle ? Page?A - 3 
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Cheney rejects conservation 
Posted at 11:03 p.m. PDT Monday, April 30, 2001 
BY JIM PUZZANGHERA 

Mercury News Washington Bureau 


WASHINGTON -- The energy woes of California and the nation cannot be solved 
with price controls or conservation, but only by increasing the country's 
supply of oil and natural gas and using more coal and nuclear power, Vice 
President Dick Cheney said Monday. 
Cheney was laying the groundwork for the announcement later this month of a 
major energy proposal. The vice president argued that without adopting the 
Bush administration plan, California's energy crisis may spread to the rest 
of the country. 
``A few years ago, many people had never heard the term `rolling blackout.' 
Now, everybody in California knows the term all too well. And the rest of 
America is starting to wonder when these rolling blackouts might roll over 
them,'' Cheney said in a Toronto speech to the Associated Press. 
``Without a clear, coherent energy strategy for the nation, all Americans 
could one day go through what Californians are experiencing now, or worse,'' 
warned Cheney, who leads the administration's high-level energy task force. 
Cheney's speech was notable more for its tone than its substance. Much of the 
detail he offered is similar to what Energy Secretary Spencer Abraham laid 
out last month. He reiterated the need for more than 1,300 new power plants 
and 38,000 miles of additional natural gas pipeline. Cheney also repeated an 
administration claim that the area to be opened for drilling in Alaska's 
environmentally sensitive Arctic National Wildlife Refuge would be smaller 
than Washington's Dulles airport. 
But Cheney, who ran a Texas company that provided services to the energy 
industry, used blunt language to dismiss the idea that conservation could be 
a major solution to the problem. 
``The aim here is efficiency, not austerity,'' Cheney said, rejecting the 
notion that Americans should be told to ``do more with less.'' 
``Conservation may be a sign of personal virtue, but it is not a sufficient 
basis for a sound, comprehensive energy policy,'' he said. 
Contrast with Gov. Davis 
Large-scale conservation is one of California Gov. Gray Davis' efforts for 
getting through this summer without extensive blackouts. Earlier this 
monthLast month, Davis approved an $850 million energy conservation plan that 
offers incentives to try to shave at least 2,000 megawatts during peak hours 
from the state's electricity usage. 
Davis on Monday blasted condemned Bush and Cheney for belittling conservation 
programs. 
``It's clear that the Bush administration has an energy bias. Both the 
president and the vice president come from an oil- and gas-producing state. 
That is their bias,'' Davis said, referring to Bush's Texas oil roots and 
Cheney's tenure as the head of Texas-based Halliburton Co. ``And I do believe 
we should build more plants and produce more energy, but at the same time, we 
must become more energy-efficient.'' 
Davis and other California officials have also pushed the administration to 
limit the price of electricity throughout the West this summer. Although 
federal regulators approved measures last week designed to rein in the cost 
of electricity in California, the plan fell far short of hard price caps. 
Cheney on Monday restated the White House's opposition to price caps, saying 
they were among a number of the ``usual quick fixes'' that have failed to 
solve the problem over the years. 
``Price controls, tapping strategic reserves, creating new federal agencies 
-- if these were any solution, we'd have resolved the problems a long time 
ago,'' Cheney said. 
Other sources rejected 
The vice president rejected the idea that alternative sources of energy could 
replace our dependence on fossil fuels such as oil, gas and coal, at least 
for a long time. 
``The reality is that fossil fuels supply virtually a hundred percent of our 
transportation needs and an overwhelming share of our electricity 
requirements,'' he said. ``For years down the road, this will continue to be 
true.'' 
The solution, he said, is to find more oil and natural gas by to increase 
drilling for oil and natural gas in the United States, making more use of 
find new ways to burn coal more cleanly and put a renewed emphasis on nuclear 
power. 
``Fortunately for the environment, one-fifth of our electricity is nuclear 
generated,'' he said. ``If we're serious about environmental protection, then 
we must seriously question the wisdom of backing away from what is, as a 
matter of record, a safe, clean and very plentiful energy source.'' 
Carl Pope, executive director of the Sierra Club, said the White House is 
trying to convince people that their plan to ramp up increase energy 
production, even at the expense of environmental concerns, is the only way to 
solve the energy problems. 
``From the beginning, the administration has wanted to tell the American 
people that they didn't have any choice, that the only way they could 
transport themselves to work, heat their houses, toast their toast .?.?. was 
to ruin the environment,'' he said. 
The environmental leader saw a sign of desperation, however, in Cheney's 
speech. ``They've been out pushing this agenda for a hundred days and the 
American people are rejecting it,'' Pope said. 
Bush's low grade 
Several recent polls have shown Bush scoring low on his handling of 
environmental and energy issues. A Wall Street Journal/NBC News poll released 
last week, showed 61 percent of respondents rated Bush's performance on 
energy as ``only fair'' or ``poor.'' 
Rep. Anna Eshoo, D-Palo Alto, said the administration was going backward with 
its proposals. She joined with more than 30 of her colleagues from California 
and Washington to write to Secretary Abraham on Monday to criticize the 
handling of the energy crisis. 
``We can do much better than this,'' Eshoo said of the crystallizing White 
House plan. ``I don't think we need to sacrifice our environment in order to 
move ahead.'' 

Mercury News Staff Writer Michael Bazeley contributed to this report. 
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Federal energy regulators propose surcharge plan to pay utilities' debt 
Posted at 5:51 a.m. PDT Tuesday, May 1, 2001 
SAN FRANCISCO (AP) -- A surcharge on wholesale electricity prices has been 
proposed by federal energy regulators as a way to pay utilities' debts. 
The move angers state officials who say the suggestion amounts to gouging 
customers. 
Sen. Dianne Feinstein, D-California, has been an outspoken critic of the 
Federal Energy Regulatory Commission's policies in California. She said the 
surcharge would ``ensure that power generators get paid fully for their price 
gouging.'' 
``That is outrageous and will further alienate Californians,'' she said. 
Late last year and early this year, power companies accrued about $6 billion 
in unpaid bills from the state's ailing utilities. FERC suggested collecting 
the money to reimburse suppliers who have debts from PG&E, Southern 
California Edison and San Diego Gas and Electric Co. 
The surcharge would likely be levied to the state's Department of Water 
Resources. As the state's purchasing agent, that department has spent more 
than $5 billion on power since January. 
If the proposal is approved, FERC would require the California Independent 
System Operator, which runs the state's power grid, to collect the surcharge. 
``We have 30 days to comment to FERC and are considering our options,'' said 
Sean Gallagher, state counsel at the California Public Utilities Commission. 
AP-WS-05-01-01 0357EDT

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Record prices for power expected this summer in U.S. 
Published Tuesday, May 1, 2001, in the San Jose Mercury News 
BY WILLIAM CLAIBORNE 

Washington Post 


CHICAGO -- The rest of the United States is virtually certain to escape 
rolling blackouts this summer like the ones that have plagued California, but 
record price increases for electricity are likely in many places, energy 
experts agree. 
Despite their confidence that they can survive everything but an extremely 
hot summer without power outages, managers of the nation's interconnecting 
electrical power grids are anxiously awaiting new power plants that are 
scheduled to come online. They are also promoting conservation and seeking 
ways to avoid distribution logjams during peak demand periods this summer. 
``We see a big distinction between California and the rest of the country,'' 
said David Costello, an economist in charge of short-term forecasting for the 
Energy Information Administration, the statistical arm of the Energy 
Department. ``We have no real reason to believe any place is unusually at 
risk.'' 
But record spikes in the price of electricity are a given for this summer, 
some industry analysts say, because a growing proportion of power plants run 
on natural gas, which has doubled in price over the past year. 
The Energy Department estimates that electricity demand will grow 2.3 percent 
nationally this year, with much higher increases in the West and the South. 
At the same time, the reserve capacity margin that utilities try to build 
into their systems to handle the hottest days -- when use of air conditioners 
and other appliances taxes supplies -- has been falling in some regions to 
well less than the desired 15 percent above peak summer loads. 
That means utilities may have to import large volumes of electricity over 
transmission systems that were not designed to handle them. What power 
officials are hoping to avoid are critical shortfalls in generating capacity, 
followed by overwhelming strains on aging high-voltage transmission lines as 
power is bought and sold in increasingly competitive electricity markets. 
Even though scores of new power plants have been built in the Northeast, 
South and Midwest in recent months and many more are being planned, the 
expected 15 percent increase in new generation will not be fully online for 
another two years. 
That leaves parts of the nation vulnerable to outages if there are prolonged 
heat waves this summer, or if utilities are unable to start up new or rebuilt 
gas-fired power plants as scheduled, according to energy experts. 
Apart from California, the worst problems are expected in adjoining western 
states, as California electrical grid managers scramble to buy electricity at 
a time when power production at the region's hydroelectric dams is already 
being cut because of shrinking water levels in reservoirs.

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Davis calls generators on carpet 
Published Tuesday, May 1, 2001, in the San Jose Mercury News 
BY MICHAEL BAZELEY 

Mercury News 


Gov. Gray Davis has asked power generators to Sacramento next week for a 
meeting intended to ``make sure they feel some of the pain'' of the state's 
energy woes. 
Davis and other officials have portrayed the generators -- who own the power 
plants that supply the state's electricity -- as the black-hatted villains of 
the energy crisis. Along with the utilities and consumer groups, Davis has 
accused the companies of taking advantage of the energy shortage by charging 
exorbitant prices for their power. They have denied that. 
Davis said he would use the meeting to tell the companies ``not to rip us 
off'' and to be ``good citizens.'' 
``These energy companies have made more money than any company in America,'' 
Davis said at a San Francisco event to promote conservation. ``They haven't 
done it by making a better product. They haven't done it by providing better 
service. They just bought our plants and are selling us back the power at 
extraordinarily unheard-of rates. .?.?. They should participate collectively 
in the solution of this problem.'' 
Davis said he also would meet with the owners of ``qualifying facilities,'' 
the smaller power generators that provide about one-fourth of the state's 
electrical power. 
Many of the generators have been either scaling back output or shutting down 
entirely, contending that the state's two largest utilities owe them $1.5 
billion. 
Davis said he expected the power generators to agree to accept partial 
payment for the energy they've sold the utilities. 
Larger power generators are owed $5 billion to $15 billion for energy they 
sold to the state and utilities, said Jan Smutny-Jones, executive director of 
the Independent Energy Producers Association. 
An official with Mirant Corp., which says it is owed $385 million, said he 
was aware of the meeting with Davis, but he did not know the topic. 
``We're very willing to send someone, if the governor is willing to work with 
the generators on a cooperative solution,'' said spokesman Brian O'Neel. 
Also Monday, Davis said that Pacific Gas & Electric Co. could still be forced 
to sell its power transmission lines to the state, even though the utility is 
now under the protection of federal bankruptcy court. 
Davis had been working on a deal to buy the company's lines. But those talks 
fell through weeks ago, and on April 6, PG&E filed for Chapter 11 bankruptcy 
protection. 
Speaking to reporters at a technology conference, Davis said a creditors 
committee of businesses owed money by PG&E is considering asking the 
bankruptcy judge to force a sale of the utility's power lines to the state. 
Davis said his advisers met with the committee recently to brief them on 
talks to buy the transmission lines of financially troubled San Diego Gas & 
Electric Co. 
The governor would like to take over the state's 32,000-mile power grid so he 
can control the flow of electricity through the state and gain a negotiating 
advantage when dealing with power producers. 
Southern California Edison has already agreed to sell its power lines to the 
state. 

Mercury News Staff Writer Steve Johnson contributed to this report. 

Contact Michael Bazeley at mbazeley@sjmercury.com or (415) 434-1018. 
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PG&E lobbied heavily just before bankruptcy 
Published Tuesday, May 1, 2001, in the San Jose Mercury News 
BY DION NISSENBAUM 

Mercury News Sacramento Bureau 


SACRAMENTO -- In the three months before it declared bankruptcy, Pacific Gas 
& Electric Co. spent nearly $650,000 lobbying state officials -- about 
two-thirds of what the company spent all of last year trying to change 
California laws. 
The figures, reported Monday to the California secretary of state, offered 
concrete evidence of the aggressive lobbying effort made by the now-bankrupt 
utility to press its case. And it outraged consumer activists and state 
leaders. 
``Clearly it confirms that PG&E's priority wasn't keeping rates low,'' said 
Steve Maviglio, spokesman for Gov. Gray Davis. ``They spent more time and 
energy propping up their corporate image than paying attention to 
California's energy needs.'' 
In all of 2000, when the first signs of the energy crisis appeared, the 
utility spent about $900,000 lobbying state leaders. In the first three 
months of 2001, PG&E spent $644,000. Ron Low, a PG&E spokesman, said the 
spending came in response to hundreds of bills introduced at the special 
legislative session on the energy crisis called by Davis and hundreds of 
hours spent in Sacramento talking with state leaders about the company's 
plight. 
``The bills and legislation had the potential to impact our customers,'' Low 
said. ``We were providing testimony at committees, information requested by 
legislators and doing the analysis required.'' 
In trying to sway California officials, PG&E hired some of the state's most 
prominent lobbyists. Among those enlisted by PG&E were Platinum Advisors, a 
firm headed by former Davis campaign finance adviser Darius Anderson and a 
law firm headed by the chief of staff to former GOP Gov. George Deukmejian. 
PG&E dwarfed other energy interests with its lobbying, but other power 
companies spent tens of thousands of dollars in Sacramento. 
San Diego Gas & Electric spent more than $190,000 in the first three months 
of 2001, almost as much as for all of 2000. 
Southern California Edison, which spent $1.4 million on lobbying last year, 
had not filed its latest report as of Monday night. 
All three utilities have spent the past year trying to persuade state leaders 
to rescue them from bankruptcy. During the crisis, the state has stepped in 
to buy energy for the utilities, agreed to raise rates and offered a complex 
bailout plan. 
Edison agreed last month to the bailout offer, but PG&E turned down the same 
deal and declared bankruptcy April 6. 


Contact Dion Nissenbaum at dnissenbaum@sjmercury.com or (916) 441-4603. 
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Cheney outlines energy strategy for U.S. 
The vice president says California-type blackouts are possible elsewhere. 
May 1, 2001 
By SANDRA SOBIERAJ
The Associated Press 
TORONTO Vice President Dick Cheney warned Monday that the whole nation could 
face California-style blackouts as he outlined a national energy strategy 
relying heavily on oil, coal, natural gas and nuclear-power development - but 
not conservation. 
"The aim here is efficiency, not austerity," Cheney told editors and 
publishers at The Associated Press annual meeting. The nation cannot "simply 
conserve or ration our way out of the situation we're in." 
In his first extensive remarks about the energy recommendations his 
Cabinet-level task force will make to Bush by the end of May, Cheney blamed 
current shortages on shortsighted decisions in the past. He said 
conservation, while perhaps "a sign of personal virtue," does not make for 
sound or comprehensive policy. 
Saving the specifics for his boss to review and then announce, Cheney 
promised "a mix of new legislation, some executive action as well as private 
initiatives" to cope with rising energy prices and growing demand. 
He said anew that the administration intends to push for drilling in the 
Arctic National Wildlife Refuge despite strong congressional opposition. 
He rejected price controls, tapping the Strategic Petroleum Reserve or 
creating new bur eaucracies. 
Over the next two decades, it will take between 1,300 and 1,900 new power 
plants - or one every week for 20 years - just to meet projected increases in 
nationwide demand, Cheney said. 
Energy shortages in California already have forced rolling blackouts. And he 
said, "Without a clear, coherent energy strategy for the nation, all 
Americans could one day go through what Californians are experiencing now, or 
even worse." 
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Bush taking a supply-side policy on energy 
Cheney says oil, coal and natural gas will be the primary resources for 
'years down the road.' 
May 1, 2001 
By JOSEPH KAHN
The New York Times 











WASHINGTON - Vice President Dick Cheney said Monday that oil, coal and 
natural gas will remain America's primary energy resources for "years down 
the road," and that the Bush administration's energy strategy will aim mainly 
to increase the supply of fossil fuels, rather than limit demand. 
Cheney, who ran the Dallas-based oil-services company Haliburton Inc. before 
becoming vice president, offered a supply-oriented energy philosophy that 
seems likely to dominate the report his task force is expected to issue as 
early as mid-May. 
The report to President George W. Bush is expected to recommend legislation, 
executive actions and incentives for the private sector. 
His comments, delivered to the annual meeting of The Associated Press in 
Toronto, seemed partly a combative response to Democrats and 
environmentalists who argue that the Bush administration has used 
California's electricity shortages as a pretext to enact energy policies that 
have been favored by industry executives for many years. 
In discussing their energy plans recently, administration officials have put 
the most emphasis on opening protected lands to oil and gas exploration, 
while rolling back environmental rules that inhibit the burning of coal and 
the construction of pipelines and refineries. 
Bush's most-visible steps to combat what he labeled an energy crisis have 
alienated environmentalists. He rejected a treaty that would reduce emissions 
of gases cited as a cause of global warming and backtracked on his own pledge 
to require controls on greenhouse-gas emissions by power plants, citing 
urgent energy needs. 
Cheney said drastic measures were necessary because the needs are so great. 
He estimated that the country needs 38,000 miles of new pipelines to carry 
natural gas, for example. 
Coal, Cheney said, has been neglected. It is America's "most-plentiful source 
of affordable energy." He said people who seek to phase out its use, largely 
because they consider it a major source of air pollution, "deny reality." 
He said the most environmentally friendly way to increase energy supplies was 
to extend the life of existing nuclear plants and grant permits to build new 
ones, because they have zero emissions of greenhouse gases. 
Utility-industry executives have applauded the administration's support of 
nuclear power, but questioned the economic viability of building new nuclear 
power plants anytime soon. Environmentalists dispute Cheney's contention that 
nuclear power is the cleanest source of energy because they say the mining 
and enriching of uranium and the storage of nuclear waste are environmental 
hazards. 
Cheney indicated the administration would put some weight on energy 
efficiency. 
New technology - like computer screens that use far less power and 
energy-efficient light bulbs - have an important role because they can save 
energy without reducing living standards, he said. But he said he would 
oppose any measure based on the premise that Americans now "live too well" or 
that people should "do more with less." 
Some people who have talked with administration officials about the 
forthcoming energy plan expect that the policy will include some tax-related 
measures to promote efficiency. Among those considered most likely: Granting 
tax credits for people who buy fuel-efficient automobiles and for power 
companies that produce electricity using renewable energy sources, like 
solar, wind and geothermal. 
He said new drilling technologies mean that exploration can take place in the 
19-million acre refuge, which President Eisenhower made protected federal 
land, without disturbing the habitat for caribou and other wildlife. The 
affected area totals no more than 2,000 acres, he said, "one-fifth the size 
of Dulles Airport" outside Washington. 

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Power supplier will pay to settle 
Regulators to accept $8 million settlement from Williams Cos. over price 
hikes last year. 
May 1, 2001 
By KATE BERRY
The Orange County Register 
An energy company accused of withholding power to drive up prices in 
California's electricity market agreed to pay $8 million in a settlement 
approved Monday by federal energy regulators. 
The settlement is the first by a company accused of charging excessive 
electricity prices in the state. 
The Federal Energy Regulatory Commission accepted the settlement in which 
Williams Cos., of Tulsa, Okla., will refund the state's grid operator $8 
million for power sold at more than 10 times what it otherwise would have 
cost. 
The purchases were made in a 10-day period last April and May. Regulators 
said Williams deliberately kept generating units in Long Beach and Huntington 
Beach offline to raise prices. The California Independent System Operator, 
which manages the state's electric grid, designated those units to supply 
power during periods of peak demand at contracted prices. 
The FERC order stated that "Williams had a financial incentive to prolong 
outages," at the two plants, which are owned by AES Corp. 
Williams would have been paid $63 a megawatt hour if the two power plants had 
been online, the FERC order stated. Instead, the company was paid $750 a 
megawatt hour for electricity from other AES generating units during that 
period. 
AES had said the units were taken offline for repairs. AES, which sells all 
power generated at its three plants in Southern California to Williams under 
a contract, did not share in the profits from the power sales. 
Officials at Williams have repeatedly denied that the units were deliberately 
shut down. As part of the settlement, the company did not admit wrongdoing. 
Federal officials had required Williams and AES to justify more than $40 
million charged to the ISO. The companies faced paying a maximum of $10.8 
million in refunds. 
In a separate matter, Williams is one of several power providers accused by 
federal regulators of overcharging the ISO $124 million for power in January 
and February. The power providers are still disputing those charges. 

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Energy notebook: Bills target high natural-gas prices 
State measures aim to boost production, speed OKs on new storage tanks and 
order tariff review. 
May 1, 2001 
From Register news services 
SACRAMENTO California lawmakers introduced measures intended to lower the 
price of natural gas, which has been as much as 10 times higher in the state 
than in other parts of the country. 
The four measures, introduced by members of the state Assembly, would speed 
up the approval of underground gas-storage tanks, encourage the production of 
natural gas for industrial uses, and order the review of tariffs relating to 
natural gas. 
"This market has gone out of control," said Joe Canciamilla, chairman of the 
Assembly's subcommittee on natural gas and author of two of the bills 
introduced Monday. 
Almost 80 percent of electricity produced in California is generated by 
burning natural gas. High electricity prices in the state, which have led to 
the near insolvency of California's two largest electric utilities, have been 
blamed partly on high natural-gas prices. 
PG&E Corp.'s Pacific Gas & Electric, the state's No. 1 electric utility, 
filed for bankruptcy protection this month after running up $9 billion in 
power-buying losses. Edison International's Southern California Edison, the 
state's second largest utility, also is on the verge of bankruptcy after 
accruing more than $5.4 billion in power losses. 
Under the state's deregulation laws, wholesale power prices have been allowed 
to float, while consumer rates have been temporarily frozen. 
AB78X, by Canciamilla, a Democrat from Pittsburg, would streamline the 
approval of new underground tanks so more natural gas could be stored in 
California and demand for gas from out of state would be smoothed out. AB23X 
directs the Public Utilities Commission to review all natural-gas tariffs. 
AB73X, co-sponsored by Canciamilla, would allow natural gas unfit for use in 
residences to be sold to industrial customers. AB42X reduces to one year from 
as much as two years the permitting process for pipeline construction. 
Regulators mull surcharge to help pay off generators 
WASHINGTON U.S. energy regulators are considering whether to force 
California's electricity grid operator to impose a surcharge on power sales 
to pay for more than $14 billion owed to generators by California utilities. 
The proposal is part of the price mitigation order for California issued by 
the Federal Energy Regulatory Commission last Wednesday. The public can 
comment on the proposal for 30 days before the commission decides whether to 
implement it. 
The Edison Electric Institute, an industry group, cautiously supported the 
idea. "We're in favor of anything that keeps the lights on in California," 
said spokeswoman Pat McMurray. "Anything that keeps the generators selling 
into California is good," she said, adding that the group had yet to study 
the proposal carefully. 
The FERC is proposing that an unspecified surcharge be placed in an escrow 
account by the California Independent System Operator to ensure that 
generators are paid. Whether the surcharge would be applied toward past bills 
or future power bills is open for debate, according to the order. 
California utilities have amassed billions of dollars in debt buying 
wholesale power at high prices while being limited by law as to what they can 
charge consumers. The state is preparing to sell $10 billion in bonds to pay 
for electricity this summer, when blackouts are expected as demand exceeds 
supplies. 
Jan Smutny-Jones, executive director of the Independent Energy Producers 
Association, said his group is still "trying to sort out how something like 
that might work," but offered no further comment. 
There is also a question whether the FERC has jurisdiction to order the 
California ISO to collect the surcharge, said Edison Electric Institute 
spokeswoman McMurray, adding that the issue may have to be clarified later. 
PG&E still may sell its transmission lines to state 
SAN FRANCISCO California's largest utility still may sell its transmission 
lines to the state despite seeking bankruptcy protection when an earlier deal 
with state negotiators fell through, Gov. Gray Davis said Monday. 
Davis told reporters that a creditors committee of businesses owed money by 
Pacific Gas and Electric Co. asked state negotiators for a briefing on talks 
to buy the transmission lines of financially troubled San Diego Gas and 
Electric Co., whose parent company is Sempra Energy. 
"The creditors committee called us and asked for a briefing on Sempra last 
week," Davis said, adding he believes there is some possibility of buying 
PG&E's lines. "It helps us because it helps get PG&E back in." 
PG&E did not immediately return calls for comment. 
The utility filed for Chapter 11 protection April 6 after failed attempts by 
the state to buy its transmission lines to help the troubled utility pull 
itself out of a multi-billion dollar debt. 
The governor struck a $3.5 billion deal with Southern California Edison Co. 
for its lines, undeveloped land and the promise of relatively cheap power. 
The deal requires legislative approval. The state has offered $1 billion to 
Sempra Energy for a similar package. 
Davis told a crowd at investment firm J.P. Morgan's H&Q Technology Conference 
that his state is boosting spending on technology research and education 
incentives to keep California attractive to investment. 
In other news: 
The state paid nearly $90 million to buy electricity on each of a couple of 
days last week as Californians turned up their air conditioning amid 
unseasonably warm temperatures, according to state finance officials. 
That amount is double what the state had been paying for a day's worth of 
power earlier this year, but only a slight increase from the $73 million it 
has been paying recently since the Pacific Gas & Electricity Co. bankruptcy 
filing. 
Also on Friday, state finance officers asked for an additional $500 million 
from the legislature to buy power. That brings the total amount that the 
state has set aside for electricity since January to $6.2 billion. 
A federal judge dismissed a lawsuit Monday filed by Duke Energy against Gov. 
Gray Davis over energy contracts the state seized earlier this year from 
Southern California Edison and Pacific Gas & Electric. 
U.S. District Court Judge Terry Hatter ruled that Davis has immunity under 
the 11th Amendment, which prevents residents of one state from suing the 
government of another state in federal court. 
The Associated Press and Bloomberg News contributed to this report. 

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Tuesday, May 1, 2001 






Leadership blackout
Gov. Davis seems unplugged in dealing with the crisis 
April 29, 2001
By Steven Greenhut
The Orange County Register
We've seen it a bazillion times on TV and in the movies. A crisis threatens a 
family, a community, a nation. Perhaps the threat comes from an enemy during 
wartime. Or from a gang of criminals, corporate polluters, corrupt government 
officials or aliens from Mars. 
Out of nowhere, someone - sometimes from the least expected place - steps to 
the plate. It's not just in the movies. History books are filled with the 
likes of George Washington, Winston Churchill, Lech Walesa. People who seized 
the moment and made it their own; people who chose to lead - and worry about 
the consequences later.
History books are filled, also, with those who ducked for cover, pointed 
fingers or ran away.
No one would have believed it, but in spring 2001 the nation's most populous 
state is struggling with looming blackouts, soaring electricity rates, state 
legislators blustering about Evil Power Producers and proposing "solutions" 
that lost credence when the Berlin Wall fell. And rather than lead, the man 
on the hot seat has become angry, immobile. He stands there, yelling "It's 
not my fault," and waiting for the mess to evaporate.
Most Californians sympathize with Gov. Gray Davis, who just a few months ago 
was viewed as an inevitable presidential contender. We know he didn't create 
the current mess.
But it's Davis' moment, nonetheless. One would have thought the man who spent 
his career plotting his rise to the governor's office would have had some 
underlying reason for aspiring to the post. Anyone can be a leader when 
there's nothing to do but spend a surplus. But the real test comes when the 
chips are down.
No one should pin their hopes on politicians. Typically, pols should tend to 
the administrative affairs of government and let a free people live free 
lives. But the electricity imbroglio is a government-created mess that 
initially requires a government solution.
After all, we're talking about highly regulated utilities. It is a botched 
state de-regulation plan - actually a re-regulation plan - that exacerbated 
the energy problems. And it has been the state's unwillingness to allow power 
generators to build plants that has added to supply shortfalls.
There are two directions to choose: Toward a system owned and operated by the 
state government, or toward a market-based system that treats electricity 
like any other commodity. The price of natural gas, food, clothing and other 
essentials are allowed to rise and fall, according to the marketplace.
Why is electricity so holy?
If prices are allowed to float, and generators are allowed to provide the 
juice to fill demand, soon enough a competitive market will overtake the 
initial price jumps and force prices down again. Sen. Tom McClintock, 
R-Thousand Oaks, one of the few rational voices in Sacramento, argues that 
Davis should have returned the surplus to taxpayers, who would have then had 
the means to pay for the initial price spikes.
Instead, Davis has spent the surplus buying electricity, allowing taxpayers 
to foot the bill because he refuses to allow customers (Aren't they the same 
people?) to pay market prices. Adding insult to injury, he refuses to make 
his dealings public.
Furthermore, Davis could have stabilized the situation last year when leaders 
of the state's utilities tried in vain to get his attention about looming 
problems and to urge limited price increases and use of long-term contracts 
to buy power. Instead, Davis and his handpicked political crony who runs the 
Public Utilities Commission did nothing - except let a problem spiral into a 
full-blown crisis. 
Without any leadership from the top, Californians hear a cacophony of 
proposals from below.
The Legislature, dominated by Democrats far out on the "left-wing yahoo" 
scale, are talking about Texas power generators in the same overheated 
rhetoric some right-wingers use to talk about the Chinese communists. One 
talked about sending tanks to Houston.
Understandably, the utility companies are looking out for their own 
interests. 
Pacific Gas & Electric, angry that the governor refused to do anything about 
the crisis, declared bankruptcy the day after Davis' say-nothing address to 
Californians this month. As some commentators note, PG&E is far more 
comfortable dealing with a bankruptcy judge than dealing with a governor and 
legislators who starred in "Clueless in Sacramento."
By contrast, Southern California Edison has chosen not to file bankruptcy 
now, preferring instead to sell the state its transmission lines as a way to 
generate cash to keep this quasi-private entity going. 
John Bryson, a longtime Davis associate and a creature of the 
government/regulatory/utility model, frankly admits that the main rationale 
for selling the lines to the state is to keep his company afloat, independent 
and credit worthy.
But it's a lousy idea for taxpayers, who would gain a multibillion-dollar 
liability badly in need of costly maintenance. I don't blame Bryson (who, by 
the way, co-founded the left-wing Natural Resources Defense Council early in 
his career) for looking out for his company first. But what's good for the 
utilities is not necessarily good for taxpayers.
Then there are the self-proclaimed consumer advocates. Their goal seems to be 
to destroy the utilities so bureaucrats can run the system. These are people 
who believe markets are the spawn of Satan.
Republicans have generally been content to let Davis twist in the wind, which 
isn't the best leadership model, either. Sen. McClintock and a few others 
have offered meaty ideas. But they are a minority of a minority and have no 
real political muscle in the Democrat-dominated statehouse.
Who is left? Who you gonna call? Who is going to keep the still-thriving 
California economy from going south?
The answer is Gray Davis. It's his hour, his moment, his crisis. The answers 
are out there if only this "pragmatic" and "centrist" governor would be 
willing to look to the market rather than the government. (Hint: See 
solutions outlined on these pages today.)
It's time to stop delaying, blustering, blaming others. It's time for Davis 
to remind Californians why they elected him governor. Steven Greenhut is an 
Orange County Register editorial writer. 

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[B] Calif. Gov Davis/ PG&E utility creditors may like grid sale --Davis sees 
Calif energy supply outstripping need by fall '03 --Davis/ PG&E credi <>








By Cristine Denver


San Francisco, April 30 (BridgeNews) - California Gov. Gray Davis said
Monday he has spoken with creditors of Pacific Gas &amp; Electric, the 
utility that
filed for bankruptcy April 6, and they like the idea of potentially selling 
the
company's transmission network to the state. Sempra Energy will also likely
agree to a similar deal, Davis said.



*                      *                   *



The California Department of Water Resources signed a memorandum of
understanding to buy Southern California Edison's grid for $2.76 billion. The
deal is intended to help pay for past power costs, which drove Pacific Gas 
&amp;
Electric, the state's biggest utility, to seek bankruptcy protection.


Sempra, whose utility, San Diego Gas &amp; Electric, has been able to recover
surging electricity costs,  "will also take something along (the) lines,"  of
Edison, Davis said.


Sempra CEO Stephen Baum has consistently told analysts that San Diego Gas 
&amp;
Electric Co. and the state are in negotiations on the transmission purchase 
and
that the price would be approximately 2.3 times the book value, which Baum 
told
analysts last week was $433 million. The question has been the timing of a
Sempra deal. Sempra, and its regulated utility, are not under the same
financial pressure to sell its transmission system. SDG&amp;E was not forced 
into a
major liquidity crisis as were PG&amp;E Co. and Southern California Edison. 
SDG&amp;E
was able to pass on soaring purchase power costs to ratepayers, while the
state's other two investor-owned utilities were unable to raise rates.


On the sidelines with reporters at the J.P. Morgan Technology conference
here, Davis was asked what would make him think that Pacific Gas &amp; 
Electric
Co.'s creditors might favor a deal similar to one worked out with Edison
International subsidiary Southern California Edison, and currently in
negotiations with Sempra Energy unit San Diego Gas &amp; Electric Co.


Davis responded saying that,  "The creditors committee called us and asked
for a briefing."  Davis said the creditors,  "like part of it (the Edison
plan), and asked some good questions."


In his presentation at the conference, Gov. Davis described the state's
strategy for solving the currently electric power supply crunch in four words:
"Build more power plants."  Davis outlined the quick approvals that have been
made to get power plants sited and construction started. He told the 
conference
that by the fall of 2003, the state,  "will finally have more power than
California needs. We are on the glide path toward that goal; but can't make up
for the inaction of the past 12 years overnight."


Davis was making a veiled reference to the 12 years during which Republican
governors occupied the office previous to Davis' election. It was during the
administration of Republican Pete Wilson that California's deregulation plan
was passed by the Legislature.


In addition to the power plant facility build up California will undergo,

u

Davis touted conservation efforts the state is making to reduce demand this
summer.


"We're going to have to set the Guinness record for conservation in order
to avoid major disruptions this summer,"  Davis said.  End

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Davis Optimistic Despite Power Woes



SAN FRANCISCO (AP) via NewsEdge Corporation  -
Pacific Gas and Electric Co., which owes
billions of dollars and is seeking bankruptcy protection, still may
sell its transmission lines to the state, Gov. Gray Davis said
Monday.


Davis told reporters that a committee made up of businesses owed
money by PG&amp;E has asked for a briefing on the state's efforts to
buy the transmission lines of another financially troubled utility,
San Diego Gas and Electric Co., a unit of Sempra Energy.


``The creditors committee called us and asked for a briefing on
Sempra last week,'' Davis said at a technology conference hosted by
J.P. Morgan, adding he believes there is some possibility of buying
PG&amp;E's lines. ``It helps us because it helps get PG&amp;E back in.''


PG&amp;E did not immediately return calls for comment.


PG&amp;E, California's largest utility, filed for Chapter 11
protection April 6 after failed attempts by the state to buy its
transmission lines.


The governor struck a $3.5 billion deal with Southern California
Edison Co. for its lines, undeveloped land and the promise of
relatively cheap power. The deal requires legislative approval. The
state has offered $1 billion to Sempra Energy for a similar
package.


Since January, the state has committed more than $6 billion to
buying electricity for the customers of PG&amp;E, SoCal Edison and
SDG&amp;E.
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National Desk; Section A 
CHENEY PROMOTES INCREASING SUPPLY AS ENERGY POLICY 
By JOSEPH KAHN 
? 
05/01/2001 
The New York Times 
Page 1, Column 6 
c. 2001 New York Times Company 
WASHINGTON, April 30 -- Vice President Dick Cheney said today that oil, coal 
and natural gas would remain the United States' primary energy resources for 
''years down the road'' and that the Bush administration's energy strategy 
would aim mainly to increase supply of fossil fuels, rather than limit 
demand. 
In his most comprehensive comments to date on the energy task force he is 
heading on behalf of President Bush, Mr. Cheney dismissed as 1970's-era 
thinking the notion that ''we could simply conserve or ration our way out'' 
of what he called an energy crisis. 
The only solution, he said, is a government-backed push to find new domestic 
sources of oil and gas, including in protected areas of the Arctic National 
Wildlife Refuge, and an all-out drive to build power plants -- a need that he 
says will require one new electricity-generating plant a week for 20 years. 
''America's reliance on energy, and fossil fuels in particular, has lately 
taken on an urgency not felt since the late 1970's,'' Mr. Cheney said. 
''Without a clear, coherent energy strategy, all Americans could one day go 
through what Californians are experiencing now, or worse.'' 
Mr. Cheney, who ran the oil-services company Halliburton Inc. before becoming 
vice president, offered a supply-oriented energy philosophy that seems likely 
to dominate the report the cabinet-level task force is expected to issue as 
early as mid-May. The report is expected to recommend legislation, executive 
actions and incentives for the private sector. 
The vice president's comments, delivered to the annual meeting of The 
Associated Press in Toronto, seemed partly a combative response to Democrats 
and environmentalists who argue that the Bush administration has used 
California's electricity shortages as a pretext to enact energy policies that 
have been favored by industry executives for many years. 
In discussing their energy plans recently, administration officials have put 
the most emphasis on opening protected lands to oil and gas exploration, 
while rolling back environmental rules that inhibit the burning of coal and 
the construction of pipelines and refineries. They have also strongly 
advocated the use of nuclear power. 
Critics have faulted the administration for moving quickly to abandon a 
treaty on global warming and rejecting controls on carbon dioxide emissions 
from power plants, steps Mr. Bush said were vital because of energy 
shortages. The administration has also come under withering criticism for 
delaying stricter standards on arsenic in drinking water. 
Mr. Cheney said today that environmentalists had taken things too far. He 
said a recent television advertisement showing a child asking for more 
arsenic in her water was a ''cheap shot.'' 
Drastic measures to increase energy supplies are justified, he said, because 
the geometry of supply and demand curves are so alarming. He estimated that 
the country needed 38,000 miles of new pipelines to carry natural gas, 
covering the distance of Maine to California more than 12 times over. 
Coal, Mr. Cheney said, has been neglected. It is the United States' ''most 
plentiful source of affordable energy.'' He said people who sought to phase 
out its use, largely because they considered it a major source of air 
pollution, ''deny reality.'' 
He said the most environmentally friendly way to increase energy supplies was 
to extend the life of existing nuclear plants and grant permits to build new 
ones, because they had no emissions of greenhouse gases. 
''We can safeguard the environment by making greater use of the cleanest 
methods of power generation we know,'' he said, speaking of nuclear power. 
''If we are serious about environmental protection, then we must seriously 
question the wisdom of backing away from what is, as a matter of record, a 
safe, clean and very plentiful energy source.'' 
Utility industry executives have applauded the administration's support of 
nuclear power, but questioned the economic viability of building new nuclear 
power plants anytime soon. Environmentalists dispute Mr. Cheney's contention 
that nuclear power is the cleanest source of energy because they say the 
mining and enriching of uranium and the storage of nuclear waste are hazards. 
Mr. Cheney indicated that the administration would put some emphasis on 
energy efficiency. New technology -- like computer screens that use far less 
power and energy-efficient light bulbs -- have an important role because they 
can save energy without reducing living standards, he said. But he said he 
would oppose any measure based on the premise that Americans now ''live too 
well'' or that people should ''do more with less.'' 
''The aim here is efficiency, not austerity,'' he said. ''Conservation may be 
a sign of personal virtue, but it is not a sufficient basis for a sound, 
comprehensive energy policy.'' 
Some people who have talked with administration officials about the energy 
plan expect that the policy will include some tax-related measures to promote 
efficiency. Among those considered most likely are tax credits for people who 
buy fuel-efficient automobiles and for power companies that produce 
electricity using renewable energy sources. 
But the budget Mr. Bush submitted to Congress in early April sharply reduced 
spending by the Department of Energy on research and development for energy 
efficiency and renewable energy technologies. 
''They give lip service to efficiency, but their whole emphasis is on 
supply,'' said Senator Jeff Bingaman, a New Mexico Democrat who has 
introduced energy legislation that he says strikes a finer balance between 
increasing supply and controlling demand. 
In a report to be released later this week, the American Council for an 
Energy-Efficient Economy estimates that raising the fuel efficiency of cars 
and light trucks by what it calls a modest amount could do far more to reduce 
reliance on imported oil than drilling for oil in the Arctic National 
Wildlife Refuge. 
Fuel economy standards reached their peak in 1988, when the average passenger 
vehicle covered 26 miles on a gallon of gas. The average fell to 24 miles per 
gallon last year, because more Americans drive light trucks, which have lower 
mandated efficiency standards than cars. 
Raising average fuel use by cars and light trucks to 35 miles per gallon by 
2010 would result in oil savings of 1.5 million barrels a day by that time, 
the report says. The United States Geological Survey estimates that the 
Alaskan refuge would probably produce 580,000 barrels a day later this 
decade. 
Mr. Cheney did not discuss the merits of raising government-mandated 
Corporate Average Fuel Economy standards in his address today. But he 
strongly defended the administration's proposal to allow drilling for oil and 
gas in the Alaskan refuge. 
The administration has sent mixed signals recently on how hard it intends to 
push to open the refuge. Christie Whitman, the Environmental Protection 
Agency administrator, said earlier this month that the energy plan would not 
emphasize drilling in the Alaskan wilderness, but other officials 
contradicted her. 
Mr. Cheney left little doubt of his support. He said new oil-drilling 
technologies meant that exploration could take place in the 19-million-acre 
refuge without disturbing wildlife. The affected area totals no more than 
2,000 acres, he said, ''one-fifth the size of Dulles Airport.'' 

Photo: Vice President Dick Cheney said yesterday in Toronto that the 
administration's energy policy would support more nuclear plants. 
(Reuters)(pg. A20) 

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National Desk; Section A 
River's Power Aids California And Enriches the Northwest 
By BLAINE HARDEN 
? 
05/01/2001 
The New York Times 
Page 1, Column 5 
c. 2001 New York Times Company 
GEORGE, Wash. -- Doing something nice for California has never been a 
priority here in the Columbia River Basin, where high-voltage power lines 
lope across irrigated fields of alfalfa, potatoes and wheat. 
Politicians from California, as farmers in this area will explain at great 
length, have been scheming for decades to siphon off the basin's cheap 
electricity and water. 
Californians, however, have been noticeably less irritating as of late. 
Having fouled up electricity deregulation six ways from Sunday, they are 
skidding into the summer air-conditioning season desperately short of power. 
In the last year, much of their salvation has come from the Columbia River, 
whose monstrous dams are the largest hydroelectricity machines in North 
America. 
All along the river, from Portland, Ore., to British Columbia, utility 
companies, aluminum makers and farmers have joined to help save California -- 
but at a staggering price. Charging whatever California's dysfunctional power 
market will bear, people in this narrow stretch of the Northwest have created 
a kind of Kuwait along the Columbia. 
With their record profits, some public utilities are wiring the emptiness of 
Eastern Washington with fiber optics, buying diesel generators to make still 
more power and paying Wall Street-style wages to electricity traders -- while 
making sure that their electricity rates remain among the cheapest in North 
America. Just north of the border in British Columbia, a state-owned utility 
luxuriated in its California windfall by mailing out rebate checks to 1.6 
million customers. 
Their good fortune, though, has come with a measure of ambivalence and may 
well be short-lived. A severe drought is already hurting farmers across the 
region. If it continues, utilities along the river will have to buy power and 
may be punished by the same market forces that gave them a windfall. 
''This is not nice money,'' said Alice Parker, a retired farmer who heads a 
group that promotes irrigation in the Columbia Basin. ''It is something that 
is offered to us not to use water so Californians can run their 
air-conditioners.'' 
Nice or not, a whole lot of money flooded into the Columbia Basin. 
North of here in sparsely populated Chelan County, a publicly owned utility 
that has two dams on the Columbia made three times as much money last year 
than it ever had before. With just 35,000 local customers, the utility last 
year had a $58.2 million profit. It paid its two top power traders $285,000 
each, an astonishing income in a county where per capita income is less than 
$25,000 a year. The utility refuses to reveal the traders' names for fear 
their children might be kidnapped. 
The chief operating officer of Chelan County Public Utility District 
acknowledged that increases in the cost of power were ''huge'' and 
''obscene.'' But the executive, Charles J. Hosken, added, ''We would be 
imprudent if we did not maximize this market for our customer owners.'' 
Next door in equally sparse Grant County, a public utility that also owns two 
dams on the Columbia has made even more money maximizing the market. It had a 
record $88.8 million in profits last year -- more than double its best 
previous year. 
Grant County Public Utility District, which has just 40,000 retail customers, 
is using its windfall to help build a $70 million fiber optic network for 
local residents. It has also bought 20 diesel generators to guard against 
power shortages and, if possible, exploit the power gold-rush. The utility 
estimates that those generators could add $50 million to profits in the 
coming year. 
Like Chelan, Grant is using its profits as a kind of drought insurance to 
insulate its customers from high market prices for electricity, when, as now, 
local needs exceed generating capacity in the river. Power rates in Grant and 
Chelan Counties are about one-fifth as much as in New York City. 
Grant County's utility has rejected, for the time being, the idea of giving a 
share of its profits to its customers. 
''How would it look if Grant County gives away rebates while so many people 
are paying more for electricity?'' asked Lon Topaz, director of resource 
management for the utility. ''It would be lousy politics.'' 
An Upside-Down Economy 
The second-worst drought on record in the Columbia River Basin has combined 
with California's deregulation mess to further distort the energy market. 
Drought has not only helped increase the price at which electricity can be 
sold on the spot market -- 10 to 20 times as much as last year's price -- it 
has strengthened a compelling bottom-line rationale for conservation. Every 
megawatt not purchased and used in the Northwest (often at locked-in, 
long-term prices that are a fraction of the current market rate) can be sent 
south to California. For many utilities, conservation spells local savings 
and a long-distance bonanza. 
As a result, a regional economy built on half a century of cheap hydropower 
has been stood on its head. Irrigation farmers here are being paid up to $440 
an acre not to farm. 
Similarly, aluminum companies are collecting about $1.7 billion this year by 
not making aluminum. Companies like Alcoa have earned profits that delight 
Wall Street, while keeping about 10,000 workers on their payroll, by 
reselling hydropower that they bought in the mid-1990's under a cheap 
long-term contract. 
Even residential customers are being offered a chance to make a few dollars 
from the power crunch. Avista Utilities has announced that it will pay its 
customers in Washington and Idaho 5 cents for every kilowatt they do not use, 
if their consumption falls more than 5 percent below last year's level. 
For utilities in the Northwest, by far the largest profits from California's 
electricity crisis have been secured in British Columbia. A number of private 
American utilities have also benefited from California's troubles. 
BC Hydro, a utility owned by British Columbia with dams on the Columbia and 
Peace Rivers, is the first corporation in the history of the province to 
exceed $1 billion in profits, as measured in Canadian currency ($712 million 
in United States currency). 
To celebrate, the provincial government ordered BC Hydro to do something it 
had never done before. The utility mailed each of its customers a check for 
$130. BC Hydro also guaranteed them no increases in electricity rates, which 
have not gone up for seven years. 
''We are just happy to be lucky that we have reservoirs and dams that were 
built by people of great foresight,'' said Brian R. D. Smith, chairman of BC 
Hydro. 
When reminded that a March study by the California Independent System 
Operator, which runs that state's power grid, accused BC Hydro of market 
manipulation and profit gouging, Mr. Smith was less happy. 
''All they do is scream and shout and they won't pay you the money they owe 
you,'' he said, arguing that his company has gone out of its way to help 
California in its hour of need. Gouging has nothing to do with it, he said, 
adding that it was California's ''awful mess'' in deregulating power markets 
that fueled BC Hydro's record profits. 
A Good Deal for Farmers 
In the beginning, that is to say when federal money began transforming the 
Columbia from the world's premier salmon highway into a chain of adjustable 
lakes, no one paid much attention to electricity. The river possessed a third 
of America's hydroelectric potential, but there were not enough people in the 
Northwest to use more than a fraction of it, and long-distance high-voltage 
transmission lines did not exist. 
The main intention, when New Deal dollars began raining on the Northwest in 
the 1930's, was to create family farms. Grand Coulee Dam, the biggest dam in 
North America and by far the largest hydroelectric plant, was primarily 
designed as a water-delivery device for farmers. 
Since then, as 6,000 miles of tunnels and concrete canals were built to 
shuttle water around in sagebrush country, each 960-acre farm in the Columbia 
Basin Federal Irrigation Project was blessed with at least $2.1 million in 
federal infrastructure subsidies, according to the Bureau of Reclamation, 
which built it. 
In addition, farmers are guaranteed access to cheap water from the Columbia 
and the right to buy all the electricity they needed to pump that water out 
of the river -- at $1.50 a megawatt. A megawatt of electricity currently 
sells for $375 to $400 on the spot market. As Paul Pitzer, a Columbia Basin 
historian, has written, farmers here have always felt that ''no price is too 
high to pay for their water so long as someone else is paying the bill.'' 
This year, though, the price finally became unbearably high for the 
Bonneville Power Administration, a nonprofit agency that markets electricity 
from 29 federal dams on river. The agency calculated that if it could 
persuade farmers in the project not to irrigate 90,000 acres of land, water 
left in the Columbia would produce electricity worth as much as $129 million 
(if it had to be purchased at current market prices). 
In a buyout that is without precedent in the Pacific Northwest, Bonneville is 
paying 800 farmers a total of $30 million. The farmers receive $330 for each 
acre they do not farm. On top of that, Grant County's public utility is 
paying many of the same farmers about $100 an acre not to farm their land. 
On April 13, about 20 irrigators gathered for lunch at the Martha Inn Cafe 
here in George to discuss the buyout. Since farm prices are low this year, 
they agreed that it was a good deal. 
Still, the farmers, who do not like to be reminded of the federal subsidies 
that keep their irrigation system afloat, said they worried about the 
precedent they set when they traded water for cash. 
''This has to be a temporary deal,'' said Tom Flynt, 52, who normally farms 
900 acres but has taken 150 acres out of production because of the buyout. 
''If anybody thought this would affect their water rights, there would be no 
takers.'' 
Several farmers said they did not like the idea of their water supporting the 
lifestyles of urban people, especially Californians, who, those who were 
interviewed said, do not appreciate the food that the farmers put on their 
table. 
''We feel that Americans are making decisions with their mouths full,'' said 
Tricia C. Lubach, a marketing consultant whose husband is an irrigation 
farmer. ''Not too long ago they didn't worry about where the power comes 
from. Someday they may think about where the food comes from.'' 
A 'Wonderful Energy Fit' 
A couple of hundred miles northwest of George, in a penthouse conference room 
that overlooks Vancouver harbor, Mr. Smith, the chairman of British 
Columbia's most profitable company, explained in mid-April what a pain it was 
selling electricity to Californians. 
''People say to me what are you doing selling power to those ungrateful 
Californians,'' he said. It does not help, he added, that the state is behind 
on its bills by about $300 million. 
Still, neither BC Hydro nor the provincial government can afford to lose 
California's money. The utility has become a cash cow for the provincial 
budget, which in the last decade has received more than $3.7 billion from BC 
Hydro. 
''We have a wonderful energy fit,'' Mr. Smith said, referring to BC Hydro's 
power-trading relationship with California, if not to Californians 
themselves. ''We have oversupply in the summer when they have got high 
demand, and we have got undersupply in the winter when they have got stuff to 
give to us.'' 
BC Hydro has acknowledged that it massages its hydropower system to sell 
power when it is most needed -- and most expensive -- in California. The 
utility closes the faucets on its dams at night during the summer, storing 
water while meeting local electricity needs with cheap off-peak power brought 
from across the West. In the morning, when prices peak, it opens the faucets 
and zaps electricity off to California. 
''We spill water during the day,'' Mr. Smith said. ''Why? Is it because we 
can make more money? No. It's because that is when everybody wants 
electricity, for God's sake.'' 
Questions about profit gouging on the part of dam-dependent utilities in the 
Northwest may soon be moot. Drought has reduced the Columbia River runoff so 
far this year to about half of what is considered normal. 
The shortfall dovetails with higher costs for natural-gas-fired power plants 
and a growing gap on the West Coast between demand for electricity and 
capacity to generate it. 
''Absent being successful in getting loads down, we could be looking at 
quadrupling of the power rates,'' said Paul Norman, head of power operations 
at Bonneville. 
Unless conservation increases or the drought eases, Mr. Norman warned that by 
late summer, the Northwest's era of cheap power could come to a sudden and 
painfully expensive end. 

Photo: Electricity generated by Rock Island Dam in Chelan County, Wash., 
helped the county's public utility earn a record $58.2 million in profits 
last year. (Larry Davis for The New York Times)(pg. A20) Graph: ''The Public 
Utilities'' NET OPERATING PROFITS Graph tracks operating profits since 1995 
for the following: Grant County Wnapum and Priest Rapids Dams Chelan County 
Rocky Reach and Rock Island Dams BC Hydro All major hydroelectric dams in 
British Colombia (Source: The public utilities)(pg. A20) Chart/Map: ''One 
River's Bonanza'' Some public utilities that own dams along the Columbia 
River, which has one third of the hydroelectric potential in North America, 
are selling power to California and making record profits. Map of the United 
States and Canada follows the path of the Columbia River. (pg. A20) 
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A Section 
Bush Energy Plan Will Emphasize Production; Cheney: Conservation Is Part of 
Effort 
Mike Allen 
? 
05/01/2001 
The Washington Post 
FINAL 
Page A01 
Copyright 2001, The Washington Post Co. All Rights Reserved 
TORONTO, April 30 -- Vice President Cheney said today that the Bush 
administration's energy policy will emphasize increased generation over 
conservation and rely on an ambitious expansion of the country's oil, coal 
and natural gas industries in addition to a broader reliance on nuclear 
power. 
Providing a preview of the recommendations the administration's energy task 
force will make to President Bush in the next few weeks, Cheney said he sees 
no "quick fixes" to the problems that have led to rolling blackouts in 
California and forecasts of higher gasoline prices for motorists this summer. 
"The potential crisis we face is largely the result of short-sighted domestic 
policies -- or, as in recent years, no policy at all," Cheney told editors 
and publishers at the Associated Press's annual meeting. "As a country, we 
have demanded more and more energy. But we have not brought online the 
supplies needed to meet that demand." 
He said 1,300 to 1,900 new power plants will be needed over the next 20 
years. 
Cheney, who is heading the task force that has been meeting in private since 
January, provided few details of the panel's conclusions. He said it would 
recommend "a mix of new legislation, some executive action as well as private 
initiatives" to bolster energy production. 
But he made clear that the administration will base its policy on promoting a 
vigorous expansion of the traditional energy industry and will avoid the 
kinds of austerity measures that marked the country's response to the energy 
crisis in the 1970s. 
"To speak exclusively of conservation is to duck the tough issues," Cheney 
said. "Conservation may be a sign of personal virtue, but it is not a 
sufficient basis -- all by itself -- for a sound, comprehensive energy 
policy." 
Cheney said alternative energy sources such as wind and solar power may 
provide an important part of the country's energy strategy in the years to 
come but that it is premature to rely on them now. "Years down the road, 
alternative fuels may become a great deal more plentiful," he said. "But we 
are not yet in any position to stake our economy and our own way of life on 
that possibility." 
Bush promised during last year's campaign to develop a muscular national 
energy strategy, and named Cheney to head the task force less than two weeks 
after taking office. Various sectors of the energy industry have billions of 
dollars riding on the outcome of the administration's policy review. 
Cheney said the plan will call for increased exploration for new sources of 
oil, coal and natural gas, and construction of refineries, plants and 
pipelines. He reiterated the administration's support for drilling in 
Alaska's Arctic National Wildlife Refuge, which he said could be tapped for 
oil without disrupting its environment. 
Cheney, who was chairman of the oil services firm Halliburton Co. before 
taking office, called coal "the most plentiful source of affordable energy in 
the country" and said it will remain the nation's primary source of 
electricity for years. 
"Coal is not the cleanest source of energy," Cheney said, "and we must 
support efforts to improve clean-coal technology to soften its impact on the 
environment." 
The vice president called nuclear power one of "the cleanest methods of power 
generation that we know." 
"But the government has not granted a single new nuclear power permit in more 
than 20 years," Cheney said. "If we're serious about environmental 
protection, then we must seriously question the wisdom of backing away from 
what is, as a matter of record, a safe, clean and very plentiful energy 
source." 
Officials with the coal and nuclear power industries, which have had little 
to celebrate in recent years, welcomed Cheney's remarks. 
"Bless his heart," said Bill Raney, president of the West Virginia Coal 
Association. "We have been something of the whipping child for some time now. 
This is kind of like your dad when he compliments you when you were growing 
up. We've got people in Washington talking to us now." 
Steve Kerekes, a spokesman for the Nuclear Energy Institute, said it was 
"heartening to see that the administration is not only recognizing but 
publicly acknowledging the positive role that nuclear energy plays in a 
diverse portfolio of energy sources." 
Several environmental groups said the policy outlined by Cheney could negate 
whatever good will the administration had gained with its recent spate of 
environmentally friendly announcements. Philip E. Clapp, president of the 
National Environmental Trust, called Cheney's prescription "an 
across-the-board attack on the environment." 
Lois Corbett, executive director of the Toronto Energy Alliance, said: "I'd 
hate to think we'll have to throw up a huge iron curtain to keep American 
smog and acid rain on the American side. Clean-coal technology is an 
oxymoron. It's a dirty fuel." 
Raney and other coal industry officials were summoned to an administration 
briefing last week in which Energy Secretary Spencer Abraham and other 
administration officials promised that coal would be a key part of the energy 
policy. 
Attendees said that although no specifics were discussed about tax breaks or 
relaxed regulations, they were assured the administration would work for a 
more stable and predictable process of getting permits to build or renovate 
coal-fired generating plants. 
Administration officials said Bush's budget includes $150 million for 
developing clean-coal technology, new methods for converting coal to energy 
that result in less pollution. Cheney called conservation "an important part 
of the total effort." 

Contact: http://www.washingtonpost.com 
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Western Dreaming -- a buyer's cartel 5/1/01




By Kathleen McFall
kmcfall@ftenergy.com
In California, the cost of electricity was $7 billion in 1999, $32 billion 
last year, and if expectations hold true, will rise to $65 billion this year, 
said California Sen. Dianne Feinstein recently. As a consequence of this 
escalation, the pressure is mounting on state and federal legislators to 
solve the California crisis*or to find someone else to blame it on. It's 
increasingly looking like political suicide to do nothing.

Initiatives and insults are flying, and the only consensus in this 
politically charged debate is that Western states are facing a grim summer, 
and merchant power companies*an easy target*are somehow fleecing California.

In this atmosphere, an interesting, albeit fringe, idea was recently posed in 
a report by economist Peter Navarro of the University of California-Irvine 
and Michael Shames of the San Diego-based consumer group the Utility 
Consumers' Action Network (UCAN).

"California should join with Oregon and Washington to create a buyers' cartel 
to offset the market power of the Western generators. This multistate buyers' 
cartel should offer to pay a reasonable price for power to the sellers' 
cartel members*but not a penny more," said the report.

The report named Mirant, Enron, Dynegy, Reliant and Williams Cos. as members 
of a "sellers' cartel."

While the idea may be organizationally untenable, it nevertheless places the 
California situation in an interesting conceptual framework, given the 
politicization of the crisis. It's certainly an approach many politicians 
would rally around if they could figure out a way to use it to reduce OPEC's 
market influence.

The buyers' cartel
Shames, a consumer advocate, gained notoriety as the author of a 1999 paper 
(posted on UCAN's Web site) that predicted today's energy crisis. He said the 
idea has garnered a positive response, in some circles.

"Surprisingly so," Shames said. "Supportive sentiments have been echoed by 
the head of DWR [California Department of Water Resources] and a number of 
economists including Paul Krugman in a New York Times op-ed piece." According 
to Shames, the recent Senate Bill SBX-73 introduced in California embodies 
the critical elements of the cartel approach.

UCAN proposes the approach only as a backup plan in the event that the 
Western situation turns catastrophic this summer. "One could view it as an 
insurance policy; it would not need to be used unless the governor's summer 
strategy begins to falter. It contains two elements: creation of a hard-nosed 
'buyers' cartel' and, if necessary, the forced sale of in-state generation 
plants to the state," said the report.

Each day, a Western states buyers' cooperative would set a price it considers 
fair and reasonable, based on the cost of producing electricity, natural gas 
prices or other fuels, and a generous double-digit profit margin in order to 
ensure future investment in the power infrastructure.

A power plant operator that wanted to sell electricity in these three Pacific 
Coast states would meet the price set by the cooperative. Those who didn't 
like the price could shut down their plants and sit out the market for the 
day, said Shames and Navarro.

For this plan to be effective, the report's authors concede California's 
legislature would have to pass emergency legislation to modify current law 
requiring California's independent system operator to purchase power "at any 
price" to keep the lights on.

"This will empower the buyer's cartel to enforce its fair price offer," said 
the report. It would also hold consumers hostage to a battle between cartels.

Blackouts as leverage
"The formation of a buyers' cartel will almost certainly spark retaliatory 
blackouts as the sellers' cartel tests the political will of our legislators 
and governor. Indeed, the bold measures proposed here will require political 
fortitude," the report asserts.

To respond to this eventuality, instead of random rolling blackouts sweeping 
the state without notice, rotating outages would be planned and telegraphed 
ahead of time. "That would give predictability to business and residents, 
which is what most people want. It also would tip off the crooks, of course, 
who might prey on homes suddenly left without alarms. But the cops, 
forewarned as well, could mobilize ahead of them with extra patrols," 
suggests the report.

The authors believe calling the bluff once or twice would be enough to bring 
costs down to reasonable levels and break the "seller" cartel's market grip.

Merchant power companies would have to answer both to stockholders and the 
outrage of public opinion if plants were intentionally idled during a 
blackout. Blackouts appear to be inevitable this summer due to genuine power 
shortages, but this approach would at least contain the price of available 
power according to the logic of the report. The authors say that it's "a plan 
that a free-market economist could love. Buyers pooling their clout to win a 
better price. People sacrificing to get what they want. Generators free to 
participate, or not."

If the blackouts grew too disruptive, Shames and Navarro said, Gov. Gray 
Davis and his counterparts in Oregon and Washington would have to use 
emergency powers to seize the plants that refuse to play the game. That's 
when things would get ugly.

Bunker mentality
The Shames and Navarro proposal has, at its core, a presumption of unfair 
practices by merchant power, something these companies and other economists 
would certainly refute. Ironically, this cartel approach could work in favor 
of merchant power as well as buyers, demonstrating that blackouts are not 
linked to market manipulation.

Beyond theory, the idea would be difficult from a practical standpoint yet it 
illustrates the growing frustration at many levels with the extraordinary 
Western power market. As the report's authors conclude, by this summer, with 
the air conditioning off and California's budget in tatters, "a buyers' 
cartel could look downright reasonable."