Please see the following articles:

Sac Bee, Fri, 7/6: Two more say Duke withheld power: 
The company says it was responding to the state grid operator

Sac Bee, Fri, 7/6: Lockyer seeks SEC investigation of PG&E's financial 
transfers

LA Times, Fri, 7/6: California State Seeks SEC Probe of PG&E Transfers

LA Times, Fri, 7/6: THE NATION Little Progress on Energy Rebate, Judge Hints

SF Chron, Fri, 7/6: Davis energy team denied pay 
State controller says work for Edison is a conflict of interest

SF Chron, Fri, 7/6: Ex-staff speaks out against Duke 
Two more charge prices manipulated

SF Chron, Fri, 7/6: Vallejo to produce its own energy 
Conservation, generators expected to make city self-sufficient

Mercury News, Fri, 7/6: SEC asked to see if PG&E Corp. violated law with 
subsidiary 

Mercury News, Fri, 7/6: Judge may speed up electricity refund talks

Mercury News, Fri, 7/6: Davis keeps state addicted to fossil fuels  
(Commentary)

Chicago Trib, Fri, 7/6: Economics fuels power solution in California Price 
relief gains political support

Wash. Post, Fri, 7/6: California Changes Stance on Refunds; Two Sides Far 
Apart In Energy Talks

WSJ, Fri, 7/6: U.S. Hearing Officer May Impose Pact
To End California Power-Overcharge Case

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Two more say Duke withheld power: The company says it was responding to the 
state grid operator.
By Kevin Yamamura
Bee Capitol Bureau
(Published July 6, 2001) 
Two more former workers from a Duke Energy power plant came forward Thursday 
to bolster recent claims by colleagues that the power generator withheld 
production to drive up prices. 
But Duke attributed witness accounts of fluctuating generation to 
instructions from the state's transmission-grid operator. 
Richard J. Connors, an auxiliary operator, and E. Robert Edwards, an 
electrician, said generation units at Duke's Chula Vista plant sat idle 
during emergency periods for no apparent reason. 
Three of their former co-workers -- two mechanics and a control room operator 
-- told lawmakers two weeks ago that Duke had disposed of new parts and 
varied its production. 
While that testimony drew significant attention, it was countered Monday by a 
report released by the state's Independent System Operator that showed the 
ISO had in fact ordered Duke's up-and-down output Jan. 16-18. 
On Thursday, the Charlotte, N.C.-based company leaned on the ISO report in 
its defense. 
"The ISO could have dispatched those units at will," said Duke spokesman Tom 
Williams, referring to unused equipment. 
But Lt. Gov. Cruz Bustamante, who has filed a lawsuit against generators, 
contended that the ISO had based its orders on Duke's dubious bidding 
history. 
"These ISO orders came only after Duke had continuously manipulated the 
market with price-gouging schemes forcing the ISO to regulate production," 
Bustamante said. 
Connors and Edwards each worked more than 20 years at the South Bay plant in 
Chula Vista. 
For most of that time, the plant was owned by San Diego Gas & Electric. Two 
years ago, Duke purchased South Bay and retained Connors and Edwards under 
state-mandated agreements that ended in April. 
Edwards said that during power blackouts in January, he saw a 225-megawatt 
unit off-line. Other units, he said, were operating far below capacity. 
"Our No. 1 priority in life was to make money," Edwards said. 
Williams rebutted the claims as observations from those "who did not have the 
complete picture." 
"It's dead on, dead true that there are times when that plant is not running 
at full capacity and there is a Stage 3," Williams said. "There may be 
blackouts in San Francisco. But the reason why it's not running is because 
the power can't move up Path 15 (a north-south bottleneck)." 
Bustamante, however, maintained that Duke has continued to manipulate the 
market, calling Connors and Edwards the "tip of the iceberg" in the 
price-gouging investigation. 
State Sen. Joe Dunn, D-Santa Ana, chairman of the Senate committee 
investigating price manipulation, said Connors and Edwards may testify before 
lawmakers after further evaluation. 
Dunn added that his committee has talked to potential whistleblowers from 
other power generators who said they have seen production decreases and 
suspicious activities. It is undetermined whether they will testify, he said. 

The Bee's Kevin Yamamura can be reached at (916) 326-5542 or 
kyamamura@sacbee.com. 




Lockyer seeks SEC investigation of PG&E's financial transfers 
By Ed Fletcher
Bee Capitol Bureau
(Published July 6, 2001) 
State Attorney General Bill Lockyer on Thursday asked the federal Securities 
and Exchange Commission to scrutinize financial transfers made to PG&E Corp. 
from its subsidiary that has filed for bankruptcy protection. 
"SEC scrutiny is essential to protect the public interest, ratepayers and the 
people of the state of California," Lockyer said in a prepared statement. 
Charges that PG&E Corp. hastened the bankruptcy filing of Pacific Gas and 
Electric Co. have been made before, responded Greg Pruett, a vice president 
of PG&E Corp. 
"That is an issue that has been investigated multiple times by the Public 
Utilities Commission earlier this year, by an Assembly oversight committee, 
and in each of these audits there has been no conclusion that the transfers 
were inappropriate or that they were injurious to PG&E Co.," Pruett said. 
In its filing with the SEC, the attorney general's office said that "without 
meaningful review by the SEC, it cannot be determined what impact the 
transfer of assets ... may have on the financial condition of the bankrupt 
utility." 
An SEC spokesman said the commission has yet to examine the petition. 
Among other concerns raised by Lockyer's office is the transfer of more than 
$4 billion from 1997 to 1999 to PG&E Corp. from PG&E Co. 
The majority of the $4 billion came from the sales of PG&E power plants, as 
was required by deregulation. 
"The bulk of the money went to pay debt that was incurred to actually build 
those plants," Pruett said. 
The rest of the transfers were to pay stockholder dividends, he said. 
PG&E filed for Chapter 11 bankruptcy protection in April after having run up 
$6.6 billion in debt. 

The Bee's Ed Fletcher can be reached at (916) 326-5548 or 
efletcher@sacbee.com. 





Business; Financial Desk 
California State Seeks SEC Probe of PG&E Transfers
NANCY RIVERA BROOKS
? 
07/06/2001 
Los Angeles Times 
Home Edition 
Page C-2 
Copyright 2001 / The Times Mirror Company 
California Atty. Gen. Bill Lockyer on Thursday asked the Securities and 
Exchange Commission to investigate PG&E Corp. for potential abuses of its 
responsibilities as a utility holding company. 
At issue is a series of transactions over the last several years in which 
PG&E Corp. transferred funds from its utility, Pacific Gas & Electric Co., 
which now is operating under Bankruptcy Court protection. The money--more 
than $4 billion since 1997--flowed to the parent company and to unregulated 
sister companies of the utilities. 
The transfers have been scrutinized by the California Public Utilities 
Commission and the state Legislature with no finding of wrongdoing, said PG&E 
Corp. spokesman Greg S. Pruett. 
The SEC currently exempts PG&E from almost all requirements of the Public 
Utility Holding Company Act because the San Francisco utility operates 
primarily within California . That law regulates transactions between holding 
companies and their utility subsidiaries. 
Lockyer wants the SEC to withdraw PG&E's exemption, citing $13 billion in 
PG&E assets outside of California . 
"All the primary evils addressed by PUHCA are relevant to PG&E Corp.," 
Lockyer's petition to the SEC stated. 
In Bankruptcy Court on Thursday, PG&E said it is close to reaching an 
agreement with Calpine Corp. to pay more than $267 million it owes the San 
Jose-based power generator and to preserve contracts for 453 megawatts of 
relatively cheap electricity . 
In all, PG&E buys about 2,600 megawatts of electricity from nearly 25 
alternative generators, which are seeking repayment and release from their 
contracts through Bankruptcy Court.









National Desk 
THE NATION Little Progress on Energy Rebate, Judge Hints
RICARDO ALONSO-ZALDIVAR
? 
07/06/2001 
Los Angeles Times 
Home Edition 
Page A-30 
Copyright 2001 / The Times Mirror Company 
WASHINGTON -- The federal mediator seeking a settlement for billions of 
dollars in alleged electricity overcharges in California signaled Thursday 
that the talks are in trouble, and analysts said hope for a deal seems to be 
fading. 
Curtis L. Wagner Jr., chief judge of the Federal Energy Regulatory 
Commission, said he may issue a report on the closed-door talks as early as 
today if he sees no progress. 
"The judge will perhaps issue a preliminary assessment of the talks," said 
Tamara Young-Allen, a spokeswoman for FERC. "He will do this only if he feels 
the talks aren't moving along as he sees fit." 
Originally, a preliminary report from the judge was not part of the plan. 
Wagner had previously said all sides would labor in private through the 
weekend to try to get a deal by Monday's midnight deadline. If that failed, 
the judge said he would take seven days to craft a proposed settlement for 
FERC's governing board. 
Kit Konolige, a power industry analyst with Morgan Stanley in New York, said 
Wagner's announcement on Thursday amounted to a judicial distress signal. 
"The judge wouldn't say something like this if the parties were close to a 
settlement," said Konolige. "I suppose he may be trying to jump-start things, 
but I think most people believed the sides were so far apart going into the 
talks that it seemed like a long way to go to reach a settlement." 
Although Wagner has imposed a gag order on participants, several people with 
knowledge of the negotiations said Thursday that major power generators and 
California officials have not budged from dug-in positions since the talks 
began last week. 
They also said the judge is extremely frustrated with the state and with 
several large power suppliers. 
California is demanding $9 billion in refunds. According to sources, the 
generators have offered less than $1 billion. And some major power sellers 
are insisting they do not owe anything. 
Many experts say California has little hope of obtaining the $9 billion since 
only $5.4 billion of that is attributable to sellers under FERC's 
jurisdiction. On the other hand, it seems clear from statements by FERC 
commissioners that the board is prepared to extract significant refunds from 
generators. 
Wagner is said to be probing for a compromise figure between $1 billion and 
$9 billion. It could take the form of a mix of cash payments and discounts on 
long-term contracts for power. 
FERC's governing board ordered Wagner to hold the talks to see if a 
compromise could be struck on three big issues: refunds, guarantees that 
generators will be paid, and ways to shift more of the state's power 
purchases to long-term contracts. 
The board also made clear that it would impose its own settlement if the 
state and power sellers were unable to come to an agreement. 
Wagner said Thursday that if he issues a preliminary report today, he will 
give all the parties a chance to respond publicly on Monday. Such a report 
might embarrass some of the key players, since Wagner is known for his 
plain-spoken conclusions. The judge would then prepare a settlement 
recommendation for the FERC board by July 16. 
However, he also said he is willing to work through the weekend to reach a 
settlement if it appears within striking distance. 
The talks are in a large hearing room on the second floor of the FERC 
building near Washington's Union Station. Access is strictly controlled and 
special badges have been issued to the more than 140 lawyers participating. 
Some people with knowledge of the negotiations said Wagner's threat to issue 
a report may be a bid to see if one of the parties will make a move. 
"It was like a shot across the bow," said one source. 
* 
RELATED STORIES 
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SEC probe: The state urges a review of PG&E fund transfers. C2 
'No' vote: Reliant Energy workers reject union representation. C2 







Davis energy team denied pay 
State controller says work for Edison is a conflict of interest 
Robert Salladay, Chronicle Sacramento Bureau
Friday, July 6, 2001 
,2001 San Francisco Chronicle 
URL: 
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/07/06/M
N198197.DTL 
Sacramento -- State Controller Kathleen Connell is refusing to pay two former 
Clinton- Gore campaign operatives hired by Gov. Gray Davis, even though one 
of the consultants dropped his Southern California Edison contract amid 
conflict-of- interest allegations. 
Mark Fabiani and Chris Lehane were collectively known as the "Masters of 
Disaster" for their work in the Clinton White House during various federal 
investigations. They also worked for Vice President Al Gore during the 2000 
presidential campaign. 
Because of their work for Davis, Connell says the contract Fabiani and Lehane 
signed with Edison is a conflict of interest under state ethics rules. Davis 
is negotiating with Edison on a bailout for the utility. 
Late last week, at the bottom of a press release, Davis announced that 
Fabiani was no longer a communications consultant because his work had been 
"successfully implemented." Lehane, on the other hand, has dropped his 
contract with Edison and signed a new agreement with Davis. 
Lehane's new contract includes reimbursement for travel and meal expenses, 
which he didn't have before, and requires him to work a maximum of 66 hours a 
month at $150 an hour. His total payments are capped at $76,000 for work from 
June 26 to Nov. 20, 2001. 
In his release, Davis said Lehane would be paid the same amount as former 
communications director Phil Trounstine, about $9,900 a month. But Connell, 
like Davis a Democrat, said Trounstine undoubtedly worked more than 66 hours 
in a month for his $9,990. 
"We don't intend to be paying it," Connell said of the contract for both men. 
"They represented Southern California Edison. You have to have a singular 
relationship with the state of California and not show a conflict." 
Previously, the Davis administration said there was no conflict because 
Edison and Davis wanted the same things out of their negotiations. Earlier 
this week, Davis spokesman Steve Maviglio said attorneys had different 
opinions over whether the two consultants had violated ethics rules. 
Davis spokeswoman Hilary McLean said the governor had signed an executive 
order allowing him to enter into consulting contracts with anyone he believed 
could help him solve the state's energy crisis. She said Lehane had been 
working full-time on public policy, even though his contract caps his salary. 
The National Tax-Limitation Committee, a Sacramento group that mostly 
monitors legislation, sued last month alleging that Fabiani and Lehane were 
violating the state Political Reform Act because of the Edison contract. 
In a recently filed disclosure statement, Fabiani also listed more than $10, 
000 worth of consulting work for Cisco Systems, another company that 
frequently brings issues before state authorities, including Davis. 
The state Fair Political Practices Commission also is looking into a 
complaint filed by GOP Secretary of State Bill Jones that Fabiani and Lehane 
violated state ethics rules. 
E-mail Robert Salladay at rsalladay@sfchronicle.com. 
,2001 San Francisco Chronicle ? Page?A - 3 





Ex-staff speaks out against Duke 
Two more charge prices manipulated 
Robert Salladay, Chronicle Sacramento Bureau
Friday, July 6, 2001 
,2001 San Francisco Chronicle 
URL: 
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/07/06/M
N122949.DTL 
Sacramento -- Two more former employees at Duke Energy's Chula Vista power 
plant came forward yesterday with allegations that the company manipulated 
the energy market to drive up prices, although they offered no hard proof and 
little new information. 
Their accusations bring to five the number of Duke plant workers who say they 
observed suspicious behavior, including the disappearance of parts needed for 
repairs, the idling of generators for no apparent reason, and continual 
stopping and starting that critics of Duke suspect was designed to withhold 
power and artificially increase prices. 
E. Robert Edwards, a 50-year-old electrician, related one conversation with a 
Duke foreman sometime in January that prompted suspicion. 
"I asked the foreman why Unit 4 wasn't running," Edwards said yesterday at a 
press conference. "We had a 225-megawatt generator sitting there, and he just 
shrugged his shoulders and said, 'I really can't tell you. I'm not privy to 
that information.' " 
State lawmakers have been focusing on whether Duke manipulated prices during 
three days in January, when the company at one point offered a single 
megawatt of power for a record-shattering $3,880. Duke says it was following 
orders from the Independent System Operator, which runs the state's power 
grid, 
when it repeatedly turned its generators on and off during those three days. 
An ISO memo recently released by Duke confirms the company's contention it 
was under orders. But January logs from the ISO and the generators don't 
offer an explanation for every allegation of price manipulation, since Duke 
has refused to release a detailed list of the prices it offered and paid 
during that period. 
The two workers who came forward yesterday, Edwards and 46-year-old Richard 
J. Connors, both worked more than 20 years in the business. They left the 
South Bay Plant in Chula Vista in April, two years after Duke purchased it 
from San Diego Gas & Electric as part of deregulation. 
SOME SHIFTS UNPOPULAR
"It is true units were taken offline, mostly on the weekends for whatever 
reason," said Connors, a former auxiliary operator. "It got to the point as 
an operator that you were dreading working swing shifts on Sunday or 
graveyard Monday morning because you knew you were going to be running around 
putting units back online." 
Edwards said he had seen a company warehouse eventually emptied of parts that 
are used to repair broken generators, although he didn't know where the parts 
went. Forcing a longer wait for repair parts was designed to dry up the power 
supply and push prices higher, lawmakers and other investigators suspect. 
Edwards, however, admitted the warehouse was being cleaned out even when 
SDG&E ran the plant. Duke contends the workers weren't familiar with Duke's 
inventory system and couldn't possibly know why parts were being moved. 
Duke and other energy companies are facing scrutiny by two legislative 
committees, a 19-member Sacramento County grand jury, state Attorney General 
Bill Lockyer, the California Public Utilities Commission and federal 
regulators. 
BUSTAMANTE ALSO SUING
Lt. Gov. Cruz Bustamante, who introduced Edwards and Connors yesterday, also 
is suing a variety of generators in state court for alleged price 
manipulation and bad business practices. He said Edwards and Connors 
"reiterated what we've know all along -- Duke has been gouging California 
consumers through its use and abuse of the South Bay Plant." 
Duke offers a variety of defenses for its actions during the three days in 
January and throughout the energy crisis. Tom Williams, a spokesman for Duke, 
said Edwards and Connors had offered nothing new yesterday. 
Beyond the ISO's 37 separate orders to stop and start generators during the 
three days in January, Williams said state air regulations required the 
company to shut the plant at certain times because it was running out of 
emissions credits that limit the amount of air pollution it can put out. 
Duke, which controls about 5 percent of the state energy market, also 
contends the state's power transmission lines can't always handle an increase 
in load. 
"Yes, it's true there are times when that plant is not running at full 
capacity, and there is a Stage Three (alert), and there may be blackouts in 
San Francisco," Williams said. "The reason why it's not running is the power 
cannot move up Path 15," the transmission line bottleneck near Los Banos. 
E-mail Robert Salladay at rsalladay@sfchronicle.com. 
,2001 San Francisco Chronicle ? Page?A - 3 




Vallejo to produce its own energy 
Conservation, generators expected to make city self-sufficient 
Jason B. Johnson, Chronicle Staff Writer
Friday, July 6, 2001 
,2001 San Francisco Chronicle 
URL: 
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/07/06/M
N138966.DTL 
Vallejo leaders, looking to escape mounting gas and electric bills, are 
planning to build enough new power generators that the city government will 
be self-sufficient when it comes to energy. 
City officials said they believe that Vallejo is the first city in the nation 
to take such an approach. 
"This is going to be a showplace," said Scott Sossen, the chief executive 
officer of Edge Capital Group, a funding agency based in Orange County. Edge 
will be supervising the work along with O'Hara Energy Corp. of Nevada. 
The plan comes at a time when the city expects to see its energy costs double 
next year if it continues buying its power from PG&E. 
"It couldn't be more timely," said Mayor Tony Intintoli. 
Vallejo leaders are in the process of contracting with private business to 
build new wind, solar and microturbine generators. Construction of a one- 
megawatt solar generator could start within 30 to 60 days. 
Conservation is also part of the plan, and energy-efficiency improvements are 
already under way at Vallejo City Hall and the fire and police stations. 
City officials hope to add enough sources of power generation to make all 
city offices -- which consume about 10 megawatts a year -- self-sufficient by 
the end of the year. 
The Vallejo City Council gave tentative approval to the project late last 
month and will continue its discussions on the plan next week. 
Vallejo taxpayers won't have to pay any money in advance, because Edge will 
finance the project's first $50 million in capital costs. 
In return, a portion of the city's projected financial savings will be shared 
with the Edge and O'Hara. 
"This is a fairly sizable project," said Kevin Chambers, the chief executive 
officer at O'Hara. "Energy-efficient capital is difficult to find because it 
is such a new field." 
O'Hara is installing high-tech energy management systems at all city-owned 
property to reduce energy consumption. Final sites for the construction of 
new wind, solar and microturbine generators have not been chosen. 
In recent years, the energy bill for Vallejo city government has averaged 
between $2 million and $3 million per year. That includes the police and fire 
departments, City Hall and water-pumping stations. 
Vallejo is part of a group of 50 local governments in Northern California 
that pooled their resources to buy electricity and natural gas, keeping 
prices down. But the group's current contract expires Dec. 30. 
As a result, the city expects its energy bill to double next year, from 9.2 
cents per kilowatt hour to 20 cents per kilowatt hour. 
"It's been very positive what we've been doing, and it hasn't cost us 
anything," said City Manager David Martinez. "We're going to be very 
optimistic that this is going to be a good thing for the city." 
City officials hope to eventually extend the plan to Vallejo's 4,500 
businesses and 37,000 households. 
E-mail Jason B. Johnson at jbjohnson@sfchronicle.com. 
,2001 San Francisco Chronicle ? Page?A - 23 









SEC asked to see if PG&E Corp. violated law with subsidiary 
Published Friday, July 6, 2001, in the San Jose Mercury News 
BY JENNIFER BJORHUS 

Mercury News 


California Attorney General Bill Lockyer asked the federal Securities and 
Exchange Commission on Thursday to step in to investigate whether PG&E Corp. 
violated federal law in taking billions of dollars from its bankrupt 
subsidiary. 
``SEC scrutiny is essential to protect the public interest, ratepayers and 
the people of the state of California,'' Lockyer said in a statement. 
More than $4 billion flowed from the Pacific Gas & Electric utility to parent 
PG&E Corp. from 1997 to 1999, according to Lockyer's petition, representing 
nearly 70 percent of the cash that flowed to the parent company during that 
period. PG&E Corp. spent $2.7 billion to buy back its stock, $1.5 billion to 
pay dividends to shareholders and invested $800 million in its other 
subsidiaries, according to the petition filed Thursday in Washington. 
Those figures are similar to figures from a state-ordered independent audit 
of PG&E Corp.'s finances released in late January. 
By moving assets from the utility to other businesses, the company 
potentially harmed the utility and violated the federal Public Utility 
Holding Company Act in several ways, according to the petition. 
The SEC is the nation's top cop for publicly held companies. But the 
commission has not reviewed PG&E Corp.'s asset movements, saying the company 
is exempt from scrutiny under the Public Utility Holding Company Act because 
it's mainly a California operation and such intrastate operations are exempt. 
The attorney general's office argues that PG&E Corp., with more than $13 
billion of its assets outside the state, can no longer claim it is primarily 
an intrastate company. The SEC should step in, it argues. 
The petition surprised PG&E Corp. officials, who said they had no idea the 
attorney general's office had an issue with the company's exemption from the 
federal law, said company spokesman Greg Pruett. 
Pruett said PG&E Corp.'s actions were appropriate because the federal utility 
law only applies if a company has one or more of the following activities in 
several states: electric transmission and distribution, gas distribution or 
utility-owned generation. 
``We have none of those things except in California,'' Pruett said, adding 
that the National Energy Group, a PG&E Corp. affiliate, ``has natural gas 
transmission but no distribution.'' 
``The power plants that NEG owns or operates are not part of a utility and 
thus aren't regulated by PUCHA, and it has an energy-trading arm that is also 
not regulated by PUCHA,'' he said. 
The petition further asks the SEC to order PG&E Corp. to cooperate fully with 
the California Public Utilities Commission. The state commission is 
investigating whether PG&E Corp.'s corporate structure and its relationship 
with its bankrupt utility violate state utility regulations. 
The petition states it expects a response from the SEC within 60 days. 
But SEC spokesman John Heine said there's no statutory deadline for a 
response. He said he had not seen the petition and could not comment. 


Contact Jennifer Bjorhus at jbjorhus@sjmercury.com or (408) 920-5660. 














Judge may speed up electricity refund talks 
Published Friday, July 6, 2001, in the San Jose Mercury News 
BY RICARDO ALONSO-ZALDIVAR 

Los Angeles Times 


WASHINGTON -- A federal mediator seeking a settlement for billions of dollars 
in alleged electricity overcharges in California signaled Thursday that the 
talks are in trouble. 
Curtis L. Wagner Jr., chief judge of the Federal Energy Regulatory 
Commission, said he may issue a report on the closed-door talks as early as 
today if progress is not made. 
``The judge will perhaps issue a preliminary assessment of the talks,'' said 
Tamara Young-Allen, a FERC spokeswoman. ``He will do this only if he feels 
the talks aren't moving along as he sees fit.'' 
Wagner had previously said all sides would labor in private through the 
weekend to try to get a deal by the deadline of Monday at midnight. If that 
failed, the judge said, he would take seven days to craft a proposed 
settlement for FERC's governing board. 
California is demanding $9 billion in refunds. According to sources, the 
generators have offered less than $1 billion. 
Wagner is said to be probing for a compromise figure that could take the form 
of a mix of cash payments and discounts on long-term contracts for power.














Davis keeps state addicted to fossil fuels 
Published Friday, July 6, 2001, in the San Jose Mercury News 
BY JOE COSTELLO 
BEFORE this year's energy ``crisis,'' Gray Davis wanted to be known as the 
education governor. However, Davis and his advisers' energy teachings have 
revealed alarming failures, setting back state energy policy not one or two 
years, but one or two decades. 
While George W. Bush proposed an energy policy tied to fossil fuels, 
disproportionate building of centralized generation plants, too little energy 
efficiency, lowering environmental standards and increased global warming 
emissions, Davis enacted it. 
First, Davis has tied the state for the next decade or longer to contracts 
with facilities that are exclusively fossil fuel generation. Second, he has 
encouraged an unprecedented surge in the building of new centralized fossil 
fuel plants. Finally, he has pushed the lowering of environmental standards 
to increase production from the dirtiest fossil fuel facilities. 
The state's new energy purchasing department has spent zero on renewable 
generation. David Freeman, the governor's energy czar, giving lip service to 
alternatives, has negotiated close to $50 billion in long-term contracts with 
fossil fuel generators. 
By comparison, the governor has authorized investment of only $13 million in 
expanding solar generation. Photovoltaic cells produce electricity directly 
from the sun's energy, offering a clean, efficient solution to the state's 
future peak energy demand. While the governor talks a lot about energy 
efficiency, the state's funding of demand programs is about 1 percent of the 
funding for supply. Most egregious, the vast majority of state energy 
efficiency money is funneled back to the utilities. 
While environmentalists deride the Bush administration proposals, in 
California organizations such as the Natural Resources Defense Council 
actively support Davis' fossil fuel energy policy. 
The Davis energy policy has stuck California with the same old electric 
system for at least the next decade. Money has literally been burned instead 
of invested in innovation and creation of a cleaner and more efficient 
system. The best hedge against price spikes is a diversity of fuel sources, 
unfortunately California's electric system is now tied to an even greater 
degree to fossil fuels. 
After binding the state economy to the past, the Davis end game is logical. 
Davis and his energy advisers want to spend tens of billions of dollars for 
the utilities' restoration -- the very companies that for so long stifled 
industry innovation and remain most responsible for California's energy 
fiasco. 
There is still an opportunity to make the best out of a bad situation. 
Instead of bailing out the utilities, they should be dismantled and sold off. 
A combination of a dozen or so local government and publicly owned companies 
should be created with a goal of innovating the industry. An auction could be 
held that would sell customer blocks and with it the state's long-term 
contracts. Choice should be reinstated with the lifting of the suspension on 
direct access to alternative suppliers. 
Instead of moving the state to the next level of energy development, the 
education governor's remedial energy teachings will force California to 
repeat its energy lessons. 


Joe Costello is an energy and communications consultant based in Larkspur. 











Business 
Economics fuels power solution in California Price relief gains political 
support
Robert Gibbons, BridgeNews
? 
07/06/2001 
Chicago Tribune 
North Sports Final ; N 
Page 3 
(Copyright 2001 by the Chicago Tribune) 
Political pressure coming from the U.S. Congress and politicians from Western 
states seems to have influenced the approach to the power crisis, despite 
opposition to price caps in the Bush administration. 
The Federal Energy Regulatory Commission in June expanded price mitigation 
measures on wholesale electricity sales in California during periods when 
blackouts are possible. 
The measures encourage generators to sell power into the state to prevent 
emergency alerts from being declared, which trigger price caps. The move came 
with support growing in Congress, especially among representatives of Western 
states on both sides of the aisle, for legislation that would have capped 
wholesale prices in the region. 
The macroeconomic force may have been the difference between the $7 billion 
cost of power for California in 1999 and its rise to approximately $27 
billion in 2000. The cost is estimated to reach between $50 billion and $70 
billion in 2001. 
With that kind of money at stake, suddenly the concern becomes less a 
question of who is responsible for the problem, but rather, how it can be 
solved quickly to prevent harsh political consequences. 
California Atty. Gen. Bill Lockyer has conducted an investigation into the 
actions of power generators and offered multimillion dollar rewards to 
whistleblowers to provide evidence of price manipulation by independent power 
generators. The state is seeking refunds of $8.9 billion, the amount it 
estimates independent power generators overcharged California 's troubled 
utilities. 
The U.S. General Accounting Office has released a report criticizing the FERC 
for not finding evidence of power generators using plant outages to drive up 
prices in California . 
"FERC's [February] study was not thorough enough to support its overall 
conclusion that audited companies were not physically withholding electricity 
supply to influence prices," the GAO found. 
Of the major independent power generators and marketers, like Reliant Energy, 
Dynegy, Duke Energy and Enron, only Williams and its CEO Keith Bailey came 
out in April in favor of some sort of short- term price relief for California 
. 
"The political dynamic out there is much more Draconian than what we're 
proposing," Bailey told analysts in April, defending Williams' position 
supporting some limited, short-term price mitigation. 
What he was worried about was California Gov. Gray Davis using eminent domain 
powers to take over power plants and the state setting up a public power 
authority to build state-owned plants. 









Financial 
California Changes Stance on Refunds; Two Sides Far Apart In Energy Talks
Peter Behr
? 
07/06/2001 
The Washington Post 
FINAL 
Page E01 
Copyright 2001, The Washington Post Co. All Rights Reserved 
California officials have abruptly shifted tactics in their attempt to 
recover billions of dollars in alleged overcharges for electricity , saying 
they may reduce their demands for huge refunds if generators renegotiate $43 
billion in long-term electricity contracts that the state signed this year. 
Gov. Gray Davis (D) said part of the $8.9 billion in refunds the state is 
seeking could be offset by reductions in energy prices in the long-term 
contracts, whose costs have become a growing political embarrassment for 
Davis. 
"We've made suggestions, we've offered various ways in which people could get 
us $8.9 billion," Davis told the San Jose Mercury News in a report yesterday. 
"You can renegotiate our existing contracts and save us money. However you 
want to do it, it's just got to net out close to $8.9 billion." 
The new offer was introduced this week into the closed negotiations over a 
California settlement being conducted in Washington by Federal Energy 
Regulatory Commission Judge Curtis L. Wagner Jr., according to sources close 
to the negotiations. 
Yesterday, Wagner said he may issue his own preliminary finding today on the 
amount of overcharges if California officials and the generators cannot reach 
a compromise. 
"What I'm trying to do is get people in a settlement mood," Wagner told 
reporters. "In the event we're unable to do that, [Friday] at some point I 
may offer a preliminary assessment." The settlement conference is set to 
conclude on Monday. 
Wagner, FERC's chief administrative judge, has been trying to push both sides 
toward a compromise that would resolve the huge energy pricing controversy. 
Mountainous energy prices have bankrupted California 's largest utility, 
drained billions of dollars out of the state treasury and put Davis at 
sword's point with generators that help keep the state's lights on. 
Last Friday, Wagner rebuked Davis's chief representative, Michael Kahn, 
chairman of California Independent Grid Operator -- the state's power grid 
manager -- indicating that the state's demand for nearly $9 billion in 
refunds from power generators and marketers was too high, sources said. 
Wagner's settlement conference, which has involved more than 100 lawyers for 
all sides, is closed to the public and media. 
Wagner complained last month that Kahn was following a political agenda, and 
his lack of independence in the negotiations was such a "joke" that the 
parties might as well wear "clown suits," according to a Dow Jones report 
confirmed by sources close to the talks. 
But he has also criticized the generators and power marketers, led by Reliant 
Energy Inc., Williams Energy Services, Duke Energy and Southern Co., for 
failing to make serious settlement offers, these sources said. The suppliers 
have offered to refund $600 million, provided the state is able to call off 
various California lawsuits demanding far larger refunds, sources said. 
Wagner's leverage is his ability to propose his own refund figure to FERC's 
commissioners. FERC has tentatively called for $124 million in refunds, but 
now is taking a harder line on preventing a new escalation of California 's 
electricity prices this summer and is likely to be receptive to a higher 
refund figure, some energy analysts believe. 
Davis's tactical change, offering to make the long-term contracts part of an 
overall settlement, comes amid growing criticism of what the state will have 
to pay for energy under those deals. 
California 's energy calamity stemmed in large part from its failed 
deregulation plan, which relied heavily on short-term power purchases at 
volatile "spot market" prices. When energy costs shot upward last summer, so 
did the state's electricity bills. 
In response, Davis's aide, S. David Freeman, and his staff began negotiating 
long-term power contacts with suppliers. The $43 billion in deals signed so 
far would require the state to pay about $70 per hour for a megawatt of power 
for a large part of the electricity it will need over the next 10 years. 
That's well under the average of $250 per megawatt-hour that the state was 
paying at the beginning of this year, but above current power prices -- and 
considerably higher than what electricity may cost in the next decade, energy 
analysts say. 
A new agreement to lower those contract prices could relieve political 
pressure on Davis and focus settlement negotiations away from the state's 
controversial demand for the $8.9 billion refund. Davis will argue that 
reducing future power charges that his administration negotiated should count 
as a "refund" because the deals were reached "under commercial duress," 
according to sources close to Wagner's negotiations. 
Industry supporters say Davis's refund figure is impossible to justify. 
"There's no benchmark for what a fair and reasonable price should be," said 
Michael Zenger, California director of Cambridge Energy Research Associates. 
The state's advocates counter that if FERC enforced a "just and reasonable" 
standard for power prices based on operating costs and a generous profit, the 
overcharges by all sellers could easily reach the $9 billion figure. 
"It's not rocket science, but it does require the regulators to regulate," 
said Frank Wolak, a Stanford University economist who heads an oversight 
committee for the California grid. 
Those polar-opposite views have left both sides in Wagner's conference room 
"billions of dollars apart," as the talks approached their final weekend, 
sources said. 

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Contact: http://www.washingtonpost.com 











Politics & Policy 

U.S. Hearing Officer May Impose Pact
To End California Power-Overcharge Case
By Richard B. Schmitt
? 
07/06/2001 
The Wall Street Journal 
Page A10 
(Copyright (c) 2001, Dow Jones & Company, Inc.) 
WASHINGTON -- With settlement talks apparently stalled, a federal hearing 
officer said he may propose his own solution to settle billions in alleged 
electricity overcharges tied to the California power crisis. 
Curtis L. Wagner Jr. said he was still "optimistic" California officials and 
several power companies could come to terms on $8.9 billion in disputed 
electricity charges the state has incurred over the past year. 
Absent more-meaningful progress, he said he would offer his own "preliminary 
assessment" and recommendation as soon as today. 
In that event, Mr. Wagner also said, he would convene a hearing Monday where 
the two sides would be given the chance to comment on his plans. Mr. Wagner 
has previously indicated he feels California is due some refunds, but far 
less than the total the state claims. California is also indebted to the 
power companies for billions in previous deliveries; those debts could at 
least partially offset any refunds. Mr. Wagner has also said long-term 
contracts that would insulate the state from the sort of price shocks it has 
experienced over the past year could be part of any resolution. 
An administrative-law judge with the Federal Energy Regulatory Commission, 
Mr. Wagner was named by the panel two weeks ago to broker a peace of the 
overcharge dispute. 
Commission officials have given the parties until Monday to reach an 
agreement behind closed doors. After that, absent a settlement, the 
commission has ordered Mr. Wagner to report back with his findings and 
recommendations within a week. 
At that point, the commission has said it will impose a settlement of its own 
liking. 
The overcharge issue has been a flash point in the California debacle, with 
the state's governor, Gray Davis, calling the energy companies "pirates" and 
"marauders." 
The industry considers itself a scapegoat for a bungled state deregulation 
effort.