Please see the following articles:

AP Wires, Thurs 3/22: "Report: Power wholesalers overcharged California $5.5 
billion"

Dow Jones Newswires, Thurs 3/22: "Reliant To Appeal Fed Judge Ruling To Sell 
Pwr To Calif"

Sac Bee, Thurs 3/22: "Federal judge orders major power wholesaler to sell to 
California"

San Jose Mercury News Thurs, 3/22: "State falling short on pacts that provide 
low-cost energy"

Contra Costa Times, Thurs 3/22: "Crisis saps state surplus"

Sac Bee. Fri, 3/23:  "Bill to pay small energy firms stalls"

Sac Bee, Fri., 3/23:  "House panel ends energy hearings -- will it step in?

Sac Bee, Fri, 3/23:  "Dan Walters: Crisis deepens: politicos panic"

San Diego Union, Fri., 3/23:  "Report says power wholesalers overcharged 
state $6 billion"

San Diego Union, Fri, 3/23:  "Disappearing state surplus sparks alarm"

San Diego Union, Fri., 3/23:  "Outages darken economic outlook in state, some 
say"

San Diego Union, Fri., 3/23:  "Out-of-state generators question power 
regulators' authority "

San Diego Union, Fri., 3/23:  "Allegheny Energy makes big California 
connection"

LA Times, Fri, 3/23:  "Judge Frees Small Firm From Edison Contract "

SF Chron, Fri, 3/23:  "Lodi Defies Order for Blackouts 
Utility tells PG&E to 'pay the bills' "

SF Chron, Fri, 3/23:  "Coming Down to the Wire 
State legislators battle over alternative energy bills"

SF Chron, Fri, 3/23:  "Grid Operators Push to Prevent Overcharging 
They say regulators must be aggressive to stop billing abuses" 

Mercury News, Fri., 3/23:  "State's bill for energy could double this year"

Mercury News, Fri., 3/23:  "Plan for alternate power plants stalls"



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Report: Power wholesalers overcharged California $5.5 billion 
DON THOMPSON, Associated Press Writer
Thursday, March 22, 2001 
,2001 Associated Press 
(03-22) 11:41 PST SACRAMENTO, Calif. (AP) -- Electricity wholesalers have 
overcharged California more than $5 billion since May by manipulating the 
energy market, according to a report prepared for power grid managers. 
The Independent System Operator will file the findings with federal 
regulators and ask for a refund, ISO spokesman Patrick Dorinson said. 
The state auditor also said Thursday that the state's 1996 deregulation law 
encouraged both buyers and sellers of electricity to ``manipulate wholesale 
prices to their advantage'' by underestimating supply and demand. 
The auditor's report lays out what it calls ``a complex combination'' of 
deficiencies and misjudgments it says led to the state's power problems. 
According to the ISO report, five in-state power suppliers and 16 importers 
frequently offered electricity at prices higher than it cost them to produce 
-- effectively withholding supplies -- or didn't bid at all when they were 
able to generate power. 
ISO Director of Market Analysis Anjali Sheffrin presented the findings at a 
conference in Berkeley last week. 
The companies have denied overcharging California and have said they expect 
the Federal Energy Regulatory Commission will determine their prices were 
justified. 
The commission has recently stepped up scrutiny of power companies' behavior 
during California's power crisis, asking suppliers to justify $124 million in 
sales during the first two months of the year or refund the money. Critics 
claim thousands of additional questionable sales are not being challenged. 
California has been spending about $45 million a day -- $4.2 billion since 
January -- to purchase power for Pacific Gas and Electric Co. and Southern 
California Edison. Both utilities, the state's largest, have been cut off by 
electricity wholesalers because their credit is almost worthless. 
Edison and PG&E say they are nearly $14 billion in debt due to soaring 
wholesale power costs. The state's deregulation law blocks them from 
recovering the costs from customers. 
State Controller Kathleen Connell said Wednesday that the state's 
power-buying is gutting its budget surplus. 
Since the state started making emergency power buys, the surplus has fallen 
from $8.5 billion to about $3.2 billion, she said. 
Connell ordered an audit of the power buys, saying Gov. Gray Davis is 
withholding key financial information from her office and the Legislature. 
She said she would refuse to transfer $5.6 billion into a ``rainy day fund'' 
she said was set up to impress Wall Street as the state prepares to issue $10 
billion in revenue bonds to cover its power buys. 
Transferring the money would leave the state general fund $2.4 billion in 
debt, Connell said. 
Sandy Harrison, spokesman for the state Department of Finance, and Keely 
Bosler, of the Legislative Analyst's Office, said such transfers are routine 
and required by law. 
``The law says she has to do it. The law does not give her the power to 
demand that kind of audit information,'' Harrison said. 
Davis spokesman Steve Maviglio said the administration has released the 
financial information it can without jeopardizing negotiations for long-term 
power contracts with wholesalers. 
Also Wednesday, a federal judge ordered a major wholesaler, Reliant Energy 
Services, to continue selling power to California despite its fear that it 
will not be paid. 
The ISO buys power from companies like Reliant on behalf of utilities in 
attempts to fend off rolling blackouts like those that hit the state this 
week and during two days in January. 
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Reliant To Appeal Fed Judge Ruling To Sell Pwr To Calif

03/22/2001
Dow Jones Energy Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)

LOS ANGELES -(Dow Jones)- Reliant Energy Inc. (REI) said Thursday it will 
immediately file with the 9th Circuit Court of Appeals in San Francisco in 
response to a federal judge's ruling late Wednesday that the company continue 
selling power to California regardless of whether it is paid. 
U.S. District Court Judge Frank Damrell granted California's Independent 
System Operator, which makes last minute power purchases in the spot market, 
a preliminary injunction against Reliant, saying Californians were at risk of 
irreparable harm if Reliant stopped selling power to the state.
The ISO, manager of the state's electricity grid, said the judge's ruling 
will allow the agency to keep the lights on in California. 
Reliant, which is owed more than $300 million from the state's cash-strapped 
utilities, supplies California with about 3,000 megawatts of electricity from 
power plants it owns in the state. 
Reliant spokesman Richard Wheatley said the state Department of Water 
Resources, the agency that buys California's bulk power needs on behalf of 
PG&E Corp. (PCG) unit Pacific Gas & Electric, Edison International (EIX) unit 
Southern California Edison and Sempra Energy (SRE) unit San Diego Gas & 
Electric, should back the ISO's last minute power purchases. 
In a filing with the Securities and Commission, Reliant said it is owed $108 
million by the DWR for last minute power purchases the ISO made during the 
six weeks prior to the agreement Reliant made with the DWR. 
Damrell dismissed Reliant's claim, saying he does not have the authority to 
force the DWR to pay for that power. 
"We're going to immediately appeal Judge Damrell's order," Wheatley said. 
"Clearly the judge understands the implications of his order. We are required 
to do business with creditworthy entities. Unfortuantely the judge did not 
force the ISO to post a surety bond, which would allowed us to do business 
with the ISO." 
Gov. Gray Davis has said the state is not responsible for the last minute 
power purchases the ISO makes, despite a law passed authorizing the DWR to 
buy power on behalf of the utilities. 
Wheatley added that the company will also seek relief on the issue at the 
Federal Energy Regulatory Commission. Damrell's ruling remains in effect 
until the Federal Energy Regulatory Commission rules on the matter. 
Separately, Wheatley said a short-term power supply contract that Reliant 
signed with the DWR expired Monday and the DWR has not renewed the contract. 
A spokesman for the DWR would not comment on the issue. 
-By Jason Leopold; Dow Jones Newswires; 323-658-3874; 
jason.leopold@dowjones.com
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Federal judge orders major power wholesaler to sell to California

Updated: March 21, 2001 - 8:23 p.m. 
A federal judge issued a preliminary injunction Wednesday ordering a major 
electricity wholesaler to continue selling to California despite its fear 
that it will not get paid. 
U.S. District Judge Frank C. Damrell Jr. said Californians were at risk of 
irreparable harm if Reliant Energy Services stopped selling power to the 
Independent System Operator, which oversees the state's power grid. The ISO 
buys last-minute power on behalf of utilities to fill gaps in supply to try 
to fend off blackouts. 
Damrell dismissed Reliant's attempt to force the state Department of Water 
Resources to back the ISO's purchases for the state's two biggest utilities. 
The state has been spending about $50 million a day on power for Pacific Gas 
and Electric Co. and Southern California Edison, both denied credit by 
suppliers after amassing billions of dollars in debts.
The judge said he had no authority to force the DWR to pay for that power. 
Gov. Gray Davis has said the state isn't responsible for purchasing the 
costly last-minute power ISO buys for Edison and PG&E, despite a law 
authorizing state power purchases on the utilities' behalf. 
ISO attorney Charles Robinson said the ruling gives ISO operators "a tool to 
assist them in keeping the lights on in California." 
"Had the decision gone the other way, one could expect other generators to 
simply ignore emergency orders," Robinson said. 
Damrell's preliminary injunction will remain in effect until the Federal 
Energy Regulatory Commission rules on the matter. 
Damrell denied the ISO's request for preliminary injunctions against three 
other wholesalers, Dynegy, AES and Williams, who agreed to continue selling 
to the ISO pending the FERC ruling. 
Spokesmen for Reliant, Dynegy, AES and Williams were out of the office 
Wednesday night and didn't immediately return calls from The Associated Press 
seeking comment on the ruling. 
The ISO went to court in February after a federal emergency order requiring 
the power sales expired. The judge then issued a temporary restraining order, 
requiring the sales, but dropped it after the suppliers agreed to continue 
sales to California, pending his Wednesday ruling. 
The ISO said it would lose about 3,600 megawatts if the suppliers pulled out, 
enough power for about 2.7 million households. One megawatt is enough for 
roughly 750 homes. 
Grid officials said Reliant's share alone is about 3,000 megawatts. Reliant 
said the amount at issue actually is less than a fourth of that, because most 
of the power is committed under long-term contracts. 
Reliant, which provides about 9 percent of the state's power, worries it 
won't get paid due to the financial troubles of PG&E and Edison. 
PG&E and Edison say that together they have lost about $13 billion since June 
due to soaring wholesale electricity costs that California's 1996 
deregulation law bars them from passing onto customers. 
At the same time, the state has faced a tight electricity supply, due in part 
to California power plant shutdowns for maintenance and to a tight 
hydroelectric supply in the Pacific Northwest. 
Managers of the state power grid imposed rolling blackouts across the state 
Monday and Tuesday as supply fell short of demand. Wednesday, cooling 
temperatures and the completion of repairs at several power plants allowed 
the state to avoid blackouts.
State Controller Kathleen Connell said Wednesday that the energy crunch also 
imperils California's financial health.
Connell said the state's power-buying on behalf of Edison and PG&E is is 
gutting its budget surplus. Since the state started making emergency power 
buys in January, the surplus has fallen from $8.5 billion to about $3.2 
billion, she said. 
Connell ordered an audit of the state's power-buying, saying Davis is 
withholding key financial information from her office and the Legislature. 
She is refusing a request by Davis and the Legislature to transfer $5.6 
billion into a "rainy day fund" she said was set up to impress Wall Street as 
the state prepares to issue $10 billion in revenue bonds to cover its 
power-buying. 
Transferring the money would leave the state general fund $2.4 billion in 
debt, Connell said. 
Sandy Harrison, spokesman for the state Department of Finance, and Keely 
Bosler of the Legislative Analyst's Office, said such transfers are routine 
and required by law. 
They put the state's budget surplus at $5.6 billion. 
"The law says she has to do it. The law does not give her the power to demand 
that kind of audit information," Harrison said. 
He said the state's budget isn't in danger because it will be repaid with the 
$10 billion in long-term debt. 
Wells Fargo & Co. chief economist Sung Won Sohn said he sees little progress 
in efforts to fix the state's power problems and end state electricity 
purchases. 
"If we're going to pour money into a bottomless pit, I would worry about the 
state's finances," he said. "At some point we're going to run out of money."
The controller's criticism of fellow Democrat Davis won support from Assembly 
Republicans and Secretary of State Bill Jones, a Republican considering 
challenging Davis next year. 
Jones said he wants to announce his own plan to solve the state's energy 
woes, but can't unless Davis releases more financial details. 
Davis spokesman Steve Maviglio dismissed the criticism.
"Political grandstanding doesn't generate one more kilowatt of energy for 
California in this time of emergency," he said. 
Maviglio said the administration has released the financial information it 
can without jeopardizing negotiations for long-term power contracts with 
wholesalers. 
Also Wednesday, a report by Davis' chief power negotiator appears to show 
that as much as 75 percent of the state's power purchases will have to be on 
the expensive short-term market this summer, said Sen. Debra Bowen, D-Marina 
del Rey, chairwoman of the Senate Energy Committee. 
"The prices may be phenomenol," she said, particularly given predicted 
hydroelectric shortages due to drought in the Pacific Northwest. 
The report by David Freeman, who is negotiating the state's long-term power 
contracts, shows California has finalized 19 contracts and has 25 agreements 
in principle. Freeman said DWR is continuing to negotiate other contracts.
Bowen said FERC should impose short-term price caps or let generators to 
charge enough to make a reasonable profit "or we could be subject to enormous 
price-gouging this summer." 

-- Associated Press
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State falling short on pacts that provide low-cost energy 
Published Thursday, March 22, 2001, in the San Jose Mercury News 
BY CHRIS O'BRIEN AND JOHN WOOLFOLK 

Mercury News 

The state has signed low-cost contracts for just a third of the energy it 
needs this year, raising the prospect that California could be forced to buy 
much of its electricity this summer on the expensive spot market. 
A spokesman for Gov. Gray Davis conceded Wednesday that the state will be in 
trouble without more contracts, but insisted California will meet its needs 
through conservation and additional long-term deals for cheap electricity. 
The state, according to a report released Wednesday, has fallen far short of 
the governor's goal of filling almost all its electricity needs through such 
deals. In fact, the state has lined up contracts for about half the amount 
Davis had projected earlier this month. 
If the state has to rely heavily on the volatile spot market, where the price 
of electricity this summer could reach five times the state's contract price, 
pressure could mount to raise the cap on the electricity rates consumers pay. 
But Steven Maviglio, the governor's spokesman, said, ``The governor has said 
he's committed to work this in the existing rate structure, so that's the 
plan.'' 
In the report sent to state lawmakers, the state Department of Water 
Resources indicated that it had secured just more than 20 million 
megawatt-hours for this year, leaving it far short of the 60 million 
megawatt-hours needed. 
``This is just a progress report,'' Maviglio said. ``They did all this in 
three weeks, which is pretty amazing when you think about it, and we have a 
lot more to do.'' 
The state got into the power buying business in January, supplying it to the 
state's nearly bankrupt utilities. 
The state negotiated long-term contracts with generators to supply that power 
at a reduced rate. Based on the report, the state will pay an average of $68 
per megawatt-hour over the next 10 years -- significantly less than in 
December when prices spiked higher than $300 per megawatt-hour but not as low 
as the $55 Davis hoped to reach. 
Most of this power, however, won't be delivered until 2004. From 2004 to 
2006, the Department of Water Resources estimates, it has enough power under 
contract. Until then, the amount falls short. 
In 2001, it appears the state has about one-third of the power it needs. The 
gap closes to about half in 2002 and two-thirds in 2003. 
At a news conference in Los Angeles two weeks ago, Davis said the state would 
have to buy only 30 to 45 percent of the power it needs this summer on the 
open market. 
At the time, critics said with only two-thirds of the power under contract, a 
rate increase was almost inevitable. Even Davis' chief negotiator, S. David 
Freeman, offered a bleak assessment for the summer, saying that all available 
electricity has already been sold. 
``We'll be subject to extremely high prices,'' said Frank Wolak, a Stanford 
professor who sits on a market committee for the Independent System Operator, 
the agency that runs the state power grid. 
Wolak said there are two main hopes for avoiding a price increase this 
summer: Federal officials could cap the wholesale price, a step they've 
resisted, or Californians can conserve an unprecedented amount of power.
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Crisis saps state surplus
POWER CRISIS 
Controller moves to block a transfer of funds, saying the $8.5 billion 
surplus has been cut more than half since January 
By Mike Taugher
TIMES STAFF WRITER 
The energy crisis has bled California's once-touted budget surplus by more 
than half since taxpayers began buying electricity two months ago, leading a 
top state finance official Wednesday to order an audit of the power purchases 
and block Gov. Gray Davis' plan to transfer funds into a reserve account. 
A booming economy last year produced a budget surplus that totaled $8.5 
billion in January. But that figure now stands at about $3.2 billion, 
according to Controller Kathleen Connell. 
"We started this year with a generous budget surplus," Connell said in a 
statement announcing her decision to block what Davis administration 
officials described as a routine transfer of surplus money. "The energy 
crisis has taken much of that away, and this transfer on top of the 
electricity purchases would put the fund at risk." 
Meanwhile, the Davis administration released a report by David Freeman, the 
governor's chief negotiator on power purchases, on the progress of executing 
long-term agreements meant to stabilize the power buys. 
According to the report, only about 40 percent of the electricity needed from 
the open market this year has been lined up. That means the state could be 
forced to continue buying a substantial amount of power on the highly 
expensive spot market and further drain its coffers. 
And a key regulatory panel is scheduled next week to issue a ruling that 
would determine how quickly state funds will be replenished when it decides 
what portion of electric bill payments should be allocated to the state 
treasury, a decision that could include a rate increase to fully repay 
taxpayers without further crippling the state's two largest electric 
utilities. 
The Public Utilities Commission also will consider whether it will force the 
utilities to pay alternative energy producers, whose shutdowns this week 
contributed to blackouts. 
Connell's action underscores a growing nervousness over the sheer volume of 
money that is being poured into energy buys, despite the fact that state 
officials plan to replenish the treasury with up to $10 billion in loans that 
will be repaid by electricity consumers. 
The state has committed to spending $4.2 billion to date to keep lights on 
since taxpayers were forced in mid-January to take over electricity buys from 
the financially crippled utilities, Pacific Gas & Electric Co. and Southern 
California Edison. Tax money is going out at a clip of about $50 million a 
day. 
High prices already have brought PG&E and Edison to the brink of bankruptcy, 
and now the state's surplus is at risk, according to Connell. 
In addition to requesting an audit and announcing her intention to delay the 
transfer to the reserve account, Connell said she wanted the administration 
to send her office more information about the electricity purchases. 
Davis' representatives questioned Connell's authority in trying to block the 
funds transfer, which they called a routine accounting procedure, and accused 
her of making political hay. 
"It is not helpful to the taxpayers or ratepayers or the people who just want 
to keep the lights on, it isn't helpful to have the situation muddied like 
this," said Sandy Harrison, a Finance Department spokesperson. "We're sorry 
it came up in this manner." 
Connell and the administration have butted heads in recent weeks. The 
controller wants to post details of the state's electricity purchases on her 
Web site, a plan that have been delayed under pressure from Davis because of 
the governor's concerns that releasing those details will allow power 
generators and traders to sell at higher prices. 
Harrison said administration officials believe Connell lacks the authority 
either to block the funds transfer to a reserve account or to audit the state 
water resources department. 
Two days of widespread blackouts this week show how vulnerable the power grid 
is to financial glitches. Although several factors combined to produce the 
blackouts, state power officials say the outages could have been avoided if 
the utilities were paying their bills to alternative energy producers. 
Many of those producers, including clean-burning natural gas power plants, 
wind, solar and geothermal energy developers, shut down enough production to 
spell the difference between grid reliability and blackouts Monday and 
Tuesday. 
Davis called the utilities' failure to pay bills to those producers, known as 
qualifying facilities, "immoral." The QFs were either unable to buy gas from 
their suppliers or were frustrated with the utilities' failure to pay them. 
"The utilities hoarded billions of dollars since November without paying any 
money out," said Davis spokesman Steve Maviglio. "They've got the money -- 
we're pulling the trigger to make them pay it." 
The utilities, however, say they are doing all they can to conserve enough 
cash to continue operating. Together, they owe the QFs about $1.5 billion. 
Next week, the PUC is scheduled to consider whether to force the utilities to 
heed Davis' demand to pay the QFs, and it might also decide how much of 
ratepayers' bill payments will be used to refund taxpayers for power buys. 
PG&E says that under a formula proposed by the administration, the water 
resources department would receive about 40 percent of the money collected 
from ratepayers for power purchases. 
The rest of that money, about $240 million, would have to be divided among 
QFs, existing power contracts, operating PG&E's nuclear and hydroelectric 
plants, and what hour-by-hour purchases the utility still must make on the 
spot market, according to PG&E spokesman John Nelson. 
"There isn't enough to do that," he said. 
That is making it increasingly likely that electric bills will be hiked, 
according to a growing chorus of officials and experts. 
Unless rates are raised, Nelson said, the only entity that can absorb a lack 
of payment or a partial payment is the state treasury. Cutting off any others 
will lead to electricity becoming unavailable and more blackouts, he said. 
"If they do it under existing rates -- given that the existing pool of money 
is not enough -- who doesn't get paid or who gets a partial payment?" Nelson 
said. "What's the only entity left with wiggle room? The state." 
Rate hikes are also a sticking point in negotiations to bail out the 
utilities through purchase of their transmission lines and other assets, 
Maviglio said. 
"They want rate increases of significant magnitude, and we're not going 
there," he said. 
WE CAN TRIM STORY HERE IF NECESSARY, BUT KEEP TAGLINES AT BOTTOM 
About one-third the electricity needed by the customers of California's three 
major utility companies is produced by the companies themselves, one-third 
comes from alternative producers who use environmentally friendly techniques 
and one-third is bought on the open market. 
The state stepped in to buy the one-third needed from the open market after 
the utility companies ran out of cash and credit in January to make the 
purchases themselves. 
But that electricity has proven to be enormously expensive, and Davis has 
planned to lower those prices by committing to long-term purchases. 
Freeman's report on the progress of those long-term purchases, dated March 15 
but released this week, said the state has finalized 19 contracts with seven 
suppliers and reached 25 additional agreements. 
Mike Taugher covers the environment and energy. Reach him at 925-943-8324 or 
mtaugher@cctimes.com. 
Staff writer Andrew LaMar contributed to this story.
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Bill to pay small energy firms stalls
By Kevin Yamamura, Dale Kasler and Jim Sanders
Bee Staff Writers
(Published March 23, 2001) 
A quickly melded proposal that would assure payments for alternative energy 
suppliers whose money woes contributed to power blackouts this week stalled 
Thursday in a divided Legislature. 
The state Senate passed the bill, AB 8x, but with Republicans balking, it was 
rejected in the Assembly along party lines. Assembly leaders said they may 
try again today. 
For most of Thursday, lawmakers scrutinized legislation they had overhauled 
the night before to include Gov. Gray Davis' plan to force utilities to pay 
solar, wind and small gas-fired suppliers. Such providers, called "qualified 
facilities," or QFs, provide more than 20 percent of California's 
electricity, and their shutdowns were partly to blame for rolling blackouts 
Monday and Tuesday. 
Under the Democratic governor's plan, the state Public Utilities Commission 
would determine prices at which alternative generators may sell power, but 
legislation is needed to authorize the PUC action. 
Lawmakers faced time pressures Thursday. They wanted to pass the bill quickly 
so the PUC could act next week and legislators could embark Monday on an 
annual three-day lobbying trip in Washington, D.C. 
Assembly Speaker Robert Hertzberg, D-Sherman Oaks, said the Republicans' 
rejection of AB 8x could jeopardize more than $4 billion the state has spent 
or allocated for electricity during the energy crisis. 
Hertzberg said producers of alternative energy, which are owed more than $1 
billion, have threatened to drag debt-ridden utilities into involuntary 
bankruptcy if the Legislature failed to pass the measure. 
"They said it, and I believe it," Hertzberg said. If such bankruptcies occur, 
he added, the state with its multibillion-dollar debt would become "just 
another creditor in a pile of creditors." 
But Assembly Republican leader Bill Campbell of Villa Park said the 
finger-pointing is unfair. Passage of AB 8x would not necessarily prevent 
bankruptcies, he said. 
One alternative energy provider won a crucial court ruling Thursday that 
staved off, at least for a while, threats by some creditors to haul one or 
both big utilities into bankruptcy court for nonpayment of bills. 
CalEnergy Co. Inc. won the right to sell its geothermal power, which was 
contracted to Southern California Edison, on the open market. CalEnergy said 
it is owed $45 million by Edison. 
If the Imperial County judge hadn't ruled in CalEnergy's favor, the company 
and seven other QFs "were fully prepared" to file an involuntary bankruptcy 
petition against Edison this morning, said David Sokol, chief executive of 
CalEnergy's parent, MidAmerican Energy Holdings Co. of Des Moines, Iowa. 
"That is currently off the table." 
An involuntary bankruptcy proceeding would take California's energy crisis 
into uncharted territory, although a bankruptcy judge would have the leeway 
to reject the filing. 
Freed from its contract with Edison, CalEnergy will move to sell its 
electricity "to people who will pay for it," Sokol said. 
Besides calming the bankruptcy movement temporarily, the ruling also could 
prompt other alternative energy providers -- hundreds of which have shut down 
because of nonpayment by Edison and Pacific Gas and Electric Co. -- to follow 
CalEnergy's example and find other buyers for their electricity, said Gary 
Ackerman of the Western Power Trading Forum, an association of generators. 
Assembly Republicans said they felt the Senate's decision to package three 
important energy issues into a single bill was an attempt to ramrod 
legislation through both houses. 
"We have to stand and say no," Campbell said during floor debate. 
Besides determining alternative generator payments, the bill would change an 
earlier law by capping the value of bonds the state may sell for power 
purchases at $10 billion. It also would extend to large businesses an 
existing rate cap in the San Diego Gas and Electric Co. service area. 
And it would earmark a portion of rates paid by utility customers to fund the 
state's ongoing power purchases. Within a week, the state will have spent 
$4.2 billion on power since January. 
Without the bill, some legislators fear, Pacific Gas and Electric and 
Southern California Edison would be reimbursed before the state. 
"They have got (some) gall to go to the PUC and say they're going to go to 
court to keep our money -- to keep our money to pay off their creditors," 
said Senate President Pro Tem John Burton, D-San Francisco. 
Most of the bill's controversy, however, centered on how the PUC would treat 
gas-fired alternative generators. 
The commission issued a revised draft decision Wednesday that would impose 
prices for qualifying facilities at $79 a megawatt-hour for five-year 
contracts or $69 a megawatt-hour for 10 years. 
But those producers that use natural gas -- representing about two-thirds of 
the alternative energy providers in California -- spent Thursday arguing that 
Davis' plan to rescue them would all but guarantee that they would go out of 
business instead. 
The plan -- ordering Edison and PG&E to pay them a fixed price for their 
power -- would set rates well below the cost of natural gas, they said. 
Democratic lawmakers tried to assure such producers that the PUC would set 
prices that make business sense, even obtaining a letter to that effect from 
Loretta Lynch, who heads the commission. 
Davis has vowed to fine Edison and PG&E if they don't pay alternative 
producers for future deliveries. But Sokol said his company isn't convinced 
that Edison will pay. 
Calling Edison a "confrontive, in-your-face, nasty organization," Sokol said 
the utility was "sitting on $2 billion" and not paying its bills. Edison, in 
a Securities and Exchange Commission filing Thursday, said its debts outweigh 
its cash reserves by $722 million. 
The Senate sent the Assembly two other bills that deal specifically with 
supply and demand. The first, SB 5x, would spend about $1 billion on energy 
conservation and low-income assistance programs. The other, SB 28x, would 
streamline siting procedures for power plant construction. 
In separate energy-related matters Thursday, the Assembly approved: 
AB 21x, which would allow businesses, industries or other electrical 
customers to negotiate private contracts with energy providers. 
Nine energy bills designed to generate or save 665 megawatts of electricity 
-- including 345 megawatts this summer. One megawatt is enough electricity to 
light about 1,000 homes. 
The state put power emergencies behind it, after dropping out of a Stage 1 
alert late Wednesday. The California Independent System Operator, which 
manages the state's power transmission grid, was predicting no further alerts 
this week. It expected cooling temperatures and a regular dropoff in 
electricity use on Fridays to lessen demand, at the same time that more power 
plants were returning to service. 
Bee staff writer Carrie Peyton contributed to this report. 
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House panel ends energy hearings -- will it step in?
By David Whitney
Bee Washington Bureau
(Published March 23, 2001) 
WASHINGTON -- A key House panel wrapped up a series of hearings on the 
California electricity crisis Thursday and now will decide whether to come to 
the state's aid with legislation. 
But the panel's Texas chairman made clear that West Coast price controls 
won't be on the table. 
"Caps will not be in anything I am submitting," said Rep. Joe Barton, 
chairman of the House Energy and Commerce Committee's energy and air quality 
subcommittee. 
Some form of federal controls to hold down escalating wholesale prices this 
summer because of power shortages has been the most frequent appeal of 
witnesses who testified before the panel during roughly 30 hours of hearings 
over five days. 
Such controls have been sought by the governors of California, Oregon and 
Washington. As power shortages are forecast for other regions, states like 
New York also have appealed for temporary price controls to halt gouging. 
But the Federal Energy Regulatory Commission, which is responsible for 
enforcing reasonable wholesale rates under the Federal Power Act, has refused 
to impose them, and the Bush administration is bolstering that decision by 
opposing any legislation that would compel such action. 
Barton, in a brief hallway interview, declined to say what other legislative 
remedies he might propose to address the worsening California situation. 
He said he expects to submit a list of ideas to the White House today, and 
after receiving comment on it, sit down with other committee Republicans and 
Democrats next week to see if any legislation is in order. 
"If we are going to do anything to help California or the West this summer, 
we have to make it law within the next month or six weeks," Barton said. 
Even the panel's senior Democrat, Virginia Rep. Rick Boucher, was urging a 
"careful and deliberate approach" to the California crisis, which he said was 
largely of the state's own making. 
There are steps Congress might take to provide some help to the West, such as 
more money for conservation and relaxed federal regulation of air quality 
standards. That would permit older, more polluting generators to operate 
through a long, hot summer when electricity demand could exceed supply by 
about 3,000 megawatts, roughly the amount needed to power 3 million homes. 
But Alan Lloyd, chairman of the California Air Resources Board, said power 
production already is being maximized without sacrificing air quality. 
"Simply put, no essential electricity generation has been curtailed due to 
air emission limitations," he said. "California's programs to protect public 
health are not major factors in the electricity shortages experienced to 
date." 
The concern is that as shortages turn into more rolling blackouts, wholesale 
prices will jump even higher and steadily bleed the economies of California 
and the West Coast. 
William L. Massey, the lone member of the energy regulatory commission who 
supports price controls, said at a Tuesday hearing that without them the West 
Coast faces economic catastrophe this summer. 
It was evident from the comments of some Republicans that they think their 
party could capitalize politically from a difficult summer. 
"If they had a bad summer, it could show up in the polls," said Rep. Charlie 
Norwood, R-Ga. "And sometimes that's not a bad idea." 
One of the most dramatic exchanges during the weeklong hearings came Thursday 
with S. David Freeman, the former general manager of the Sacramento Municipal 
Utility District who now heads the Los Angeles Department of Water and Power. 
He recently was named Gov. Gray Davis' chief negotiator with power generators 
for long-term contracts to stabilize future deliveries. 
"Don't feel sorry for California," Freeman said. "We're going to come out of 
this stronger than ever." 
But Freeman said it will be a year or two before all the fixes are in place, 
and in the meantime the region desperately needs Congress' help to force the 
FERC into controlling wholesale prices, which witnesses said are likely to 
rise from $7 billion last year to as much as $70 billion or more this year. 
"We recognize that the current administration and various legislators have 
their own opinion as to the California situation," Freeman said. "But my 
personal plea is that if the federal government is not going to help us, the 
least it should do is refrain from legislation that attempts to tell us what 
to do." 
Barton perked up at that idea. 
"Leave California alone, huh?" Barton said. "That might be a good motto." 
------------------------------------------------------------------------------
---------------------
Dan Walters: Crisis deepens: politicos panic


(Published March 23, 2001) 
That choking sound you hear is California's political class shifting into 
near-panic mode as it realizes that the energy crisis is on the verge of 
becoming a full-scale meltdown, with utilities forced into bankruptcy and 
consumers hammered by severe and prolonged power blackouts and soaring 
electricity bills. 
The Legislature, which had been content to allow Gov. Gray Davis to handle 
the crisis on his own, suddenly came to life Thursday, jolted by this week's 
unexpected rolling blackouts and threats by creditors to force the utilities 
into bankruptcy court. Lawmakers quickly fashioned a basketful of legislation 
aimed -- or so they hope -- at increasing power supplies, promoting 
conservation and relieving the financial pressure on utilities and 
electricity generators. But it may be too little, too late -- and Davis and 
other politicians are already pointing fingers of blame, aware that a 
political price will be paid if the apocalypse strikes. 
While Davis chants his mantra that he inherited a fatally flawed utility 
deregulation scheme from predecessor Pete Wilson, Republicans are blaming 
Davis for moving too slowly after the crisis first surfaced last summer, and 
even some of Davis' fellow Democrats are distancing themselves from the 
governor. 
"Deregulation was a product of a Republican governor, a Republican author and 
a Republican PUC (Public Utilities Commission) that was unduly impatient," 
Davis said at one point this week as the Capitol buzzed with private 
negotiations and public posturing. 
A day later, however, state Controller Kathleen Connell, a Democrat, issued a 
warning that Davis' power purchases, running at $50 million a day, had 
already drawn down state budget reserves by nearly two-thirds, and she 
refused to authorize additional transfers. It was a direct shot by Connell at 
Davis, an old rival, and came just a day after the governor had endorsed a 
Connell foe, Antonio Villaraigosa, in the duel for mayor of Los Angeles. 
Other Democrats didn't join Connell's direct challenge to Davis, but there 
is, nevertheless, a growing concern among Democratic legislators that the 
power purchases are costing many billions of dollars more than the governor 
had projected and could place the state budget in jeopardy. They're nervous 
because Davis has refused to reveal, even to legislators, exactly how much 
power the state is buying each day and how much it is paying. 
From the few details that have been disclosed, it's clear that the state is 
spending about $1.5 billion a month, which would wipe out the state's 
reserves by midsummer. It's also becoming increasingly clear that Davis 
probably can't make good on his promise to avoid major consumer rate 
increases, unless the state is willing to plunge deeply and semi-permanently 
into debt to underwrite wholesale costs, or unless federal authorities order 
huge refunds from power suppliers. 
Rates in areas served by private utilities have risen only slightly while the 
costs, first to utilities and later to the state, soared. Data from the 
administration and utilities, when collated, indicate that the state is in 
line to collect just 20 cents for every dollar it's spending on power 
purchases, and the gap will increase as summer heat drives up demand. 
Privately, some economists say that private utility rates will have to rise 
33 percent to 50 percent to cover costs of current power supplies, plus 
utilities' past debts to generators and the state's purchase of the 
utilities' transmission system, if that deal is made final. 
"It's ultimately going to break down, and the ratepayer is going to pay for 
it one way or the other," Republican Sen. Jim Battin said during one of 
Thursday's many committee hearings on utility legislation. No one disagreed 
with him. 
DAN WALTERS' column appears daily, except Saturday. Mail: P.O. Box 15779, 
Sacramento, CA 95852; phone (916) 321-1195; fax: (781) 846-8350
E-mail: dwalters@sacbee.com
Recent columns: http://www.capitolalert.com/voices/index_walters.html 
------------------------------------------------------------------------------
------------------------------------------

Report says power wholesalers overcharged state $6 billion 



By Don Thompson
ASSOCIATED PRESS 
March 22, 2001 
SACRAMENTO ) Electricity wholesalers have overcharged California more than 
$6.2 billion by manipulating the energy market, according to a report by an 
economist working for power grid managers. 
The Independent System Operator planned to file the findings with federal 
regulators Thursday, and ask for a refund, said ISO spokesman Patrick 
Dorinson. 
In a related development, the state auditor said Thursday that the state's 
1996 deregulation law encouraged both buyers and sellers of electricity to 
"manipulate wholesale prices to their advantage" by underestimating both 
supply and demand. 








Disappearing state surplus sparks alarm 
Outages darken economic outlook in state, some say 
Out-of-state generators question power regulators' authority 
Allegheny Energy makes big California connection 
Enron stock slides despite earnings reassurance 
California's electricity crisis at-a-glance 
? 



The auditor's report lays out what it calls "a complex combination" of 
deficiencies and misjudgments it says led to the state's power problems. 
The ISO's filing came a day after the state controller complained that a 
relentless energy crisis is jeopardizing California's financial future. 
Since May, the companies manipulated the market by bidding at excessive 
prices, effectively withholding supplies or by not bidding at all when they 
had generation capability available, according to the ISO study. 
ISO Director of Market Analysis Anjali Sheffrin presented the findings at an 
energy conference at the University of California, Berkeley, last week. 
The companies have denied overcharging California and have said they expect 
the Federal Energy Regulatory Commission will determine their prices were 
justified. 
In a burst of activity after weeks of delay, both houses of the Legislature 
approved bills Thursday designed to ease the energy crisis. 
The state Senate approved measures to encourage energy conservation and speed 
up power plant construction. 
Topping that, the Assembly sent the Senate 14 energy-related bills, including 
$455 million in loans and grants to encourage energy efficiency and 
conservation and alternative energy projects by this summer. 
One of the Assembly bills would require new energy plants approved by the 
state to sell their power within California before they offer it to other 
states. 
"The (California) Energy Commission says for every day we delay this bill 
there are 20 megawatts that could be saved that we're not saving," said state 
Sen. Byron Sher, D-Stanford, as senators voted 28-10 to send his conservation 
measure to the Assembly. 
Senators also approved another Sher bill speeding up the siting of power 
plants. It went to the Assembly on a 37-1 vote. 
Meanwhile, a federal judge issued a preliminary injunction Wednesday ordering 
one of the companies named in the ISO filing, Reliant Energy Services, to 
continue selling to California despite its fear that it will not be paid. 
U.S. District Judge Frank C. Damrell Jr. said Californians were at risk of 
irreparable harm if Reliant stopped selling power to the ISO, which buys at 
the last minute on behalf of utilities to bolster supplies and try to fend 
off blackouts. 
Such blackouts struck the state twice this week, shutting off power to 
hundreds of thousands of people from San Diego to Oregon, snarling traffic 
and shutting down businesses. 
The state remained free of any power alerts Thursday morning, as power 
reserves stayed above 7 percent. 
Damrell dismissed Reliant's attempt to force the state Department of Water 
Resources to back the ISO's purchases for the state's two biggest utilities, 
Southern California Edison and Pacific Gas and Electric Co. 
The judge said he had no authority to force the DWR to pay for that power. 
The utilities have been denied credit after amassing billions of dollars in 
debt paying high prices for power that the state's energy deregulation law 
prevents them from passing on to consumers. 
Gov. Gray Davis has said the state isn't responsible for purchasing the 
costly last-minute power the ISO buys for Edison and PG&E, despite a law 
authorizing state power purchases on the utilities' behalf. 
ISO attorney Charles Robinson said the ruling gives ISO operators "a tool to 
assist them in keeping the lights on in California." 
"Had the decision gone the other way, one could expect other generators to 
simply ignore emergency orders," Robinson said. 
Damrell's preliminary injunction will remain in effect until the Federal 
Energy Regulatory Commission rules on the matter. 
In another development Wednesday, state Controller Kathleen Connell 
complained that the energy crunch is imperiling California's financial 
health. 
Connell said the state's power buying on behalf of Edison and PG&E is gutting 
its budget surplus. Since the state started making emergency power buys in 
January, the surplus has fallen from $8.5 billion to about $3.2 billion, she 
said. 
Connell ordered an audit of the state's power buying, saying Davis is 
withholding key financial information from her office and the Legislature. 
She is also refusing a request by Davis and the Legislature to transfer $5.6 
billion into a "rainy day fund" she said was set up to impress Wall Street as 
the state prepares to issue $10 billion in revenue bonds to cover its power 
buying. 
Transferring the money would leave the state general fund $2.4 billion in 
debt, Connell said. 
Sandy Harrison, spokesman for the state Department of Finance, and Keely 
Bosler of the Legislative Analyst's Office, said such transfers are routine 
and required by law. 
They put the state's budget surplus at $5.6 billion. 
Davis spokesman Steve Maviglio dismissed the criticism. 
"Political grandstanding doesn't generate one more kilowatt of energy for 
California in this time of emergency," he said. 
Connell is a candidate for mayor of Los Angeles in next month's election. 
The ISO study, meanwhile, covered five major in-state power suppliers ) 
Reliant, Dynegy, Williams/AES, Duke Energy and Mirant, as well as 16 power 
importers. All deliver power to customers of Edison, PG&E and San Diego Gas & 
Electric Co., the state's three largest investor-owned utilities. 
"All overcharged, but some excessively and some by moderate amounts," said 
ISO's Sheffrin. 
According to the report, the overcharging took place beginning last May, when 
the energy crisis began, and continued through last month. 
During that time, according to the report, energy suppliers commonly offered 
their electricity at twice the amount it cost them to produce. 
FERC member William L. Massey said he wasn't shocked to hear the amount 
overcharged added up to more than $5 billion. 
"Prices over the past 10 months in California have greatly exceeded the 
federal standards of just and reasonable prices, and I think they have 
exceeded the standards by possibly billions of dollars," he said. 
Chuck Griffin, spokesman for Atlanta-based Mirant said the company would 
justify their charges to FERC officials. 
"I think we're missing sometimes just how basic the problem is in California. 
Supply and demand are out of whack and some basic rules of economics kick in 
when that happens," he said. 
------------------------------------------------------------------------------
-------------

Disappearing state surplus sparks alarm 



Controller puts hold on transfer of $5.6 billion to reserve funds
By Karen Kucher and Ed Mendel 
UNION-TRIBUNE STAFF WRITERS 
March 22, 2001 
The state's general fund surplus has dropped to $3.2 billion from $8.5 
billion since January largely because California's power purchases are 
devouring the money, state controller Kathleen Connell said yesterday. 
Connell said she wants to see more documentation about state power spending 
before approving the transfer of $5.6 billion from the general fund to a 
special reserve fund requested by Gov. Gray Davis. 
Connell said the state would have to borrow $2.4 billion to cover the 
transfer. 








Report says power wholesalers overcharged California $5.5 billion 
Outages darken economic outlook in state, some say 
Out-of-state generators question power regulators' authority 
Allegheny Energy makes big California connection 
Enron stock slides despite earnings reassurance 
California's electricity crisis at-a-glance 
? 



"We started this year with a generous budget surplus. The energy crisis has 
taken much of that away, and this transfer on top of the electricity 
purchases would put the (general) fund at risk," Connell said in a statement. 
Her action came on a day when state power supplies improved. After two days 
of forced outages this week, no rolling blackouts were ordered yesterday. 
Several power plants came back on line and imports from the Pacific Northwest 
provided enough electricity to meet demand yesterday, said Stephanie 
McCorkle, a spokeswoman with the California Independent System Operator, 
which manages most of the state's power grid. 
"Gradually more (electricity) generation comes on every day," McCorkle said. 
"By Monday, we should see somewhere around 2,200 megawatts back in service 
that was not on this Monday. That's if no other generation falls off." 
Meanwhile, Connell's move took some by surprise. 
A spokesman for the state Department of Finance said Connell is denying a 
routine transfer that is required by law. "It was just a routine accounting 
measure that we didn't anticipate becoming controversial," Sandy Harrison 
said. 
Connell announced the denial of the transfer a day after Davis endorsed one 
of her opponents, former Assembly Speaker Antonio Villaraigosa, in the race 
for Los Angeles mayor. 
Connell, who monitors California's cash flow, said she was "deeply concerned 
about putting the state's general fund in a deficit situation in light of the 
energy crisis." 
About two months ago, the state began spending about $50 million a day to buy 
power after Pacific Gas and Electric and Southern California Edison nearly 
went bankrupt. It is also purchasing power for customers of San Diego Gas and 
Electric. 
The Davis administration said earlier this week it soon will begin spending 
an additional $500 million on power purchases, bringing the total to $4.2 
billion. 
As that staggering sum continues to grow, the state won a court battle with 
an electricity supplier yesterday. A federal judge in Sacramento sided with 
the state and ordered the wholesaler to continue selling to California 
despite its fear that it will not get paid. 
Judge Frank C. Damrell Jr. said Californians were at risk of irreparable harm 
if Reliant Energy Services stopped selling power to the Independent System 
Operator. The ISO acquires last-minute power on behalf of utilities to fill 
gaps in supply to try to fend off blackouts. 
Damrell dismissed Reliant's attempt to force the state Department of Water 
Resources to back the ISO's purchases for the state's two biggest utilities. 
The judge said he had no authority to force the DWR to pay for the power. 
Davis has said the state isn't responsible for purchasing the costly 
last-minute power the ISO buys for Edison and PG&E, despite a law authorizing 
state power purchases on the utilities' behalf. 
Meanwhile, those who manage the power grid say the forecast for power 
supplies this week looks good, although conditions can change quickly. 
ISO managers continue to stress the importance of conservation. Utility 
customers across the state conserved about 900 megawatts of power Tuesday, 
which kept blackouts from being ordered that night. 
As the power crisis worsened this week, ISO managers wished aloud that they 
still could rely on business customers to shut down in exchange for lower 
energy rates. 
Such "interruptible" customers saved as much as 2,100 megawatts last spring, 
a figure that dropped to about 1,700 last summer and 1,400 at the end of the 
year. But in January, the state Public Utilities Commission told utilities 
they could no longer impose fines on business customers who refuse to shut 
down when asked. 
ISO managers realize the program was harming businesses with frequent 
interruptions of service -- but they still miss having that option, McCorkle 
said. 
"It would have made an enormous difference, but at the same time we 
understand the impact it was having on businesses," McCorkle said.
------------------------------------------------------------------------------
--------------

Outages darken economic outlook in state, some say 



By Dean Calbreath?
UNION-TRIBUNE STAFF WRITER 
March 22, 2001 
Until this week, the San Diego Regional Chamber of Commerce was predicting 
that the county was well-insulated from the growing threat of economic 
recession. 
But that was before the lights went out in the chamber's downtown 
headquarters Monday. 
Working by window light in his darkened office, chamber economist Kelly 
Cunningham rapidly erased his previous projections for 3.5 percent growth for 
San Diego County. Cunningham now feels the local economy could fall into a 
recession thanks to its shaky supply of energy. 








Report says power wholesalers overcharged California $5.5 billion 
Disappearing state surplus sparks alarm 
Out-of-state generators question power regulators' authority 
Allegheny Energy makes big California connection 
Enron stock slides despite earnings reassurance 
California's electricity crisis at-a-glance 
? 



"Blackouts are very disruptive to the economy," Cunningham said. "A business 
can absorb rising energy prices by cutting costs or raising its own prices. 
But an energy shutoff is much less predictable. It cuts into productivity." 
Those sentiments are being echoed throughout California, as business leaders 
and economists worry that rolling blackouts will darken the state's 
previously glowing economy. 
At the University of California Los Angeles, for instance, leading financial 
theorists will meet April 4 to discuss the question "Can California grow in 
the dark?" Although the topic was chosen before the recent string of power 
outages, the blackouts have given the issue new urgency. 
"These blackouts are not just a single episode," said UCLA economist Tom 
Lieser. "They are a bridge to what will happen this summer. If we don't fall 
into a recession in the second half of the year, we will fall pretty close." 
Tapan Munroe, an economist formerly with Pacific Gas and Electric, this week 
crossed out his projection for 2 percent statewide growth. After blackouts 
rolled toward his consulting offices in the Bay Area city of Moraga, Munroe 
decided the state will be lucky if it manages zero growth. 
"I'm a pretty optimistic guy by nature, but this has been sobering," Munroe 
said. "On Tuesday, one restaurant alone in San Francisco lost $20,000. 
Multiply that by all of the businesses that lost power in the state and 
you've got a serious problem." 
Two days of blackouts in San Diego County have hurt businesses large and 
small. Among the industries under threat is the local biotechnology sector, 
which requires a steady supply of electricity to power areas of laboratories 
that must remain temperature-controlled and sterile. 
Continued blackouts "could have a huge impact, not only in dollars, but 
multiple millions of dollars," said Tom Oster, vice president of operations 
for BioCom, the leading trade organization for the more than 200 biotechs in 
San Diego County. 
Idun Pharmaceuticals, a biotech near La Jolla Village Drive that has 67 
employees, had its power cut for about 40 minutes Tuesday. Though the company 
has a back-up generator, some segments of its laboratories and lab equipment 
were not supported by it. Chemists also had to turn off some sensitive lab 
equipment to avoid the possibility of a damaging power surge once the 
blackout was over. 
"We're not in a position as a small company to back up the whole facility," 
said Steven Mento, Idun's chief executive. "We haven't done a survey yet to 
determine whether we had losses, either in experiments or equipment damaged 
-- but we're hoping because the blackout was so short that damage will be 
minimal." 
Mento said rolling blackouts, coupled with continuing high energy costs, 
could cripple many small biotechs -- and even take a bite out of bigger, more 
established companies. 
"We generate new compounds in controlled environments on a daily basis, and 
when power goes off you can lose samples because of contamination and other 
issues," Mento said. "We are fortunate that our losses would be in having to 
repeat an experiment -- but this could be really critical for companies with 
drug manufacturing and issues of quality control." 
The wireless firms along Sorrento Valley have not been immune from blackouts. 
The lights went out at Qualcomm early this week, although executives declined 
to comment about the impact. 
No blackouts hit the big shipbuilding operations on the waterfront this week. 
But the National Steel and Shipbuilding Co. -- one of San Diego's largest 
employers -- already experienced a voluntary loss of power this year, its 
first since World War II. Since the shipyard does not have its own power 
supply, NASSCO executives fear the effect of unplanned outages. 
"Our average payroll totals half a million dollars a day," said NASSCO 
spokesman Jim Scott. "When you have a day's work disrupted, that can be 
pretty serious. We're currently in discussions about the possibility of 
buying from independent power suppliers, or setting up a power plant of our 
own." 
Small businesses, which constitute the bulk of employment in San Diego 
County, were hurt by disruptions as well -- costing them vital revenue at a 
time when their power bills have skyrocketed. 
At Fantastic Sam's, a hair salon in Chula Vista, Angelica Alcala estimated 
that business dropped 60 percent when the blackouts hit Tuesday. Among other 
things, Alcala had to alter her planned haircuts because she was relying on 
scissors instead of electric clippers. 
At the Family Fun Center in El Cajon, the management gave vouchers or refunds 
to the 15 or so video-game players who were in the midst of killing aliens or 
fighting ninja warriors as the power went down. 
Papa John's Pizza estimates that it may have lost several thousand dollars in 
business after six stores were blacked out Monday and four others lost power 
Tuesday. Brian Mills, who runs 23 Papa John's stores in the county, said his 
main concern was shutting down the computers so they would not be damaged by 
a power surge when the electricity was restored. 
Paul Ecke III, a member of the West Coast advisory panel for the Federal 
Reserve, said the potential impact of the energy crisis "is worse than any 
downturn in the stock market." 
Ecke, who runs the Paul Ecke Ranch flower operation in Encinitas, said the 
crisis could be particularly harmful for the state's agricultural sector, 
since farmers need electricity to pump water and natural gas to heat 
greenhouses. 
"What I'm really worried about is the energy thing is going to cast a shadow 
on California," he said. "If you're a business person thinking about moving 
to California right now, you're probably not going to do it because you're 
not sure you're going to have your lights on this summer." 
Besides the disruption to businesses, the energy crisis is also hurting the 
pocketbooks of hourly workers who have been sent home during the crisis. 
Under state law, employers are free to send hourly workers home without pay 
during such emergencies, although salaried workers must still be paid. 
Susan Kemp, an attorney with the California Chamber of Commerce, said there 
are ways of minimizing the impact on hourly workers. 
"You have to look at what time it is when the blackout occurs and how long 
you think it's going to last," Kemp said. "If it's around a meal time, you 
might send the workers out for a longer meal period if you think it's going 
to be an hour or hour and a half delay." 
But the potential for losing wages doesn't sit well with the hourly workers. 
"When you get sent home early and lose your wages, you have even less money 
to pay your inflated energy bills," said an hourly worker who was sent home 
during Monday's blackout. 
------------------------------------------------------------------------------
----------


Out-of-state generators question power regulators' authority 



By Karen Gaudette
ASSOCIATED PRESS 
March 22, 2001 
SAN FRANCISCO ) At least three major out-of-state electricity generators are 
challenging the authority of the California Public Utilities Commission to 
investigate whether they deliberately reduced power supplies to drive up 
prices. 
The PUC has asked for power plant maintenance records as it tries to 
determine whether Duke Energy, Dynegy Inc., Mirant Corp. and other 
wholesalers have manipulated the energy market at California's expense. 
At issue is who ultimately controls oversight of in-state plants that provide 
most of California's electricity. The plants, once owned by the state's 
largest utilities, were sold off as part of the state's 1996 attempt at 
deregulation. 








Report says power wholesalers overcharged California $5.5 billion 
Disappearing state surplus sparks alarm 
Outages darken economic outlook in state, some say 
Allegheny Energy makes big California connection 
Enron stock slides despite earnings reassurance 
California's electricity crisis at-a-glance 
? 



PUC President Loretta Lynch said the public deserves to know whether 
generators have unnecessarily taken plants off-line to create artificial 
shortages, forcing the utilities and now state bureaucrats to buy much higher 
priced power on the spot energy market. 
"What I do know is we have historically high levels of outages across the 
board," Lynch told The Associated Press. "Dynegy and Duke have been fighting 
the PUC in the PUC's quest to obtain documents about these outages." 
The PUC has the authority to regulate facilities within its borders, she 
added. "It doesn't matter where the headquarters of the company is." 
Duke, based in North Carolina, says it does matter ) and that since it and 
other wholesalers aren't headquartered in California, the PUC can't require 
it to turn over the maintenance records. 
"We have not given them proprietary information because they do not regulate 
us," said Duke's spokesman, Tom Williams. 
Dynegy did not return calls for comment Wednesday. 
The PUC also faces a new challenge in the legislature. A bill sponsored by 
Assemblywoman Carole Migden, D-San Francisco, which would have granted the 
PUC greater inspection authority over out-of-state generators, was amended 
this month to grant the authority to Independent System Operator instead. 
The ISO has managed the delivery of energy through most of the state's power 
grid but historically has done little regulating and has had no policing 
authority. 
This board, created during the state's 1996 attempt at deregulation, was 
redesigned in January. Now it has a five-member board appointed by Davis, 
replacing a 26-member ISO board composed of utility executives, marketers, 
power plant owners and others. 
The latest version of Migden's bill requires wholesalers to report monthly to 
the ISO about any plants that are off-line or working at reduced capacity, 
and gives the ISO power to audit these reports. 
But because the ISO board historically has made key decisions behind closed 
doors and is exempt from certain open-government regulations, government 
watchdogs are outraged by the switch. 
"The PUC's been no friend of ratepayers, but at least under the constitution 
and state law they're required to conduct their process in the open and the 
public can intervene," said Harvey Rosenfield of the Foundation for Taxpayer 
and Consumer Rights. 
Davis ordered last month that the ISO take the lead among state agencies to 
ensure adequate energy supplies. Alan LoFaso, an aide to Migden, said the 
amendment follows Davis' lead. 
Both LoFaso and the governor's spokesman, Steve Maviglio, downplayed the 
change. "I don't know if we have a preference" as to which state agency gets 
the authority to continue the probe, Maviglio said. 
The challenge by Duke Energy, Houston-based Dynegy Inc. and Mirant Corp. of 
Atlanta came in filings March 12 asking for a rehearing of the PUC's February 
resolution reasserting its legal authority to "examine the books, accounts, 
memoranda, contracts and records" of generators selling energy to utilities 
already subject to PUC regulation. 
Those utilities include Pacific Gas and Electric Co. and Southern California 
Edison Co., which have been nearly bankrupted buying power from wholesalers, 
as well as the financially troubled San Diego Gas and Electric
-----------------------------------------------------------------------------

Allegheny Energy makes big California connection 



ASSOCIATED PRESS 
March 22, 2001 
HAGERSTOWN, Md. ) Allegheny Energy Inc. said Thursday it has agreed to sell 
$4.5 billion worth of power to California's electricity-purchasing agency 
over the next 10 years. 
The company said the contract call for Allegheny to provide up to 1,000 
megawatts that the Hagerstown-based company has secured from western 
generating plants through its new energy trading division, Allegheny Energy 
Global Markets ) formerly Merrill Lynch Global Energy Markets. 
"This is a win-win for both the state of California and Allegheny Energy. It 
provides a long-term source of fixed-price energy and should help to 
stabilize prices in California," said Michael P. Morrell, president of the 
Allegheny Energy Supply division. 
------------------------------------------------------------------------------
-----------


Judge Frees Small Firm From Edison Contract 

By KEN ELLINGWOOD and DAN MORAIN, Times Staff Writers 

?????EL CENTRO--California's balance of electrical power shifted slightly 
Thursday when an Imperial County judge temporarily freed a small geothermal 
energy producer from its contract with Southern California Edison, allowing 
it to sell power on the open market.
?????The ruling by Superior Court Judge Donal B. Donnelly could lead to a 
mass exodus by hundreds of small energy producers that have been selling 
power to the state's financially troubled utilities for months without 
getting paid.
?????At the same time, it may have staved off plans by a group of the small 
generators to send Edison into involuntary bankruptcy as early as today.
?????In Sacramento, energy legislation pushed by Gov. Gray Davis passed in 
the state Senate but foundered in the Assembly. The measure was intended to 
ensure that the state gets repaid for the electricity that it has been buying 
on behalf of Edison and Pacific Gas & Electric, which say they lack the cash 
and credit to purchase power. The bill also was supposed to guarantee that 
the small, alternative energy producers--which together provide nearly a 
third of the state's power--get paid. But Assembly Republicans opposed it, 
saying it hadn't been given sufficient scrutiny.
?????The impact of the small producers was made clear in Imperial County, 
where Edison's failure to pay CalEnergy, the county's biggest property 
taxpayer, had outsize implications. CalEnergy had put county officials on 
notice that it was about to miss a $3.8-million property tax payment. The 
uncertainty had prompted the tiny Calipatria Unified School District to 
postpone a bond issue for badly needed school repairs.
?????Among CalEnergy Chairman David Sokol's first acts after the judge's 
ruling Thursday was to promise Imperial County Supervisor Wally J. Leimgruber 
that the company would pay its property taxes on time.
?????"That is great news," Leimgruber said.
?????Within hours of its court victory, CalEnergy had stopped transmitting 
geothermal power to Edison and begun selling it to El Paso Energy, a 
marketing company that purchased the energy at prevailing rates and resold it 
on the spot market.
?????Some of the more than 700 other small energy producers in the state said 
they were considering similar action against Edison and Pacific Gas & 
Electric.
?????"We absolutely need the right to sell to third parties," said Dean 
Vanech, president of Delta Power, a New Jersey company that owns five small 
gas-fired plants in California and is owed tens of millions of dollars by 
Edison.
?????Sokol praised the Imperial County judge and said his company simply 
wanted the authority to sell its power "to a credit-worthy company that, in 
fact, pays for the power."
?????An Edison spokesman said the company was disappointed with the ruling, 
but sympathized with CalEnergy and other small producers because 
"California's power crisis has placed [them] in financial distress, just as 
it has placed utilities in financial distress."
?????Edison expressed concern that the ruling would prompt CalEnergy and 
other small producers to sell their power out of state. Sokol said CalEnergy 
had specifically told El Paso Energy that it hoped its power would remain in 
California, "but if someone wants to pay a higher price out of state, we 
can't stop them."
?????Sokol said that Edison still owes CalEnergy $140 million and that the 
company--along with seven other small producers--had been prepared to file a 
petition in federal bankruptcy court in Los Angeles today forcing the utility 
into involuntary bankruptcy. He said his company no longer intends to do so, 
and he believed--but wasn't certain--that the other companies would shelve 
their plans.
?????Edison filed papers Thursday with the federal Securities and Exchange 
Commission showing that it owed $840 million to various small electricity 
producers, many of which rely on renewable energy sources such as geothermal 
steam, solar energy or wind.
?????The alternative energy producers--and utilities--strenuously objected to 
the legislation considered in Sacramento on Thursday. The bill, spelling out 
how the utilities are to pay the state and the small producers, passed the 
Senate on a 27-9 vote, the exact two-thirds margin required. But it stalled 
in the Assembly on a 46-23 party-line vote, well short of two-thirds.
?????"When I was a citizen back in Lancaster, I heard these stories about 
pieces of legislation that were cooked up late at night, that . . . were cut 
and pasted together and were rammed through by the Legislature," Assemblyman 
George Runner (R-Lancaster) said. "That's exactly what we have before us."
?????The alternative electricity generators, including oil companies, warned 
that they would lose money under the Davis proposal, while representatives of 
Edison and PG&E, which have amassed billions in debt in the worsening energy 
crisis, said the legislation would push them deeper into the hole.
?????"There isn't enough money," Edison attorney Ann Cohn testified at a 
Senate hearing on the bill Thursday. "It is a very simple question: Dollars 
going out cannot be greater than dollars coming in."
?????The bill, AB 8X, combined several proposals. First, it sought to clarify 
earlier legislation by spelling out that Edison and PG&E must pay the state 
all money collected from consumers for electricity that the state has been 
buying.
?????Additionally, the bill would turn over to the California Public 
Utilities Commission the thorny issue of how much to pay alternative energy 
producers for their electricity.
?????Wind, solar and geothermal producers might agree to the prices offered 
by the administration. But most of the alternative energy producers, 
including Chevron and British Petroleum, use natural gas to generate 
electricity through "cogeneration," a process of creating steam for both 
electric generation and heat. With natural gas prices high, they contend, 
they would lose money at the prices Davis is offering.
--- 
?????Ellingwood reported from El Centro, Morain from Sacramento. Times staff 
writers Mitchell Landsberg in Los Angeles and Jenifer Warren, Nancy Vogel and 
Carl Ingram in Sacramento contributed to this story.
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Lodi Defies Order for Blackouts 
Utility tells PG&E to 'pay the bills' 
Alan Gathright, Chronicle Staff Writer
Friday, March 23, 2001 
,2001 San Francisco Chronicle 
URL: 
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/03/23/M
N171303.DTL 
Let history show that the rebellion against rolling blackouts started when 
the Central Valley town of Lodi defied PG&E and refused to unplug its 
customers this week. 
Like several cities that own their own utilities, Lodi saw the energy crunch 
looming last fall and spent millions for long-term power contracts in an 
attempt to avoid blackouts. 
Now, Lodi and a Northern California municipal utility cooperative that 
includes Palo Alto, Santa Clara and Alameda are telling Pacific Gas and 
Electric Co. that it's unfair to force their customers to endure blackouts 
triggered by the near-bankrupt utility's failure to pay its debts. 
"The problem is not paying bills, so pay the bills," said Alan Vallow, 
director of the utility serving Lodi's 58,000 residents. "I won't arbitrarily 
screw my customers . . . so 5,000 PG&E customers can turn on their lights 
somewhere else." 
When PG&E relayed an order from state power regulators Monday and Tuesday for 
Lodi to black out some of its customers, a strategy intended to keep the 
West's power grid from collapsing, Lodi said no. 
So far, other cities in the Northern California Power Agency say they will 
continue to participate in rotating outages. 
But in a letter last Friday to PG&E, members of the agency and four other 
utility districts, including Sacramento's, warned they didn't believe long- 
standing agreements that allow them to use PG&E transmission lines to connect 
to the grid obliged them to endure rolling blackouts because of "PG&E's 
failure to pay its power obligations." 
They say the agreements require them to reduce power demand only in response 
to natural disasters or malfunctions damaging power lines or plants. 
The agencies asked for a meeting with PG&E President Gordon Smith before 
anticipated summer blackouts hit, "to develop a more rational program for 
allocation of risks associated with (power demand) load shedding before you 
call on us to participate in load shedding again." 
REFUSING TO SHARE BURDEN
PG&E officials accused Lodi of selfishly refusing to share the burden of the 
statewide energy crisis. 
"It is regrettable that after reaping the benefits of the (power grid) 
interconnection contract for many years, Lodi is suddenly unwilling to bear 
their share of the burden of the statewide energy crisis," said PG&E 
spokesman Ron Low. "When cities like Lodi do not follow the (state 
Independent System Operator's) order to curtail power, it hurts all of 
California and jeopardizes the entire power grid." 
Low also disagreed with accusations that this week's blackouts were triggered 
by PG&E's failure to pay its bills, noting that the ISO stated that 12,000 
megawatts of power were offline because of plant maintenance. 
But ISO spokeswoman Lisa Szot confirmed assertions by the municipal utilities 
that power generators had kept an additional 3,000 megawatts offline because 
they feared PG&E couldn't pay. 
Lodi's Vallow said he was legally obliged to serve city customers. Lodi 
residents are facing rate increases of as much as 15 percent under a power 
contract that the city secured in hopes of avoiding blackouts. The contract 
required Lodi to pay a $10 million premium above its typical $23 million 
annual energy bill. 
'THAT'S NOT FAIR' 
"I've been hearing (PG&E say), 'Gee, that's not fair. Where's the equity if 
everybody is doing rolling blackouts and you're not?' " Vallow said. "Well, I 
put my customers at financial risk to the tune of $10 million. And if they're 
not going to get to use that power they paid for, then by God, give us that 
money back." 
Vallow said he was willing to sell PG&E some of Lodi's power surplus, knowing 
Lodi might not be paid. 
"But I'm not willing to turn off 5,000 customers, so 5,000 customers 
somewhere else can turn their lights on," Vallow said. "The objective here, 
people, is to keep as many lights on as possible." 
Other city-owned utilities, while annoyed with the rolling blackouts, aren't 
going as far as Lodi. 
WEATHERING BLACKOUTS
"I certainly understand the frustrations of utilities like Lodi and actually 
share those frustrations in many cases," said John Roukema, assistant 
director of Santa Clara's utility. 
But he stressed that his agency had been able to weather blackouts without 
hurting residents or small business, because 17 major industrial power users 
had agreed to curtail demand during energy alerts. 
"The prudent thing to do at this time is to continue to do our share and 
participate in rolling blackouts, because a single problem could cause a 
catastrophic failure in the statewide system," Roukema said. 
In Alameda, residents endured blackouts this week despite the fact that city 
has secured reliable power supplies, said Matt McCabe, spokesman for Alameda 
Power & Telecom. 
"It was in the best of interests of Alamedans to maintain the stability and 
integrity of the grid," he said. "Now, if it becomes evident that the system 
is being jeopardized for financial reasons, then we should not have to 
subject Alamedans to rolling blackouts." 
In Palo Alto, which also had blackouts this week, utility officials told the 
City Council they were expecting a 30 to 40 percent rate hike this spring to 
pay new contracts guaranteeing a stable power supply, said Councilman Bern 
Beecham. The city hopes to avoid giving customers the double whammy of rate 
boosts and more blackouts with a program that gets industrial users to cut 
demand voluntarily during alerts. 
"When there's not enough generating capacity in the state to protect the 
integrity of the grid, that is in fact everybody's problem," Beecham said, 
but that doesn't mean Palo Alto is willing to endure blackouts to prop up 
PG&E's ailing finances. 
"We need to have some very frank discussions with PG&E about mutual 
obligations," Beecham said. 
Energy Tips 
With Californians facing electricity and natural gas shortages, PG&E has 
several tips to help conserve both: 
-- Set the furnace thermostat at 68 degrees or lower, health permitting. 
-- Wash only full loads in a dishwasher. If operating instructions allow, 
turn dishwasher off before the drying cycle and let dishes dry naturally. 
-- Use low-wattage or fluorescent lights. 
-- Fix defective plumbing and dripping faucets, which waste water and 
increase the gas or electric bill for heating the water. 
-- Plug gaps around pipes, ducts, fans and vents that go through walls, 
ceilings and floors. 
-- Keep furnaces clean, and clean or replace the filter regularly. 
-- Turn heaters down when using a fireplace, and close the damper when not 
using the fireplace. 
-- On sunny days, open drapes on windows facing south and let the sun shine 
in. At night, close the drapes to retain indoor heat. 
Source: www.pge.com 
E-mail Alan Gathright at agathright@sfchronicle.com. 
,2001 San Francisco Chronicle ? Page?A - 1 
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Coming Down to the Wire 
State legislators battle over alternative energy bills 
Greg Lucas, Robert Salladay, Chronicle Sacramento Bureau
Friday, March 23, 2001 
,2001 San Francisco Chronicle 
URL: 
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/03/23/M
N113351.DTL 
Sacramento -- After several weeks of slow to no progress in attacking the 
state's energy mess, the Legislature erupted yesterday into a frenzy of 
energy activity. 
The sudden action on a series of energy bills -- including one to let 
businesses buy power directly from generators -- stemmed initially from the 
fear of bad publicity lawmakers might receive for a planned three-day junket 
next week to Washington, D.C. 
When a key bill bogged down in the Assembly late yesterday, Speaker Bob 
Hertzberg, D-Sherman Oaks, announced the trip was canceled. 
Another reason for the flurry of action was recognition that time is running 
out. 
Several alternative energy producers -- like wind farms and biomass plants - 
- said they were one day away from forcing the state's two biggest utilities 
into bankruptcy because they were owed more than $1 billion. 
The Legislature's action and a court ruling that could free alternative 
producers from unpaid contracts. 
"This is triage, members of the Senate," said Sen. Jim Costa, D-Fresno. "This 
is crisis activity we're engaged in." 
The Senate approved a bill aimed at helping state regulators get cash to some 
alternative energy producers. Most of them have been paid little or nothing 
since November by the utilities they sell electricity to. 
Senators passed a bill to help the Public Utilities Commission order 
utilities to pay solar, wind and other alternative energy producers who sign 
lower-priced contracts with the utilities. 
The bill failed in the Assembly because of GOP opposition, fanned in part by 
price concerns by the oil industry, a major co-generation producer. The 
Assembly is set to meet again today to try again pass the bill, which the PUC 
needs to issue its final order. 
The PUC's proposed order offers the first hint of financial relief for 
hundreds of alternative energy producers, known as ''qualified facilities" in 
the energy industry, who have been paid just pennies on the dollar by cash- 
strapped Pacific Gas & Electric and Southern California Edison. 
Lack of payments has caused many alternative generators to shutter their 
operations. 
The PUC's proposal, which will be considered at the commission's meeting 
Tuesday, offers generators a choice of agreeing to a five-year contract at 
$79 per megawatt or a 10-year deal at $69 per megawatt, Davis said. The going 
rate now is about $150 a megawatt hour. 
The order does not address money already owed to the more than 600 
alternative energy producers. 
Under the order, utilities would have to pay any generator who signed the new 
contracts within two weeks. 
But PG&E said it might not be able to afford do that. 
Operators of co-generation facilities say the contracts contemplated by the 
PUC don't cover their cost of producing energy because the sale price no 
longer would be pegged to the the price of natural gas. 
In a significant court decision affecting generators, one geothermal energy 
supplier in Imperial County won a lawsuit yesterday against Edison allowing 
the company to escape a contract requiring it to sell electricity to the 
utility. 
A superior court judge said CalEnergy, operator of the geothermal plant, 
could suspend deliveries to Edison and sell the 268 megawatt hours it 
generated on the open market. 
CalEnergy is owed $75 million by the utility. 
The court victory may ease mounting pressure from some qualified facilities, 
including CalEnergy, to drive one or both of the utilities into involuntary 
bankruptcy. 
The Assembly and Senate, meanwhile, rushed through a series of bills aimed at 
increasing energy conservation, and rushing the building of new power plants. 
Most significant for bigger residential and commercial utility customers is a 
measure passed by the Assembly to allow energy customers to buy power 
directly from generators. 
That right was eliminated in January when the state began buying power for 
the cash-strapped utilities. 
The bill approved unanimously yesterday would impose a yet to be determined 
exit fee on customers who leave the power grid to help cover the state's 
financial exposure. 
Tell Us What You Think 
Can you save 20 percent on your energy use? Gov. Gray Davis' administration 
is offering rebates for Californians who save on power starting in June, and 
if you've got a strategy for conserving, The Chronicle wants to hear it. 
We'll be writing about the hardest-working energy savers in a future story. 
To get involved, write to the Energy Desk, San Francisco Chronicle, 901 
Mission St., San Francisco, CA 94103; or e-mail energysaver@sfchronicle.com. 
E-mail the reporters at glucas@sfchronicle.com and bsalladay@sfchronicle.com. 
,2001 San Francisco Chronicle ? Page?A - 14 
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State's bill for energy could double this year 
Posted at 9:34 p.m. PST Thursday, March 22, 2001 
BY 
STEVE 
JOHNSON 
AND 
JOHN 
Warning that California is imperiled by the prices it is paying for 
electricity, a report Thursday said the state's annual power tab could wind 
up being 10 times what it was two years ago. 
At the current rate of spending, the report estimated that the total 
electricity bill in California this year could hit $70 billion, which is more 
than twice what it was last year and about 10 times what was paid in 1999 and 
1998. 
``The California electricity market has gone from being `dysfunctional' to 
precipitating a crisis,'' according to the report from the Independent System 
Operator. 
It added that the price being charged ``threatens any semblance of just and 
reasonable consumer rates, the financial viability of California's 
investor-owned utilities, the financial stability of California, of its 
neighboring states and of the nation.'' 
While power suppliers denied any wrongdoing, the report said the state 
appears to have been hit with ``excess'' charges totaling $6.87 billion since 
May, based on an assessment of the typical operating costs of power plant 
owners. Out of that total, $6.2 billion appeared to be excessive charges 
during times when power was not in particularly short supply, the agency 
said. 
The cost of power has become a growing concern now that the state has stepped 
in to buy it on behalf of Pacific Gas & Electric Co. and Southern California 
Edison, which claim to be so strapped for cash that they are on the verge of 
bankruptcy. 
In making public the report, which was sent to the Federal Energy Regulatory 
Commission, officials at the Independent System Operator were careful not to 
accuse any power companies of price gouging. While the prices appeared to be 
unreasonable, they said, the state needs to learn more about the specific 
operating costs of power plant operators before they could determine whether 
California was cheated. 
The officials said they were considering asking the federal agency, which 
oversees power wholesalers, to order the suppliers to make refunds. In the 
past two weeks, the federal agency has warned a number of suppliers that they 
may have to refund $135 million in apparent overcharges during January and 
February. 
But many experts question whether the federal agency is serious about 
demanding such refunds, so California officials also are reviewing the 
possibility of suing the suppliers or seeking criminal charges against some 
of them. ``We're working very closely with a number of agencies to review the 
information we currently have to determine what remedies may be available,'' 
said Charles Robinson, the Independent System Operator's general counsel. 
The report's suspicions were partly bolstered by another study made public 
Thursday by the state auditor. It said California's market structure 
encouraged bidding gamesmanship by both utilities and power sellers ``in an 
effort to manipulate wholesale prices to their advantage.'' But it stopped 
short of accusing power generators of profiting illegally. 
``There's clearly some evidence of market abuse,'' said state Auditor Elaine 
Howle. Even so, she added, ``that's not to say it's anything illegal. We 
hired consultants, they looked at some of the bidding, and they weren't 
comfortable going that far.'' 
Although no power companies were named in either report, officials with 
several suppliers insisted they have done nothing wrong. 
``We've conducted our business legally and ethically,'' said Richard 
Wheatley, spokesman for Reliant Energy, which runs five major California 
power plants. ``The ISO report appears to be nothing more than just another 
attempt to put blame at someone else's doorstep, when there's been very 
little action out of Sacramento to resolve the problems in the California 
marketplace.'' 
Duke Energy spokesman Jeremy Dreier said the company, which runs plants in 
Moss Landing and Morro Bay, sold most of its power last year and this year in 
relatively low-cost, long-term contracts, and was among the first to offer 
such deals to the state. He added that Duke increased production from its 
aging plants to meet surging demand. 
``The fact that we were among the first to bring long-term contracts to the 
table speaks volumes about how we're trying to serve this market,'' Dreier 
said. 
John Sousa of Dynegy Inc., which co-owns three major California plants, added 
that ``given the market conditions, the rates we charged were just and 
reasonable.'' 
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Plan for alternate power plants stalls 
Posted at 10:03 p.m. PST Thursday, March 22, 2001 
BY DION NISSENBAUM AND JENNIFER BJORHUS 

Mercury News 


SACRAMENTO -- The state's prospects for plugging a critical electricity gap 
dimmed Thursday when the state Assembly rejected a rescue plan for 
alternative power companies and a state judge ruled that one such firm could 
stop selling energy in California. 
Both actions threaten the plan Gov. Gray Davis announced just Tuesday to keep 
these companies running and stave off more blackouts. With the state's 
troubled utilities failing to pay for their electricity, many alternative 
energy plants have been shutting down. 
The dual blows came on a day when tempers flared in the Capitol as lawmakers 
jarred by back-to-back blackouts launched bipartisan attacks on Pacific Gas & 
Electric Co. and Southern California Edison, which aren't paying wind, solar, 
biomass, geothermal and small gas-fired plants for their electricity. 
After Republicans shot down the measure meant to keep alternative energy 
companies in business, Assembly Speaker Robert Hertzberg, D-Van Nuys, warned 
that the restless companies might act on their threat to force the utilities 
into bankruptcy. 
``They said it, and I understood them to mean it,'' he said. 
The failure overshadowed a burst of action in Sacramento where lawmakers 
approved a host of other measures. The Senate approved two key bills: one 
that would spend more than $1 billion to encourage Californians to conserve 
energy and one that would make it easier to build power plants. The Assembly 
approved 14 incremental bills. 
Six votes short 
But the Assembly fell six votes short of passing a hastily prepared bill 
meant to help prop up the nearly 700 alternative energy companies, many of 
which are now idle. 
Those closings sapped California of energy this week and helped cause two 
days of rolling blackouts -- the first since January. 
In response, Davis and lawmakers cobbled together a plan to set new, lower 
rates for alternative power and to fine the utilities if they refuse to pay 
these companies, which supply up to a third of the state's power. 
But Republicans refused to back the measure and said it contained too many 
complex parts that needed more time to analyze. 
``Everyone in this room knows that this piece of legislation has not had a 
good look,'' said Assemblyman George Runner, R-Lancaster. 
Assemblyman Fred Keeley, D-Santa Cruz, castigated the Republicans and 
implored them to accept an imperfect solution. 
``Ladies and gentlemen: Welcome to the NFL,'' he said. ``Welcome to the world 
where large, complex issues don't have a simple solution.'' 
Approval is needed before state regulators at the Public Utilities Commission 
can vote on the fine points of the plan. That was supposed to happen Tuesday. 
Much of the criticism focused on concerns raised by power plants that use 
natural gas to produce energy. Administrators from those plants said the 
Davis price caps would make it impossible for them to break even. 
The derailment came hours after the measure narrowly won approval in the 
state Senate. 
Hertzberg plans to search for a compromise today and canceled plans for the 
Assembly's annual trip to Washington. 
Thursday's actions were highlighted by angry attacks on the utilities by 
frustrated lawmakers. 
``I hope they do go bankrupt,'' shouted Senate President pro tem John Burton, 
D-San Francisco, during a debate on the energy crisis. ``Let them go belly 
up. I don't care any more.'' 
Legal decision adds twist 
The legislative failure was compounded by a legal decision in Southern 
California that further complicated the picture. 
A Superior Court judge in Imperial County cleared the way for CalEnergy 
Operating Corp. to break its contract with Edison and sell its 268 megawatts 
of power on the open market. The judge concluded that Edison had breached its 
contract by failing to pay CalEnergy since November. 
That ruling could pave the way for hundreds of others to follow suit and 
drain off power California needs to prevent blackouts. 
``It's not good,'' said V. John White, director of the Center for Energy 
Efficiency and Renewable Technologies. ``This is potentially going to change 
the dynamics of the situation, and probably not for the better.'' 
Jan Smutny-Jones, executive director of the Independent Energy Producers 
Association, said it was unclear whether other companies would sue. 
``I think this is a very significant development,'' he said. ``We're sort of 
at a period where the industry's reaching the end of the rope.'' 
The ruling did have one silver lining: CalEnergy Chairman David Sokol said 
his company and seven others had planned to force Edison into bankruptcy if 
they lost in court. 
But he also warned, ``You stick a sharp stick in enough people's eyes, and 
they get pretty tired of it.'' 
The situation with generators supplying PG&E isn't as dire since the company 
has been making partial payments. 
Kent Burton, senior vice president for Covanta Energy Corp. in New Jersey, 
said, ``They've tried to be responsive.'' 


Mercury News Staff Writer Mark Gladstone contributed to this report. Contact 
Dion Nissenbaum at dnissenbaum@sjmercury.com or (916) 441-4603 or Jennifer 
Bjorhus at jbjorhus@sjmercury.com or (408) 920-5660.