Please see the following articles:

Sac Bee, Thurs, 7/12: Enron files suit in contempt bid
Sac Bee, Thurs, 7/12: Davis' refund plan faces a tough road: Several experts 
say it's unlikely the FERC will buy the state's figures
Sac Bee, Thurs, 7/12: Energy Digtest: UC, CSU, Enron extend contract
Sac Bee, Thurs, 7/12: Energy consultants failed to file disclosures, Jones 
says
Sac Bee, Thurs, 7/12: Fudging at FERC: Feds must define 'just' energy 
charges  (Editorial)
SD Union, Thurs, 7/12: Big customers want to shop around -- and there's the 
rub 
SD Union, Thurs, 7/12: Senate panel, energy firm fighting tough
SD Union, Thurs, 7/12: Energy firm scraps plans for plant in Chula Vista 
SD Union, Thurs, 7/12: Governor tells FERC to be fair and then some
SD Union, Thurs, 7/12: Enron Corp. sues to block Senate from forcing document 
release
SD Union, Thurs, 7/12: Regulators want broad, regional power markets 
LA Times, Thurs, 7/12: Huntington Loses Battle on Generators
LA Times, Thurs, 7/12: Enron Gets 2nd Chance to Turn Over Documents
SF Chron, Thurs, 7/12: Coal futures to begin trading but analysts aren't sure 
it'll heat up energy markets 
SF Chron, Thurs, 7/12: Developments in California's energy crisis 
SF Chron, Thurs, 7/12: Enron files suit over subpoena 
Provider challenges move for documents
SF Chron, Thurs, 7/12: PUC cancels vote to drop voltage levels 
PG&E tells commission its electric distribution system is already operating 
at minimal power
SF Chron, Thurs, 7/12: Power regulators hold off on energy-savings plan 
SF Chron, Thurs, 7/12: Regulators order utilities to form regional systems 
Giant step toward national deregulation
SF Chron, Thurs, 7/12: Universities, Enron cut deal on electricity 
Prices 5% below limited rate 
Mercury News, Thurs, 7/12: Voltage cut won't work, PG&E warns
Mercury News, Thurs, 7/12: Energy dispute goes to court 
Individual.com (AP), Thurs, 7/12: Regulators Look to Develop Markets 
Chicago Tribune, Thurs, 7/12: For now, electricity crisis has dimmed
WSJ, Thurs, 7/12: Regulators Order Formation of Big Grids
To Optimize the Flow of Electricity in U.S.
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Enron files suit in contempt bid
By Emily Bazar
Bee Capitol Bureau
(Published July 12, 2001) 
State legislators pressed forward with contempt findings against Enron Corp. 
on Wednesday after the company failed to produce subpoenaed documents and 
filed a lawsuit asking the court to intervene on its behalf. 
Lawmakers on a special Senate committee investigating electricity price 
manipulation warned that the voluminous lawsuit, filed in Sacramento Superior 
Court, could have far-reaching implications for the Legislature's ability to 
conduct investigations and make findings. A few even suggested the legal 
action could trigger "a constitutional crisis" that could end up in the 
California or U.S. supreme court. 
"You are treading into the territory of asking a court to make judgment on 
the rules and the law governing the rights of the Legislature," said state 
Sen. Steve Peace, D-El Cajon. "It is a separation of powers issue of the 
highest order." 
Representatives from Enron, a power marketer based in Houston, said they are 
merely concerned that the committee has violated their due process rights. 
Enron and another company, Mirant, were initially found in contempt by the 
committee June 28 for refusing to turn over thousands of pages of documents 
that had been subpoenaed June 11. 
But the committee offered the companies a reprieve. If they complied with the 
subpoenas, signed confidentiality agreements and set up a document depository 
in Sacramento by Tuesday, the contempt findings would be expunged. 
Committee attorney Laurence Drivon reported at the hearing that Mirant had 
complied with the requirements, and had set up a document depository in the 
U.S. Bank building downtown. 
Mirant spokesman Patrick Dorinson said 159,000 pages of documents had been 
turned over in 44 boxes as of Wednesday morning. 
As a result, the panel voted to purge the contempt findings against Mirant, 
but said it would review the company's compliance again in about 30 days. 
Enron, however, did not turn over any documents or sign a confidentiality 
agreement since the last hearing, Drivon said, and negotiations yielded 
little progress. On a 6-0 vote, the panel agreed to move forward with 
contempt proceedings against Enron. 
As early as next week, the committee will forward a report to the Senate, 
which will vote on the contempt findings and levy punishments that could 
range from jail time for company officials to steep fines. 
The panel said Enron could still purge the contempt findings if it complies 
with the subpoena before the report is forwarded. 
But company officials fired back at the committee, accusing members of 
unfairly singling out Enron and treating it differently from other energy 
companies. 
"It is exceedingly difficult to discern whether the committee's actions are 
designed to uncover the facts underlying the price spikes in California's 
wholesale electric power market, or to create a convenient political 
scapegoat to shoulder the blame for California's policy mistakes," one 
official wrote to the committee. 
All along, Enron officials have said they have several objections to the 
committee's process. They believe the panel is violating the Federal Energy 
Regulatory Commission's jurisdiction in its investigation; that it isn't 
entitled to documents that are stored outside California; and that it doesn't 
have the right to the confidential information and trade secrets in the 
documents. 
They also argue that their due process rights have been violated because they 
received no response to their written objections to the subpoena before the 
June 28 contempt vote. 
The committee chairman, Sen. Joe Dunn, D-Santa Ana, overruled most of their 
objections Wednesday. However, Enron officials argued it's unfair for a 
committee member to rule on their objections. 
"It is a foregone conclusion that the objections are going to be overruled," 
Enron lawyer Michael Kirby said at the hearing. 
Officials believe an impartial third party should determine the merits of 
their concerns, which was a primary reason the company filed the lawsuit, 
said Enron spokeswoman Karen Denne. 
In the lawsuit, Enron seeks a court injunction to end contempt proceedings 
until the company's objections "have been duly considered and ruled upon by 
an impartial hearing officer." 
But Dunn said the Legislature's investigations are different from court 
inquiries, and so are its procedures. "The same due process concerns 
applicable to a court proceeding are not equally applicable to an 
investigation by the Legislature," he said. 
He denied the committee had singled out Enron, and said he believes Enron's 
lawsuit is really asking the court to force the Legislature to end its 
investigation. 
The committee is scheduled to consider contempt findings against other power 
companies next week. 
"Enron (has) raised, potentially, a constitutional crisis with this 
litigation," Dunn said. 
Constitutional scholar Clark Kelso said legislators clamoring about a 
constitutional crisis may be exaggerating. But Kelso, a professor at McGeorge 
School of Law in Sacramento, believes the suit should be dismissed because it 
is premature. He said the contempt process is still under way in the Capitol, 
and has yet to be acted upon by the Senate. 
Reacting to Enron's claims that an impartial third party should hear its 
objections, Kelso also disagreed. "A court is not going to hold a Senate 
committee to the same standard of impartiality it would hold a judge to," he 
said. 

The Bee's Emily Bazar can be reached at (916) 326-5540 or ebazar@sacbee.com 
<mailto:ebazar@sacbee.com>. 



Davis' refund plan faces a tough road: Several experts say it's unlikely the 
FERC will buy the state's figures.
By Dale Kasler
Bee Staff Writer
(Published July 12, 2001) 
Gov. Gray Davis' defiant "see you in court" broadside to federal regulators 
this week demonstrates that it's unlikely the regulators will deliver the 
multibillion-dollar refund from wholesale power generators that Davis is 
demanding. 
Davis' team limped out of Washington empty-handed Monday, concluding two 
weeks of fruitless refund negotiations with generators. Instead of the $8.9 
billion he wanted, Davis got a $716 million offer from generators -- and a 
conclusion by the Federal Energy Regulatory Commission judge who oversaw the 
talks that California isn't entitled to anything near $8.9 billion in 
refunds. 
Judge Curtis Wagner plans to recommend that FERC hold a full hearing on the 
state's refund claims but said he doubts the refunds would amount to more 
than $1 billion. That sum is so small that Wagner said the refunds would be 
canceled out by the unpaid debts owed to the generators. 
State officials proclaimed the talks a victory of sorts. The governor's chief 
negotiator, Michael Kahn, said "our positions were vindicated" because 
generators for the first time put refund dollars on the table. 
The governor says generators and marketers, in violation of a federal law 
setting a "just and reasonable" limit on wholesale electricity prices, have 
routinely overcharged California, plunging the state into a crisis that's 
bankrupted Pacific Gas and Electric Co. and could do the same to Southern 
California Edison. 
Insisting they've done nothing wrong, generators and marketers said they 
offered the refunds simply to put the matter behind them. 
"It was to get rid of the litigation and investigations -- they're a huge 
drag," said Enron Corp. spokesman Mark Palmer. He wouldn't say how much the 
Houston-based marketer had offered. 
Palmer and several experts said the state faces an uphill battle convincing 
FERC that California is entitled to the mega-refund Davis wants. 
FERC, which will make the final call on refunds, probably believes it's 
helped California already by imposing price controls on wholesale 
electricity, and may not be inclined to order huge refunds, said Larry 
Foster, editor of the Washington newsletter Inside FERC. 
"At some point the commission might say, 'We've done all we can do (for 
California), and if you don't like it, go to court,' which is what the state 
is going to do anyway," Foster said. 
The governor said Tuesday that he will sue FERC if it fails to order $8.9 
billion in refunds. "You order what you think is fair," he said. "We'll take 
what you order, and we'll see you in court." 
Undaunted by the threat, generators and marketers were chortling over remarks 
by Wagner, who wrapped up the failed settlement talks by saying refunds 
probably wouldn't top $1 billion. 
Californians "got hammered" by Wagner, said Enron's Palmer. "The judge told 
them, 'Look, your claim is bogus.'" 
Wagner has retreated somewhat from his statement, telling the San Jose 
Mercury News that he isn't sure what the final numbers would be. 
Sources have said that at one point in the talks, he suggested a $4.5 billion 
refund -- including $2 billion in cash and $2 billion in discounts on 
long-term power contracts. But it wasn't clear how seriously anyone took that 
proposal, and as the talks wound down the judge was clearly dismissive of the 
state's insistence on getting $8.9 billion. 
Experts say FERC probably will hold the formal hearing and employ a formula 
Wagner recommended for calculating the refunds -- a formula that spells good 
and bad news for both sides. 
For one thing, Wagner will likely urge a formula based on the price-control 
system FERC implemented last month -- something that could work to 
California's advantage. The controls limit prices to a ceiling based on the 
production costs of the least-efficient power generator in California. 
But Wagner's plan would calculate production costs differently than FERC has 
so far. He would employ a system that's significantly more favorable to the 
generators, said John Stout, senior vice president with power generator 
Reliant Energy Inc. 
Also, Wagner would ignore alleged overcharges prior to last October. That 
alone could wipe out about $2.9 billion in potential refunds, according to 
the Independent System Operator, which runs California's power grid. 
Suppliers say a full accounting of costs, particularly the skyrocketing 
natural gas expenses, will show the prices they charged were fair. "The more 
days of testimony you have, the stronger Wagner's case becomes, the 
weaker-looking Davis' case becomes," said Enron's Palmer. 
Nonetheless, California officials said a hearing could produce a refund in 
excess of $1 billion. 
"Any reasonable calculation is going to give you a much higher number than 
that," said Severin Borenstein of the University of California Energy 
Institute. 

The Bee's Dale Kasler can be reached at (916) 321-1066 or dkasler@sacbee.com 
<mailto:dkasler@sacbee.com>. 







Energy Digtest: UC, CSU, Enron extend contract
By Claire Cooper
Bee Legal Affairs Writer
(Published July 12, 2001) 
SAN FRANCISCO -- A truce was declared Wednesday in a legal dispute between 
California's largest electricity user -- its university systems -- and Enron 
Energy Services. 
Both sides agreed "in principle" to extend their four-year contract by two 
years, until March 2004. They have until Dec. 1 to negotiate a price and 
other terms. 
Early this year the Texas-based energy giant, which had been selling 
discounted power directly to the University of California and California 
State University, switched more than 24 campuses covered by the contract to 
shaky public utilities, subjecting them to potential blackouts and price 
hikes. 
A federal judge ruled that Enron probably had violated the contract and 
ordered the company to resume deliveries. But the 9th U.S. Circuit Court of 
Appeals issued a stay and set the case for review. 






Energy consultants failed to file disclosures, Jones says
By Amy Chance
Bee Political Editor
(Published July 12, 2001) 
The Davis administration failed to abide by state ethics laws as it hired 45 
outside consultants to help the state cope with the electricity crisis, 
Secretary of State Bill Jones charged Wednesday. 
While such consultants are required to file statements of economic interests 
-- reports of outside income that might represent a financial conflict with 
their responsibilities for the state -- Jones said a check by his aides 
Monday found that none of them had filed the documents. 
Although the administration began hiring consultants in January, Jones aides 
said they were told that the state Department of Water Resources -- which has 
handled the state's electricity-buying efforts -- only recently became aware 
that the reports were necessary. 
Jones released a copy of a June 15 memo in which the department notified 
energy contractors that they were required to file the statement and 
disqualify themselves from decisions that could affect their financial 
interests. The memo was written one day after Jones demanded that two of Gov. 
Gray Davis' consultants, Chris Lehane and Mark Fabiani, file 
conflict-of-interest forms. 
"It's a sad commentary when an administration only decides to comply with 
ethics and anti-corruption laws after their violations have been exposed," 
Jones, a Republican who wants to challenge Democrat Davis for governor next 
year, said at a Capitol news conference. "I am also deeply concerned that 
when filed, the statements of economic interests will show that a number of 
consultants have illegally engaged in policy discussions and decisions that 
affect their personal finances." 
Davis press secretary Steven Maviglio said Wednesday that all consultants 
required to file the statement had done so or would do so within the required 
30-day time period. But he was unable to produce any of the statements, 
saying they would first have to be reviewed to remove home addresses and 
other personal information. 
Information provided by the state Fair Political Practices Commission on its 
Web site states that the forms are public records that state agencies must 
make available for "public inspection or reproduction during regular business 
hours no later than the second business day after they are received." 
Jones called on state Attorney General Bill Lockyer to investigate what he 
called the administration's "blatant disregard for the state's 
full-disclosure and conflict-of-interest laws." A Lockyer spokeswoman said 
the attorney general would consider the request. 
Maviglio noted that the statements, which fall under the purview of the FPPC, 
are not Jones' responsibility as secretary of state. He said Jones is "on a 
witch hunt on something outside his jurisdiction." 
Jones said if consultants involved in negotiating billions of dollars worth 
of contracts with electricity generators had financial conflicts, the public 
has a right to know. 
"The governor's insistence on secrecy throughout the energy crisis has 
prompted increased public cynicism of their government," Jones said. 
"Unfortunately, it appears that the cynicism is justifiable in this case." 

The Bee's Amy Chance can be reached at (916) 326-5535 or achance@sacbee.com 
<mailto:achance@sacbee.com>. 








Fudging at FERC: Feds must define 'just' energy charges


(Published July 12, 2001) 

The economists say that some of the record-high electricity prices that have 
plagued California in the past 14 months are the result of generators and 
traders exploiting flaws in a dysfunctional market to exert market power over 
prices. The problem is that federal regulators have been slow to wake up to 
reality and exert some power of their own to enforce the law. 
The Federal Power Act is supposed to protect the public by keeping prices for 
electricity "just" and "reasonable." With price limitations now in place 
going into the future, the Federal Energy Regulatory Commission has done only 
half of its job. Now it must do the other half by reviewing and remedying the 
abuses of the past. 
Gov. Gray Davis estimates that generators have overcharged California to the 
tune of about $9 billion. Generators and traders, on the other hand, have 
suggested refunding something less than $1 billion. Efforts at a settlement 
have gone nowhere. So now FERC must settle the score, even if it means a 
trial-like proceeding that puts the last year under a microscope, one 
questionable transaction at a time. 
While much of the political focus has been on price, the job of the 
regulators is to consider both price and circumstance. An unjust transaction 
is born out of broken market conditions, when the buyer has little choice but 
to accept the price of seller who can move the market by his own actions. 
When the price exceeds by many multiples the actual cost to produce power, 
there is compelling reason to look for gouging. 
Undoubtedly, there were times over the last year when generators and traders 
weren't gouging California, as evidenced by records of some transaction 
recently released by the state. During the winter when the price of natural 
gas (the state's primary fuel for electricity) was high, there's a reasonable 
explanation for high power prices. Yet last fall and last summer, when 
natural gas was cheaper yet electricity was outrageously expensive, there's 
reason to doubt that the market was working reasonably. 
Reviewing the prices charged in the last year is a test case for FERC, one 
that it has sought to avoid. It requires FERC to concede that it was not on 
alert as California ventured into the uncharted world of deregulation. 
Yet the future of electricity competition in California, and perhaps the 
nation, depends on the federal government showing that it is able and willing 
to do its duty to protect the public from unfair market conditions. Settling 
this score also affects the math of potential deals to put Pacific Gas and 
Electric and Southern California Edison back on their feet. The refund that 
Californians are owed is likely somewhere between those $1 billion and $9 
billion estimates. It's time for FERC to go find out the right amount. 





Big customers want to shop around -- and there's the rub  


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State energy contracts must be paid off by users in system By Ed Mendel  
UNION-TRIBUNE STAFF WRITER  July 12, 2001  SACRAMENTO -- California 
businesses are being hit by big electricity rate increases, some as high as 
100 percent, and they would like to be able to shop around for cheaper 
power.  But state regulators are poised to ban customer choice, or "direct 
access" as it has come to be called, because they want to make sure that 
enough customers remain with utilities to pay for state power purchases.  
After a month of closed-door talks, the revelation that the state has signed 
$43 billion worth of long-term power contracts at above-market prices helped 
scuttle an attempt to work out a compromise in the Assembly. 
"If the intent of the big customers is to leave the small customers paying 
for those contracts, we are going to fight like hell," said Lenny Goldberg, a 
lobbyist for The Utility Reform Network. 
Jack Stewart, president of the California Manufacturers and Technology 
Association, said large business users were offering to pay off the back debt 
of Southern California Edison, estimated at $3.5 billion, in exchange for 
direct access. 
"I thought we were making a lot of progress until the information on the 
contracts came out," Stewart said. "We really don't have a way of dealing 
with those contracts." 
Now Stewart is suggesting that direct access be slowly phased in over a 
period of years and that the long-term power contracts be renegotiated, 
perhaps with some being switched from the state to big-business users. 
The manufacturers association and the California Chamber of Commerce helped 
organize a business coalition, Californians for Energy Action, that wants a 
cheaper alternative to power purchased for utility customers by the state. 
"Many large and small California businesses have seen their electric bills 
double," says a newspaper ad being run by the coalition this week. "These 
cost increases are a burden that will cause consumer prices to increase, some 
businesses to fail and jobs to be lost." 
A rate increase approved by the state Public Utilities Commission for PG&E 
and Edison customers in May fell heaviest on business users. The PUC said 
that the average residential increase was about 50 percent, while the average 
business increase was about 75 percent. 
Legislation that authorized the state to begin buying power in January for 
the utilities, who were crippled by a failed deregulation plan, bars rate 
increases for residential customers who use up to 130 percent of the 
baseline, the minimal amount deemed necessary for a household. 
Senate President Pro Tempore John Burton, D-San Francisco, and other 
legislators have argued that large businesses should bear most of the burden 
of the failed deregulation plan because it was business, not residential 
consumers, who pushed for deregulation. 
Alan Zaremberg, president of the California Chamber of Commerce, said that 
forcing businesses to bear a "disproportionate" rate increase will cost 
everyone through higher prices for goods and services and possibly a loss of 
jobs. 
"If government didn't allow implementation of deregulation in the right 
manner," Zaremberg said, "then we all have to find a solution. We are all in 
this together, and that's residential and business alike." 
The legislation that authorized the state to buy power also directed the PUC 
to ban direct access power purchases, if the loss of rate revenue from the 
departing customers would harm the ability to pay off a power bond. 
The state plans to issue a bond of up to $13.4 billion in September or 
October to repay the taxpayer-supported state general fund for power 
purchases. The bond would be paid off by ratepayers over 15 years. 
Last week, the Senate rejected a bill by Sen. Debra Bowen, D-Marina del Rey, 
on a 19-12 vote that would have allowed businesses to shop for power if they 
paid an "exit fee" to protect the bond payments. Business groups said the fee 
was too large and would not result in lower power costs. 
"I cannot carry a direct-access bill that makes it harder to sell the bonds 
or that shifts costs from large users, who leave for cheaper power, to 
smaller users and residential ratepayers," Bowen said. 
Burton and Bowen have both criticized Gov. Gray Davis' plan to keep Southern 
California Edison from joining Pacific Gas and Electric in bankruptcy. They 
say the plan, which includes the state purchase of the Edison transmission 
system, is too generous to Edison. 
Both Burton and Bowen have suggested that an Edison bankruptcy may not be a 
calamity. But in the Assembly, Speaker Robert Hertzberg, D-Van Nuys, launched 
a drive for an alternative Edison rescue plan that was based on gaining 
business support by offering direct access. 
Hertzberg asked a former Democratic assemblyman, Phil Isenberg of Sacramento, 
to try to work out an agreement among the various special interest groups: 
business, labor, consumers and generators. 
The basic plan considered by the Isenberg group would have left "core" 
customers -- residences and small businesses -- in a regulated system 
receiving power at stable prices from the generators and contracts retained 
by the utilities. 
Businesses and other large users, the "non-core" customers, would be free to 
shop around for low-cost power by 2003 if they agreed to help pay off the 
Edison debt. 
The Edison rate increase for large users would be limited to 50 percent. The 
PUC would create a "balancing account" to track costs, issuing a refund if 
too much was collected or raising rates if revenue fell short. 
Business and generator groups told Hertzberg last week that they reached 
agreement on a general framework, with the exception of the state purchase of 
the Edison transmission system and some other issues. But the consumer and 
labor representatives opposed the framework. 
Mike Florio of The Utility Reform Network said in a dissenting statement that 
an across-the-board allocation of state power costs would be "clearly unfair" 
and cause residential users to subsidize direct-access customers. 
Hertzberg said he is considering some of the ideas in the framework presented 
by the Isenberg group and may make a proposal in a week or two. 
"We are looking at all the possibilities," Hertzberg said. "We are trying to 
do some form of direct access within the current contract structure." 






Senate panel, energy firm fighting tough  


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By Bill Ainsworth  UNION-TRIBUNE STAFF WRITER  July 12, 2001  SACRAMENTO -- A 
Senate panel moved a step toward holding Enron, an energy trading firm, in 
contempt for refusing to turn over documents senators hope can shed light on 
the state's soaring energy prices.  Enron fired back by filing a lawsuit 
yesterday asserting that only the federal government has the authority to 
investigate the power market.  The panel, which had previously reached 
agreements with all the other major generators and marketing companies in 
California, voted 6-0 to prepare a contempt recommendation for the Senate to 
consider next week.  The Senate, which last issued a contempt citation in 
1929, must approve any contempt recommendation. It then has wide-ranging 
powers to impose fines or jail time.  The chairman of the Senate committee, 
state Sen. Joe Dunn, D-Laguna Nigel, said that if Enron agrees to turn over 
documents to the committee soon, then he will recommend that contempt 
proceedings be dropped.  The Senate Select Committee to Investigate Market 
Manipulation also decided yesterday to drop contempt proceedings against 
Mirant, an Atlanta-based marketing company, because it had agreed to turn 
over documents.  The dispute also touched on broader issues.  Enron, the 
politically connected Houston-based marketing company, has been pushing 
electricity deregulation throughout the world. Company chairman Kenneth Lay 
is a friend and campaign contributor to President Bush.  Last month the firm 
helped sponsor a congressional fund-raiser featuring the president, where 
contributors in tuxedos and gowns dined and drank around a giant gold "W" 
that reached to the rafters at the Washington Convention Center ballroom.  
Enron has also helped shape Bush's energy plan. It is one of several major 
donors accused of meeting secretly with Vice President Dick Cheney to draft 
the plan.  Several senators on the panel disputed Enron's claim that only 
federal regulators, and not the state government, could investigate the 
electricity market.  Further, they blasted the company for saying that 
California could not have access to documents stored outside the state at the 
firm's Houston headquarters.  State Sen. Steve Peace, D-El Cajon, said the 
company was so defiant that it looked suspicious.  "Your client doth protest 
too much," he said to Enron's attorney, Michael Kirby. "One can only wonder: 
What do you have to hide?"  But Kirby said the company merely wanted to 
protect confidential information and get answers to its objections. That, he 
said, is why it filed a lawsuit contesting the committee's power to seek 
documents that Enron claimed would reveal trade secrets.  "We want it to make 
a ruling and give us our day in court," he said.  Peace, however, took issue 
with the lawsuit, calling it a dramatic escalation in the dispute over an 
energy crisis that has cost the state billions.  "You just declared war on 
this state's political system," he said. 




Energy firm scraps plans for plant in Chula Vista  


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Ramco says price limits would make it unprofitable By Kristen Green  
UNION-TRIBUNE STAFF WRITER  July 12, 2001  CHULA VISTA -- Controversial plans 
to build a power plant by Sept. 30 have been dropped, much to the liking of 
city officials.  Ramco Inc. pulled out of the project yesterday, saying that 
the Federal Energy Regulatory Commission's month-old price limits would 
prevent it from making money.  "We are pleased, whatever the reason," said 
Michael Meacham, Chula Vista's conservation coordinator.  The city opposed 
construction of the 62.4 megawatt plant on Main Street, and had asked the 
state to reconsider its June 13 decision. The plant was approved under the 
governor's 21-day emergency procedure for siting what are known as peaker 
plants, those that can be used when energy supplies dip dangerously low.  The 
proposal was exempt from the California Environmental Quality Act, and city 
officials maintained that allowing the plant to be constructed -- the fifth 
of its kind in the Otay region -- would be an environmental injustice.  City 
officials have been planning an appeal to the state Supreme Court, an action 
that appeared to be their last recourse.  "Our council felt we were doing 
what was necessary to protect the public health and safety," Meacham said.  
Meacham said yesterday the council would still file the appeal because Ramco 
officials could change their mind. They have permission to build the plant as 
long as they are able to complete construction by Sept. 30.  Despite the 
city's pleas, Ramco had, until now, moved forward with its plans.  But Ramco 
consultant Dale Mesple said company officials recently had a change of heart. 
They are worried that the California Independent System Operator won't pay 
them and that FERC's price limits, which established formulas for maximum 
prices during emergency and non-emergency periods, won't allow them to turn a 
profit.  "There's no reason to run the plant, and no reason to build it," 
Mesple said.  The California Energy Commission received a letter from Ramco 
yesterday announcing the San Diego company's decision not to build the plant. 
Spokesman Rob Schlichting said Ramco is the first company to pull out of 
plans to build a plant under the fast-track system.  Nine other peaker plant 
projects are still on track, including two Ramco is building in Escondido and 
one in another Chula Vista location. A tenth peaker-plant, a 49.5-megawatt 
facility in Otay Mesa, was approved yesterday.  "The loss of this one peaker 
plant is not going to be catastrophic," Schlichting said. "It's not going to 
jeopardize the California grid or anything, but I'm surprised a company would 
feel this way." 





Governor tells FERC to be fair and then some  


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Davis firm on demand for $8.9 billion refund By Ed Mendel  UNION-TRIBUNE 
STAFF WRITER  July 11, 2001  SACRAMENTO -- Gov. Gray Davis had a tough 
message for federal regulators yesterday after the failure of settlement 
talks in California's bid to get an $8.9 billion refund from electricity 
suppliers: "See you in court."  The governor said California will seek a full 
$8.9 billion refund for electricity overcharges, even if federal regulators 
award the maximum refund of $5.4 billion allowed under their guidelines.  
"Our message is just order what you are going to order," Davis said of the 
Federal Energy Regulatory Commission. "We believe you should order $8.9 
billion. But you order what you think is fair. We will take what you order, 
then we will see you in court."  Davis, joined by his negotiating team, made 
the remarks at a news conference a day after two weeks of closed-door talks 
with suppliers in Washington failed to reach an agreement.  An administrative 
law judge made a recommendation to the regulatory commission that Davis' top 
negotiator, Michael Kahn, chairman of the California Independent System 
Operator, expects to result in a refund of more than $1 billion.  Davis said 
that a revealing decision will be made by the commission, which he hopes has 
embarked on a "new path" with the appointment by President Bush of two new 
members, Pat Wood of Texas and Nora Brownell of Pennsylvania.  "Are they on 
the side of consumers, as the federal power act envisions them being," Davis 
asked, "or are they just there to do the industry's bidding, as they have so 
often in the past?"  Kahn said rules adopted by FERC cut off the refund 
period at last October, trimming $3 billion from the $8.9 billion overcharge 
claimed by California dating to May 2000.  He said FERC has no jurisdiction 
over municipal utilities, such as the Los Angeles Department of Water and 
Power, that sold power to the state. The municipal districts overcharged the 
state by about $600 million, according to Kahn.  As a result, he said, the 
maximum refund that FERC could order for California is about $5.4 billion.  
"We made it clear to everyone that if we did not settle for $8.9 billion, we 
would seek redress in court for the remainder of the money above $5.4 
billion," Kahn said.  Calpine of San Jose and several other generators have 
expressed interest in the state's offer to negotiate one-on-one with the 
state while the federal regulators consider their decision, Kahn said. 





Enron Corp. sues to block Senate from forcing document release  


\
objattph 
By Jennifer Coleman ASSOCIATED PRESS  July 11, 2001  SACRAMENTO ) A Senate 
committee investigating possible price gouging in California's energy market 
voted Wednesday to ask the full Senate to find Texas-based Enron Corp. in 
contempt for failing to comply with a subpoena for documents.  Just hours 
earlier, Enron sued the Senate Select Committee to Investigate Market 
Manipulation to stop the subpoena of its financial and electricity trading 
records.  Enron attorney Michael Kirby said the company is prepared to turn 
over 25,000 documents that were already in California, but that other 
documents the committee wants are in Texas and out of the panel's reach.  
Kirby filed 17 objections to the subpoena, including one that only the 
Federal Energy Regulatory Commission has the authority to investigate 
wholesale markets. The committee voted to overrule most of the objections.  
The committee will prepare a report to the full Senate, recommending the 
company be cited for contempt. If Enron turns over the records before the 
Senate takes up the matter, the report will be shelved.  "They've sent two 
things to Texas ) our money and these documents, and they're saying we can't 
get either one back," said Laurence Drivon, special legal counsel to the 
Senate committee.  The other subject of possible sanctions, Atlanta-based 
Mirant Inc., agreed to turn over subpoenaed documents. The committee will 
review Mirant's compliance in 30 days and could revisit whether to find it in 
contempt.  Mirant spokesman Pat Dorinson said the company has turned over 
159,000 pages of documents that were being transferred to a repository in 
Sacramento to comply with the subpoena.  The company and the committee 
reached an agreement Tuesday night on the confidentiality concerns, Dorinson 
said.  Committee chairman Joe Dunn, a Santa Ana Democrat, said the 
committee's investigation will continue despite Enron's "pure act of 
intimidation. We're not going to back down."  Enron's suit, filed in 
Sacramento Superior Court, said the company's financial papers are outside 
the committee's jurisdiction because most of its operations and paperwork are 
outside California.  That shouldn't matter, Drivon said, citing last year's 
successful subpoena of out-of-state documents during the investigation into 
the activities of former Insurance Commissioner Chuck Quackenbush. Previous 
investigations have included documents subpoenaed from other nations, he 
said.  Companies doing business in California cannot claim immunity from its 
laws or oversight, Drivon and Dunn said. Houston-based Reliant Energy made 
the same argument but then agreed to turn over 1,800 documents.  Enron's suit 
also says Dunn's committee has not given the company a fair hearing, and the 
committee has not followed due-process protections before seeking sanctions.  
Not so, said Dunn and Drivon, adding that they negotiated with generators to 
give them time to comply with the subpoenas. Proof of that, they said, comes 
in the decision to give Williams, AES, Reliant, Dynegy, Duke and NRG an extra 
week past Tuesday's deadline to turn over documents subpoenaed last month.  
In a letter to Dunn, Steven J. Kean, an Enron executive vice president, said 
several municipal districts were profiting from the power crisis. "Yet, 
remarkably, the committee has inexplicably chosen not to include these market 
participants in its investigations."  Enron officials are concerned the 
purpose of the investigation, Kean said, is to "create a convenient political 
scapegoat to shoulder the blame for California's policy mistakes and changes 
in market fundamentals."  If the full Senate approves a contempt citation, it 
will be the first time since 1929, when the Senate briefly jailed a reluctant 
witness during a committee investigation of price fixing and price gouging 
allegations involving cement sales to the state.  There are no set penalties, 
Drivon said ) by law, "the Senate can take such action as it deems necessary 
and appropriate."  Enron is one of the world's leading electricity, natural 
gas and communications companies, with $101 billion in revenues in 2000. It 
owns 30,000 miles of pipeline, has 20,000 employees and is active in 40 
countries. During the first quarter of this year, Enron's revenues increased 
281 percent to $50.1 billion.  It is well connected politically. It has 
supported both President Bush and his father, President George H.W. Bush. 
Last year, Enron gave more than $172,000 to politicians and campaigns in 
California.  Last month the firm helped sponsor a congressional fund-raiser 
featuring the president, where contributors in tuxedos and gowns dined and 
drank around a giant gold "W" that reached to the rafters at the Washington 
Convention Center ballroom.  Enron has also helped shape President Bush's 
energy plan. It is one of several major donors accused of meeting secretly 
with Vice President Dick Cheney to draft the plan.  Company chairman Kenneth 
Lay is a friend and one of the largest campaign contributors to Bush and the 
GOP. Several prominent members of the Bush administration hold Enron stock. 



Regulators want broad, regional power markets  


\
objattph 
ASSOCIATED PRESS  July 11, 2001  WASHINGTON ) Despite California's problems 
with electricity deregulation, the Federal Energy Regulatory Commission 
reinforced its commitment Wednesday to developing broad, regional power 
markets.  The FERC, which regulates wholesale electricity markets, directed 
power grid managers in the Northeast and in the South to develop broad 
regional power transmission management organizations.  By unanimous votes, 
the agency rejected proposals in both regions of the country for smaller 
geographical markets.  The FERC kicked back proposals for separate regional 
transmission organizations in New England, New York and the mid-Atlantic 
states. Regulators said the parties should develop a single regional 
organization covering all three areas.  At the same time, the commission said 
it wanted a broad organization covering most of the Southeast as well. In 
both cases, the agency directed that a mediator help the regions develop the 
new regional power market systems.  The commissioners have maintained that 
large, regional power management organization are necessary if electricity is 
to flow freely in a competitive marketplace.  "The actions will go a long way 
toward facilitating ... more efficient regional power markets," said Lynne 
Church, president of the Electric Power Supply Association, which represents 
independent power producers.  The vote was the first on the issue since two 
new commissioners ) Pat Wood and Nora Brownell, both appointed by President 
bush ) joined the commission. 



HUNGTINGTON BEACH
Huntington Loses Battle on Generators
Power: AES receives go-ahead to restart two shut-down units without a 
restriction on out-of-state sales that the city had fought for.
STANLEY ALLISON and CHRISTINE HANLEYS
TIMES STAFF WRITER

July 12 2001

The California Energy Commission on Wednesday voted to allow giant power 
company AES to move ahead with plans to restart two mothballed generators in 
Huntington Beach even without the company's guarantee that it would sell the 
electricity within the state.

The decision permits AES to begin operating the generators next month.

The 3-1 vote marks a defeat for Huntington Beach, which had agreed to AES' 
plans only with the company's pledge that all electricity generated would be 
used to ease the state's power crisis. In granting approval, energy 
commissioners conceded that the deal does not come without potential harm to 
the environment.

"We do not know the extent of the plant's contribution to the transport of 
bacteria to the beach, which can result in beach closures and the loss of 
recreational opportunities to beach visitors and commercial opportunities to 
local merchants," the ruling says.

State officials said they decided to drop the restriction that AES sell power 
within California to avoid more delays and help fulfill Gov. Gray Davis' 
executive order that the state significantly boost power production over the 
next year.

"It adds power that will make California's power grid more secure, and the 
more power we can get, the more secure we are from rolling blackouts," said 
energy commission spokesman Rob Schlichting.

AES originally agreed to the restriction. But the company demanded that it be 
dropped after negotiations with the state over long-term energy contracts 
broke down in June.

With no contracts, AES argued it should have the right to sell power produced 
in Huntington Beach to whomever it wants.

Huntington Beach officials who lobbied hard for the sales restriction said 
they felt betrayed by the decision.

They said the commission bowed to the demands of a corporation over local 
concerns.

"AES got exactly what it wanted," said City Councilwoman Connie Boardman, who 
testified at the hearing.

"There's a lot of impacts the residents of Huntington Beach put up with. The 
energy crisis is the reason this project was approved so rapidly. Now that 
seems irrelevant. I think it's a big waste of time."

An AES spokesman said the company would prefer to sell its power to customers 
in California. But he acknowledged there is no guarantee the extra 
electricity will remain in the state.

Councilwoman Debbie Cook said she fully expects AES to sell the power to 
out-of-state companies.

"They're going to sell it where they can get the most money," Cook said.

"If they can sell it outside the state and resell it at a higher rate, then 
that's what they're going to do."

The two 40-year-old generators, which have been out of service since 1995, 
can produce enough power to supply 337,500 homes and represent almost 10% of 
the 5,000 megawatts Davis has said he will bring into service this summer.

AES said the retooling of Unit 3 is 75% complete and it should be on line by 
Aug. 7, and Unit 4 is 70% complete and could come on line a week later.

AES had also requested a 10-year license to operate the generators.

But the commission on Wednesday sided with Huntington Beach on that point.

The city lobbied for a five-year license and a five-year renewal if the 
company complies with a host of laws and regulations. 
Copyright 2001, Los Angeles Times <http://www.latimes.com> 




Enron Gets 2nd Chance to Turn Over Documents
Energy: State Senate panel gives the electricity seller a way around a 
contempt citation. But the company balks.
CARL INGRAM
TIMES STAFF WRITER

July 12 2001

SACRAMENTO -- Acting five hours after Enron Corp. sued to stop a legislative 
investigation of its business practices, a state Senate committee Wednesday 
gave the electricity wholesaler a second chance to turn over documents and 
rid itself of a contempt citation.

But officials at Enron, a major player in the California power market, 
brushed aside the gesture, saying it fell far short of meeting the company's 
objections.

"Our position has not changed. . . . The issues we had at the beginning of 
the hearing, we still had at the conclusion of the hearing," spokeswoman 
Karen Denne said. The Houston-based electricity wholesaler claimed in a 
letter to the Senate investigative committee that it was being singled out as 
a "political scapegoat" for the energy mistakes of California officials.

In the suit, Enron charged that the committee's investigation went far 
outside the law, an allegation denied by Chairman Joe Dunn (D-Santa Ana). He 
also denied the scapegoat charge.

The lawsuit was filed in Superior Court 62 minutes before the select 
committee investigating market manipulation was to finalize its earlier 
finding of contempt against Enron.

Enron appears to be the last of eight power sellers to refuse to make 
documents available to the committee. Seven others also had held out, but in 
the last two weeks have said they will provide the records or are negotiating 
to do so.

Dunn said the committee must examine the hundreds of thousands of documents, 
including what Enron called its "most closely guarded secrets," to determine 
whether price gouging occurred and whether remedial legislation is necessary.

Gov. Gray Davis and other officials are convinced that the wholesalers 
overcharged the state $8.9 billion during the energy crisis. A federal 
mediator has said the overcharges are closer to $1 billion.

But at Wednesday's hearing, an angry Sen. Steve Peace (D-El Cajon), a sponsor 
of California's flawed 1996 deregulation law, charged that by suing the 
committee, Enron was trying to "precipitate a constitutional crisis" between 
the judicial and legislative branches of state government.

"You just went to war with the state of California and the people of 
California!" Peace shouted at Michael Kirby, a San Diego attorney 
representing Enron. "You are already at war economically. Now you are at war 
politically."

Kirby replied that Enron was merely trying to defend its right to due process 
against what he called unlawful violations by the committee.

He complained that Enron was held in contempt on June 28 but that the company 
had never been given a chance to present its objections.

"An accused criminal has been given more opportunity to have a hearing on 
their objections than I have [in this committee]," Kirby told the lawmakers.

Sen. Debra Bowen (D-Marina del Rey), also an attorney, told Kirby that 
legislative subpoenas are far different than those issued in the court system 
and are not subject to the same restrictions because lawmakers must deal with 
policy issues, not matters of guilt or innocence.

In their suit and testimony to the committee, Enron representatives charged 
the committee had ventured far out of its jurisdiction and that only the 
Federal Energy Regulatory Commission could legally undertake a wholesale 
price investigation and impose sanctions.

The committee asked for a vast array of documents, including those involving 
business decisions and transactions in other states. But Enron claimed that 
the committee had no authority to issue subpoenas outside California and that 
the subpoenas themselves were flawed.

The company asked the court for an injunction against further investigation 
by the committee and proposed that a "neutral" arbitrator or judge try to 
fashion a compromise.

Dunn suggested that the lawsuit was an effort to intimidate the committee. 
But he insisted it "will not impact our investigation."

Under contempt procedures, last used in 1929, the committee can find an 
individual or entity in contempt. It then reports its recommendations to the 
full Senate, which must ratify the committee's action. The Senate also can 
impose sanctions, ranging from possible jail terms to heavy penalties.

Dunn offered Enron what he called a "middle ground" that would give the 
company an opportunity to change its mind and comply with the subpoenas 
instead of facing an immediate report to the Senate.

Under Dunn's recommendation, approved on a bipartisan 5-0 vote, the report of 
Enron's failure to comply would be compiled and written, but it would not be 
delivered to the full Senate until Monday at the earliest.

If Enron were to reverse itself and agree to provide the records the 
committee wants, sign a confidentiality agreement and create a Sacramento 
repository for its records, the committee would hold the report back.

If compliance continued, Dunn said, the committee's contempt finding would be 
purged.

Dunn said he decided to give Enron a second chance because his "No. 1 
priority is to get the documents. Contempt is the last resort."

Denne, the Enron spokeswoman, noted that the company recently established a 
document repository in Sacramento for records of its California operations, 
but not the disputed documents involving business elsewhere.

She contended that the confidentiality agreements proposed by the committee 
failed to "guarantee that these documents would remain confidential."

Another wholesaler, Mirant, also had been held in contempt by the committee. 
But Dunn said that since its June 28 citation, Mirant had become cooperative. 
The committee agreed to review Mirant's citation in a month and possibly 
erase it. 
Copyright 2001, Los Angeles Times <http://www.latimes.com> 







Coal futures to begin trading but analysts aren't sure it'll heat up energy 
markets 
BRAD FOSS, AP Business Writer
Thursday, July 12, 2001 
,2001 Associated Press 
URL: 
<http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2001/07/12/natio
nal0435EDT0461.DTL>
(07-12) 01:35 PDT NEW YORK (AP) -- 
While the New York Mercantile Exchange believes it can stoke interest in coal 
futures trading, analysts say this fossil fuel won't necessarily take off 
like wildfire on commodities markets. 
"It's gonna be real wait and see," said David Khani, a coal analyst for 
Friedman, Billings, Ramsey Group Inc. of Arlington, Va. 
Futures exchanges exist to transfer the risk of price volatility from people 
who don't want it -- in this case, power producers or steel manufacturers -- 
to speculators who are willing to take a gamble on making profits from this 
uncertainty. 
One of the main reasons for doubts about coal as a commodity is that it has 
little history of wide price fluctuations, a key ingredient in bringing 
together buyers and sellers. And of the roughly 1 billion tons of coal burned 
in the United States annually, 80 percent is bought through long-term 
contracts, not on the daily spot market. 
Skeptics also contend that the exchange is overestimating the industry's need 
for coal futures, arguing that power producers are protected from price 
swings by passing along higher costs to consumers. 
But those assumptions were under assault as Nymex's Central Appalachian 
futures contracts were to begin trading on Thursday. 
The price of coal per ton doubled in a matter of weeks last winter in some 
parts of the country, boosting the stock prices of coal companies just as 
quickly. 
Also, as more and more states deregulate electricity markets, power providers 
like Mirant Corp., American Electric Power Company Inc. and Dynegy Inc., 
won't be able to hide behind laws allowing them to pass on higher costs to 
consumers. Instead, they will be forced to become more competitive with one 
another, said Andy Ozley, manager of fossil fuels for Atlanta-based Mirant. 
"Welcome to the free market," he said. "The pace of deregulation will 
encourage more and more activity on the exchange. At least that's the hope." 
The swapping of coal contracts is not entirely new. 
Energy traders, including Mirant, Enron Corp. and Aquila Inc., helped build 
an international over-the-counter exchange on which some 1 million tons of 
coal can switch hands on any given day. Some days, not a single transaction 
takes place. 
Just how much daily volume Nymex coal futures will add to the mix is 
anybody's guess. 
Nymex Executive Vice President Neal Wolkoff said, "If it starts in the low 
hundreds and builds to maybe 5,000 contracts a day I think that would be 
viewed as a successful marketplace. 
"We don't expect this to approach anywhere near the size of natural gas and 
crude oil," for which hundreds of thousands of contracts are swapped each 
day, Wolkoff said. 
At the very least, Wolkoff said, the Nymex coal futures will benefit the 
industry by making a "transparent price reference" available to buyers and 
sellers of both long- and short-term contracts. 
But critics believe Nymex's coal futures will suffer the same low trading 
volume that the exchange's electricity futures have since 1996. 
"There will be a flurry of trading when it starts, though I'm not so sure 
it's going to be a long-term success," said Howard Simons, a finance 
professor at the Illinois Institute of Technology and a former commodities 
trader. 
The run-up in coal prices last winter occurred as demand outstripped supply. 
Coal companies curtailed production and even closed some mines after a mild 
winter in 2000 at a time when power producers sought a less expensive 
alternative to natural gas, which had quadrupled in price. 







Developments in California's energy crisis 
The Associated Press
Thursday, July 12, 2001 
,2001 Associated Press 
URL: 
<http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2001/07/12/state
1038EDT0155.DTL>
(07-12) 07:38 PDT (AP) -- 
Developments in California's energy crisis: 
THURSDAY=
* No power alerts Thursday as electricity reserves stay above 7 percent. 
WEDNESDAY=
* Enron Corp. sues state officials to stop a Senate subpoena of its financial 
records in a dispute over alleged overcharges for its electricity sales to 
California. The suit comes hours before the committee voted to ask the full 
Senate to cite the Houston-based company for contempt. 
The other subject of possible sanctions, Atlanta-based Mirant Inc., agreed to 
turn over subpoenaed documents. The committee will review Mirant's compliance 
in 30 days and could revisit whether to find them in contempt. 
* State power regulators shelve a plan to save much-needed electricity by 
slightly reducing the juice to common household appliances after a 
misunderstanding with Pacific Gas and Electric Co. 
Regulators at the state Public Utilities Commission were set to approve the 
conservation measure at a meeting Thursday, but will postpone action, saying 
"last-minute concerns" raised by PG&E have made the plan less attractive than 
advertised. PG&E officials said they think the plan is a good one and are 
baffled why the PUC is not passing it. 
* California's two public university systems reach a tentative settlement 
with Enron Energy Systems Inc. to buy cheap power, bringing to an end a 
federal lawsuit accusing the Houston company of wanting to sell the 
electricity at a higher cost. 
* Secretary of State Bill Jones says dozens of energy consultants hired by 
Gov. Gray Davis haven't filed required statements of economic interest. Jones 
says as many as 47 consultants should have to file the statements. Oscar 
Hidalgo, spokesman for the Department of Water Resources, says about 20 
consultants have been told they have until Monday to file those forms. 
* The Assembly Appropriations Committee approves a bill to create criminal 
penalties for energy price gouging. The bill, by Lt. Gov. Cruz Bustamante and 
Assemblyman Dennis Cardoza, D-Atwater, now goes to the Assembly for a vote. 
* The state Energy Commission approves San Diego area "peaker" plant which 
will generate 49.5 megawatts during high-demand periods. The CalPeak Power at 
Border Project is the 11th peaker plant licensed by the commission under an 
expedited review process. 
* Davis helps celebrate the 25th anniversary of the California Conservation 
Corps, particularly their participation in the PowerWalk energy conservation 
program. The corps members have distributed more than 500,000 energy 
efficient fluorescent light bulbs, and by summer's end will have distributed 
more than 1.6 million bulbs, saving 100 megawatts. 
* Shares of Edison International closed at $14.06, up a penny. PG&E Corp. 
stock increases 20 cents to close at $13.75. Sempra Energy, the parent 
company of San Diego Gas & Electric Co., closed at $27.49, down 18 cents. 
* No power alerts Wednesday as electricity reserves stay above 7 percent. 
WHAT'S NEXT=
* The Senate committee investigating possible price manipulation in 
California's energy market meets July 18 to consider compliance by six energy 
suppliers who had documents subpoenaed last month. 
THE PROBLEM:
High demand, high wholesale energy costs, transmission glitches and a tight 
supply worsened by scarce hydroelectric power in the Northwest and 
maintenance at aging California power plants are all factors in California's 
electricity crisis. 
Southern California Edison and Pacific Gas and Electric say they've lost 
nearly $14 billion since June 2000 to high wholesale prices the state's 
electricity deregulation law bars them from passing on to consumers. PG&E, 
saying it hasn't received the help it needs from regulators or state 
lawmakers, filed for federal bankruptcy protection April 6. Electricity and 
natural gas suppliers, scared off by the companies' poor credit ratings, are 
refusing to sell to them, leading the state in January to start buying power 
for the utilities' nearly 9 million residential and business customers. The 
state is also buying power for a third investor-owned utility, San Diego Gas 
& Electric, which is in better financial shape than much larger Edison and 
PG&E but is also struggling with high wholesale power costs. 
The Public Utilities Commission has approved average rate increases of 37 
percent for the heaviest residential customers and 38 percent for commercial 
customers, and hikes of up to 49 percent for industrial customers and 15 
percent or 20 percent for agricultural customers to help finance the state's 
multibillion-dollar power buys. 
Track the state's blackout warnings on the Web at 
www.caiso.com/SystemStatus.html <http://www.caiso.com/SystemStatus.html>. 
,2001 Associated Press 




Enron files suit over subpoena 
Provider challenges move for documents 
Lynda Gledhill, Chronicle Sacramento Bureau <mailto:lgledhill@sfchronicle.com>
Thursday, July 12, 2001 
,2001 San Francisco Chronicle </chronicle/info/copyright> 
URL: 
<http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/07/12/
MN193079.DTL>
Sacramento -- In another escalation in the war between California and 
out-of-state energy providers, Enron Corp. filed a lawsuit yesterday 
challenging the Legislature's authority to subpoena company documents. 
The suit came as a Senate panel investigating market manipulation voted 6 to 
0 to move forward with a contempt motion against Enron. A report will be 
forwarded to the full Senate early next week if the marketer continues to 
refuse to comply with the subpoena. 
"You just went to war with the state of California," Sen. Steve Peace, D-El 
Cajon, told the lawyer representing Enron. ". . . You already initiated a war 
economically; now you're in a political war." 
The Senate committee investigating price manipulation found Enron and Mirant 
Corp. in contempt last month for not turning over subpoenaed documents. The 
finding against Mirant was vacated yesterday because it agreed to turn over 
documents. 
The committee, chaired by Sen. Joe Dunn, D-Santa Ana, requested documents 
from power providers in early April. When the requests were ignored, the 
committee issued subpoenas asking generators for documents covering business 
plans, operations, risk management and investment strategies. 
Peace argued that forcing a judge to decide the scope of the Legislature's 
authority could provoke a constitutional crisis. 
"You are treading into the territory of asking the court to make judgment on 
the rules and the law governing the rights of the Legislature," Peace said. 
"It is a separation of powers issue of the highest order." 
But Michael Kirby, a lawyer hired by Enron, said the Houston company was 
simply looking for due process. 
"A subpoena is a subpoena and once you go that route you must comply with the 
law," he told the committee. "We are entitled to some kind of hearing with a 
neutral arbitrator. It was not our preference to file a lawsuit." 
Kirby and the lawsuit cite several objections to the Senate's subpoena. These 
include the confidentiality of the documents and whether a California body 
can require documents from outside the state. Enron also says that only 
federal regulators have the power to subpoena their records. 
Kirby and members of the committee disagreed over the scope of what a 
legislative subpoena covers versus one used in a criminal matter. 
"I think there is a fundamental misunderstanding about our legislative 
inquiry," Dunn said. "We are not drawing conclusions about guilt or 
innocence. We want to see what fixes must be made in the law." 
Kirby did say Enron has set up a depository in Sacramento and has 30,000 
documents ready to be deposited, pending an agreement can be reached on 
confidentiality issues. 
But that is not good enough for committee members, who believe that Enron has 
continue to evade the committee. 
"We have no indication that Enron ever intends to comply with the subpoena, " 
said Sen. Debra Bowen, D-Marina del Ray. 
E-mail Lynda Gledhill at lgledhill@sfchronicle.com 
<mailto:lgledhill@sfchronicle.com>. 
,2001 San Francisco Chronicle </chronicle/info/copyright> Page A - 15 






PUC cancels vote to drop voltage levels 
PG&E tells commission its electric distribution system is already operating 
at minimal power 
David Perlman, Chronicle Science Editor <mailto:dperlman@sfchronicle.com>
Thursday, July 12, 2001 
,2001 San Francisco Chronicle </chronicle/info/copyright> 
URL: 
<http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/07/12/
MN27161.DTL>
Faced with objections by Pacific Gas and Electric Co., the California Public 
Utilities Commission called off a vote yesterday that would have allowed 
power companies to lower the voltage levels they supply to their customers. 
PUC Chairwoman Loretta Lynch promptly said she was exasperated by the 
company's attitude, because until yesterday, she said, officials there had 
appeared to be going along with the state's energy-saving effort. 
Dropping the voltage carried by power lines by as little as 2.5 percent was 
proposed last month by Bill Wattenburg, an engineer and consultant to the 
Lawrence Livermore National Laboratory who said that the move could save 
enough energy statewide to equal the output of a 500-megawatt power plant. 
His proposal was supported by Energy Commissioner Arthur Rosenfeld and Robert 
Kinosian, the PUC's energy adviser. 
Officials at Southern California Edison and San Diego Power & Light Co. had 
already agreed to make the move and the state PUC had been scheduled to vote 
today on amending its voltage rules to permit the change. 
But lawyers for PG&E filed a 10-page document with the commission on Tuesday, 
saying that its electricity distribution system "is already operating at the 
lowest voltages possible" and that it would take about three months to adjust 
even 10 percent of its system's circuits. 
"While some further voltage reductions can be made, substantial additional 
peak demand power reductions are not available," the company told the 
commission. 
According to Wattenburg, the two big Southern California utilities could save 
the equivalent of at least 200 megawatts and that PG&E could save an 
additional 200 to 300 megawatts. Total electricity consumption throughout the 
state during summer can reach as high as 40,000 megawatts. 
The concept of lowering power line voltages in an attempt to save energy has 
been applied by utilities in several other states, but it remains 
controversial. 
Michael O'Hare, an engineer and professor of public policy at the University 
of California at Berkeley, insists that energy economies from voltage 
reductions "are precisely zero" when they are applied to refrigerators, 
air conditioners or "anything else controlled by a thermostat" because they 
would merely run a little longer than they do with full voltage. 
"In sum," O'Hare said in a recent comment to The Chronicle, "the promised 
efficiencies from voltage reduction are either imaginary or subject to being 
nibbled away by human compensating behavior" -- in other words, by people 
using electric bulbs with higher wattages or by setting thermostats lower on 
their air conditioners. 
An electrical engineer who designs substations for Silicon Valley industries 
and who asked that his name be withheld commented: 
"The theory of voltage reduction is a bit of smoke and mirrors. Unless you 
were looking at your lights when the reduction happened, you would not know 
the difference, but the time it takes to make that morning coffee or create 
some hot water when you are last in line for the shower would seem like 
forever." 
E-mail David Perlman at dperlman@sfchronicle.com 
<mailto:dperlman@sfchronicle.com>. 
,2001 San Francisco Chronicle </chronicle/info/copyright> Page A - 15 







Power regulators hold off on energy-savings plan 
JUSTIN PRITCHARD, Associated Press Writer
Thursday, July 12, 2001 
,2001 Associated Press 
URL: 
<http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2001/07/12/state
0320EDT0111.DTL>
(07-12) 00:20 PDT SAN FRANCISCO (AP) -- 
State power regulators are poised to protect consumers from a problem they 
don't yet confront -- phone companies trying to shut down their service 
because they haven't paid for all the sodas, pizzas, and lattes they used 
their cell phones to buy. 
Cellular service providers in other countries -- notably Japan -- have rigged 
their phones to bill some goods, and U.S. companies are eager to catch up. 
But once they get around to offering such services, cellular providers in 
California won't be able to disconnect subscribers whose fast-food gluttony 
lands them with fat bills they can't pay. Not if the state Public Utilities 
Commission has its way. 
The PUC is scheduled to pass that "first-in-the-nation" consumer protection 
at its Thursday meeting, according to President Loretta Lynch. 
What the PUC will not be addressing is a plan to save much-needed electricity 
by slightly reducing the juice to common household appliances. That plan was 
shelved by a misunderstanding between the PUC and Pacific Gas and Electric 
Co. 
Lynch said the PUC was set to approve the conservation measure at Thursday's 
meeting, but will postpone action due to PG&E's "last-minute concerns" that 
make the plan less attractive than advertised. 
Under the proposal, the state's three largest utilities would reduce the 
voltage from 120 volts to about 117 volts. While that would have little 
effect on individual lights and appliances, bundled together the savings 
would reach hundreds of megawatts -- in a pinch, enough to avert rolling 
blackouts. 
PG&E officials said they think the plan is a good one and were baffled why 
the PUC postponed debating it. 
At issue are how much power the plan would actually save, how long it would 
take to implement, and whether it might make some service less reliable. 
PG&E promised hundreds of megawatts in savings within a month, but in papers 
submitted late Tuesday reduced those expectations to 40 megawatts over a 
three-month span, said Robert Kinosian, energy adviser to PUC President 
Loretta Lynch. 
"Every sort of thing in implementing this was more problematic than before," 
Kinosian told reporters Wednesday. "I thought that everybody was working on 
the same page, until yesterday." 
Lynch blamed PG&E for taking the shine off what appeared to be a sparkling 
way to reduce electricity demand with little downside. 
But Lynch misunderstood PG&E's comments, according to Les Guliasi, the 
utility's director of regulatory relations. He said PG&E would happily reduce 
voltage to save the 40 megawatts -- enough to power about 30,000 homes. 
"I think she should read over the comments," Guliasi said. "We've been very 
up front and forthcoming in these discussions." 
Indeed, Guliasi said, PG&E already has implemented "voltage reduction" across 
much of its system. Because of that, he said, there's not much more the 
utility can squeeze out of the program. 
The comments PG&E filed with the PUC Tuesday conclude that the utility "is 
ready and willing to immediately implement the voltage reductions." 
Now that won't happen before the PUC meets Aug. 2. At that meeting, Lynch 
said, the commission might approve voltage reduction for Southern California 
Edison and San Diego Gas & Electric Co. -- even if problems with PG&E are not 
resolved. 







Regulators order utilities to form regional systems 
Giant step toward national deregulation 
Christian Berthelsen, Chronicle Staff Writer 
<mailto:cberthelsen@sfchronicle.com>
Thursday, July 12, 2001 
,2001 San Francisco Chronicle </chronicle/info/copyright> 
URL: 
<http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/07/12/
MN167808.DTL>
In a move that pushes the nation farther down the path of deregulating its 
power systems, federal energy regulators yesterday ordered that transmission 
grids in the Northeast and Southeast be combined to form regional systems. 
The decision represents a victory for marketing companies that buy, sell and 
trade electricity. Power marketers such as Enron, based in Houston, which 
have created a new kind of business buying power where it is abundant and 
selling it where it is scarce, had fought for creation of the regional 
systems. 
They argued that utility ownership created a costly barrier to entry in many 
markets and that more regional systems would better enable them to transmit 
power over longer distances. 
The Federal Energy Regulatory Commission has been slowly nudging power 
interests toward the regional systems for two years. Yesterday, in a sudden 
and aggressive demonstration of its intent, the commission ordered three 
independent system operators covering 12 Northeastern states to form one 
regional transmission group, and ordered four utilities in the Southeast, 
including Southern Co. and Entergy, to form another system. 
Under the latest federal orders, utilities that own or control power lines 
will have to turn them over to nonprofit groups called regional transmission 
organizations that will manage them. The groups would set rules for the 
regional market systems and facilitate easier transmission of power across 
state lines. 
A similar move has been proposed in California, but California power grid 
managers and utilities have resisted it, saying the market in the state is 
broken and needs to be fixed before further deregulatory steps can be taken. 
In a filing with the regulatory commission last month, the California 
Independent System Operator, Southern California Edison and San Diego Gas & 
Electric resisted federal attempts to push the state into a regional system 
too quickly. 
"Most of the rest of the West is leaning toward weak ISO/RTO structures that 
give far too much power to marketers and not enough to the central 
authority," said Mike Florio, a lawyer for The Utility Reform Network, a 
consumer advocacy group. "We have seen where that got us in California." 
E-mail Christian Berthelsen at cberthelsen@sfchronicle.com 
<mailto:cberthelsen@sfchronicle.com>. 
,2001 San Francisco Chronicle </chronicle/info/copyright> Page A - 15 




Universities, Enron cut deal on electricity 
Prices 5% below limited rate 
Tanya Schevitz, Chronicle Staff Writer <mailto:tschevitz@sfchronicle.com>
Thursday, July 12, 2001 
,2001 San Francisco Chronicle </chronicle/info/copyright> 
URL: 
<http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/07/12/
MN151542.DTL>
The University of California and the California State University systems won 
their fight yesterday to prevent Enron Corp. from cutting off their 
electricity and throwing them back to the state's utilities. 
Although the universities had signed four-year contracts with Enron as 
protection from the uncertainties of California's deregulation, the Houston 
energy broker dropped service to the universities on Feb. 1 so it could sell 
the power for more money elsewhere. 
That left the university systems relying on Pacific Gas and Electric Co. and 
Southern California Edison, which were struggling to survive and subject to 
rolling blackouts. 
The university systems won a court injunction ordering the service restored. 
When an appellate judge suspended the injunction, the two sides got together 
to reach an agreement. 
"Our primary objective was to get restored as direct-access customers, and we 
are now restored," said UC spokesman Chuck McFadden. 
Until the contract expires March 31, 2002, the university systems will be 
guaranteed power at prices 5 percent below the capped rate created under the 
state's 1996 deregulation law. 
Enron and the universities will also discuss a two-year contract extension. 
Mark Gutheinz, chief of plant, energy and utilities for CSU, said the 
settlement "will save us quite a bit of money in the long run, and it will 
give us a more stable supply of power." 
Peggy Mahoney, spokeswoman for Enron, said the company planned to take back 
all its direct-access customers even before the agreement was reached. 
"We are very happy that it is over. We have been working with them all 
along," she said of the universities. 
With UC's systemwide peak load at 332 megawatts and CSU's at 117 megawatts, 
the universities together rank as the largest single user of electricity in 
California. 
E-mail Tanya Schevitz at tschevitz@sfchronicle.com 
<mailto:tschevitz@sfchronicle.com>. 
,2001 San Francisco Chronicle </chronicle/info/copyright> Page A - 15 




Voltage cut won't work, PG&E warns 
Published Thursday, July 12, 2001, in the San Jose Mercury News 
BY MICHAEL BAZELEY 

Mercury News 


In a move that blindsided state regulators, Pacific Gas & Electric officials 
have raised serious concerns about a novel plan to conserve energy by 
reducing the voltage sent into homes and businesses. 
Company officials told the Public Utilities Commission this week that its 
electric distribution system is already operating at a low voltage level and 
that any energy savings would fall short of expectations. 
What is more, company officials said they would not be able to complete the 
voltage changes for three months -- too late to help the state if hot summer 
weather forces rolling blackouts. 
At the urging of Gov. Gray Davis, the PUC was to consider today changing its 
regulations to allow utilities to lower their voltage, possibly starting this 
month. 
Officials said they were stunned to receive a filing from PG&E Tuesday 
afternoon raising concerns about the proposal. Scientists, the PUC and 
utilities have been working on the voltage reduction plan for more than a 
month, and PG&E voiced no major concerns before now, PUC officials said. 
``It's quite unfortunate that even though we had a cooperative process . . . 
those concerns were not submitted earlier,'' said PUC President Loretta 
Lynch. ``It's derailed at this point so we can be serious about addressing 
PG&E's concerns.'' 
Lowering voltage 
The change, championed by scientist and talk show host Bill Wattenberg, would 
crank down the voltage on the state's electrical grid from about 120 volts to 
117 volts, a drop of about 2.5 percent. 
State officials expected the reduction to go unnoticed by most users and to 
conserve about 500 megawatts of power during peak periods -- enough to 
possibly spare the state from blackouts on high-demand days. 
About half that energy savings was expected to come from PG&E customers. But 
in their filing with the PUC, utility officials said their system is 
``already operating at the lowest voltages possible'' under current 
regulations. The company said that, at most, it could probably reduce load by 
about 40 megawatts. 
``We are operating at the low end of the system,'' said Les Guliasi, director 
of regulatory relations for the utility. ``We've been very up front and frank 
with what we could achieve with these savings.'' 
Lynch's energy adviser, Robert Kinosian, said 40 megawatts is ``significantly 
lower than what they said before.'' 
``If 40 megawatts is all we're going to get, should we even take the time to 
do it?'' Kinosian said. 
Southern California Edison officials also said their reductions would be 
lower than state officials expected. John Ballance, director of network 
engineering for Edison, said Wednesday the utility could probably shave 100 
to 150 megawatts off its load with the lower voltage. 
Disputing numbers 
PG&E spokesman John Nelson said the utilities have insisted all along that 
the 500-megawatt savings touted by Davis and others was unreasonable. 
``All the utilities have disputed that number,'' he said. 
Wattenberg, who has been helping PG&E test the voltage reduction idea, said 
he doubted the utility was operating at the low end of the voltage range. 
``That's funny,'' Wattenberg said from his Sierra home. ``I'm sitting here 
with 122 volts.'' 
Kinosian said the PUC would study PG&E's concerns and might send inspectors 
out to test the utility's system. If necessary, he said, state regulators 
could go ahead with the reductions elsewhere in the state. 


Contact Michael Bazeley at mbazeley@sjmercury.com 
<mailto:mbazeley@sjmercury.com> or (415) 434-1018. 






Energy dispute goes to court 
Published Thursday, July 12, 2001, in the San Jose Mercury News 
BY DION NISSENBAUM 

Mercury News Sacramento Bureau 


SACRAMENTO -- A Texas-based power company moved to thwart an investigation of 
alleged price gouging in the electric industry by taking its case Wednesday 
from the Capitol to the courthouse. 
The legal action prompted angry lawmakers to accuse Enron of escalating its 
dispute with the state. 
``You just went to war with the state of California,'' a seething state Sen. 
Steve Peace, D-La Mesa, told Enron's attorney at a hearing. 
Enron's lawsuit forced the legislative investigation of alleged price gouging 
into uncertain territory with some legal experts predicting that the issue 
might have to be settled by the U.S. Supreme Court. 
The lawsuit was the latest salvo in an ongoing political and economic battle 
over billions of dollars companies such as Enron have made during the energy 
crisis. 
Enron filed its lawsuit in Sacramento Superior Court an hour before its 
attorney was scheduled to appear before a Senate committee that two weeks ago 
declared them in contempt for refusing to turn over thousands of pages of 
documents. 
The power company argued in its lawsuit that the committee had no authority 
to subpoena out-of-state records or examine highly confidential trade 
secrets. Lawyers also argued that the Legislature was treading on federal 
oversight powers. 
In a letter to committee chairman Joe Dunn, an Enron executive suggested the 
probe had unfairly singled out his company to be vilified. 
``It is exceedingly difficult to discern whether the committee's actions are 
designed to uncover the facts underlying the price spikes in California's 
wholesale electric power market, or to create a convenient political 
scapegoat to shoulder the blame for California's policy mistakes,'' wrote 
Steven J. Kean, Enron's executive vice president. 
Dunn, a Democrat from Garden Grove, suggested Enron was trying to undermine 
his investigation and spark a constitutional crisis by asking the courts to 
overrule the Legislature. 
``This first step into the litigation arena may be the first of many in an 
effort to intimidate us out of completing the investigation,'' said Dunn. 
``This raises the stakes dramatically.'' 
A few hours after Enron filed the suit, Dunn and his committee unanimously 
reaffirmed a contempt finding and voted to send a report to the full Senate 
next week. At that point, the Senate would have broad authority to decide how 
to penalize Enron. It could vote to throw company executives in jail, as the 
Senate did in 1929 during a price fixing investigation of the cement 
industry. It could vote to fine Enron. Or it could decide on some other 
penalty. 
But Dunn and the other lawmakers gave Enron another chance to turn over the 
kinds of documents other companies have given to the committee. 
So far, a half dozen other companies have managed to avoid similar threats by 
turning over, or agreeing to turn over, thousands of pages of confidential 
papers. 
On Wednesday, the committee withdrew a contempt finding against Mirant, which 
turned over more than 100,000 documents. 


Contact Dion Nissenbaum at dnissenbaum@sjmercury.com 
<mailto:dnissenbaum@sjmercury.com> or (916) 441-4603. 






Regulators Look to Develop Markets 

July 12, 2001   

WASHINGTON (AP) via NewsEdge Corporation - 
Despite California's problems with electricity deregulation, the Federal 
Energy Regulatory Commission reinforced its commitment Wednesday to 
developing broad, regional power markets. 
The FERC, which regulates wholesale electricity markets, directed power grid 
managers in the Northeast and in the South to develop broad regional power 
transmission management organizations. 
By unanimous votes, the agency rejected proposals in both regions of the 
country for smaller geographical markets. 
The FERC kicked back proposals for separate regional transmission 
organizations in New England, New York and the mid-Atlantic states. 
Regulators said the parties should develop a single regional organization 
covering all three areas. 
At the same time, the commission said it wanted a broad organization covering 
most of the Southeast as well. In both cases, the agency directed that a 
mediator help the regions develop the new regional power market systems. 
The commissioners have maintained that large, regional power management 
organization are necessary if electricity is to flow freely in a competitive 
marketplace. 
``The actions will go a long way toward facilitating ... more efficient 
regional power markets,'' said Lynne Church, president of the Electric Power 
Supply Association, which represents independent power producers. 
The vote was the first on the issue since two new commissioners _ Pat Wood 
and Nora Brownell, both appointed by President bush _ joined the commission. 






News 
For now, electricity crisis has dimmed
Karen Brandon, Tribune staff reporter

07/12/2001 
Chicago Tribune 
North Sports Final ; N 
Page 8 
(Copyright 2001 by the Chicago Tribune) 
The lights have been on all summer in California . Given the extent of the 
ongoing energy crisis, this is considered a feat, but by no means does it 
signal the end of the drama that is likely to be playing in the West for 
years to come. 
With demand down significantly and supply up, Henwood Energy Services Inc., a 
power industry consulting and software firm, predicts California won't face 
any more blackouts. 
"We're now saying there's a fairly good chance we should be able to avoid 
blackouts this summer," said Richard Lauckhart, senior project manager in 
Sacramento. In March, the company predicted California would be plagued by 
300 hours of blackouts over the summer. 
Still, he cautioned, the energy crisis in the West isn't over. "The financial 
and political crisis is going to drag on for a long time," he said. 
Indeed, many analysts say the real test of all the measures being taken to 
keep demand down and supply up is yet to come. 
"We shouldn't take too much comfort that we had a pretty good June," said 
James Bushnell, co-director of the University of California -Berkeley Energy 
Institute. "June is usually pretty good. August and September are peaks." 
The last blackout in California was May 8; the only outage since then briefly 
hit parts of Las Vegas. 
California has fared much better this summer than anyone expected. 
The demand for electricity is down, the result of myriad efforts to conserve 
electricity , including making deals to close aluminum companies that are 
huge electricity users in the Northwest and letting some farms lie fallowto 
use less water. 
Even the economic downturn may be playing a role, analysts said. "We don't 
know whether it's just the fact that the economy slowed down, and the timing 
was right, or incentives and exhortations to be good citizens and conserve 
helped us squeak by," said Bushnell. 
In California , usage is down 12 percent from June 2000 to this June, even 
with differences in weather taken into account. During peak periods, usage is 
down by 14 percent. The state is considering a plan that would allow 
utilities to reduce the voltage slightly to homes and businesses during peak 
periods. 
At the beginning of the year, when the crisis seemed to be at its peak, many 
old plants were under repair, and power providers were suspected of 
withholding power to inflate prices. Since then, repairs have been made, and 
federal and state oversight of plants has increased. 
Federally imposed price limits have helped to moderate electric bills. "I 
don't think the [wholesale] price has gone for $95 a megawatt hour," said 
Paul Joskow, director of the Center for Energy and Environmental Policy 
Research at the Massachusetts Institute of Technology. "Last year, you could 
have gotten over $700." 
In Northern Illinois, wholesale electricity prices in Commonwealth Edison 
Co.'s territory were about $36 per megawatt hour in June, according to Platts 
Energy Trader. 
Prices in California have been volatile. June 1998 was the cheapest month for 
electricity purchases that year, with rates averaging $12 a megawatt hour, 
compared with $90 a megawatt hour that was the average this June, Bushnell 
said. 
"They're not out of the woods yet since it can still get hot in California 
and the West," Joskow said. The price "depends a lot on the weather." 
The political situation is already very hot. The lights may be on, but 
Californians are beginning to realize just how much they are paying. State 
leaders who once debated what to do with a budget surplus are contemplating 
the financial repercussions of the electricity crisis. 
In January, California began buying electricity for the customers of the 
state's largest utilities, which have been financially crippled because they 
had to buy power at high prices and could not pass on the increases to their 
customers. 
But the electricity purchases are draining the state's coffers. As details of 
the state's $43 billion purchase of long-term electricity contractsemerge, 
many are questioning the deal, and the prospect of renegotiation looms. 







Economy 

Regulators Order Formation of Big Grids
To Optimize the Flow of Electricity in U.S.
By Rebecca Smith

07/12/2001 
The Wall Street Journal 
Page A2 
(Copyright (c) 2001, Dow Jones & Company, Inc.) 
The Federal Energy Regulatory Commission said it wants four big 
electric-transmission organizations formed that will optimize the flow of 
electricity in the Northeast, the Southeast, the Midwest and the West. The 
push to consolidate the operation of high-voltage transmission systems is an 
attempt to create a solid foundation for competitive power markets that have 
been sullied by California 's market failure. 
The commission said it wants utilities and independent grid operators in the 
Northeast and Southeast regions to meet with FERC mediators within one week 
and hammer out plans within 45 days to form two broad organizations to 
centrally manage power markets and energy flows in the East. The action 
illustrates the FERC's frustration with the slow pace of 
electric-transmission consolidation and is expected to be followed by similar 
orders for the Midwest and the West. 
The federal orders are intended to accelerate development of 
electric-transmission organizations that the FERC endorsed in a landmark 
decision called Order 2000 issued in December 1999. In that order, the FERC 
urged utilities to voluntarily surrender control of their transmission 
systems to grid organizations that would run daily markets for power and 
manage power flows across multiutility regions. The agency said consumers 
would benefit from larger, more efficient wholesale- electricity markets in 
which transmission owners no longer would be able to give their own power 
sales preferential access to the power-delivery system, snubbing lower-cost 
competitors. 
In addition, formation of regional transmission organizations, or RTOs, would 
propel "postage stamp pricing" for transmission services, FERC said, so 
suppliers could move power across vast distances for a single charge instead 
of incurring "pancaked" costs as power traversed separately operated systems. 
Commissioner William Massey described yesterday's directives as a "watershed" 
because "never before have we been as explicit" about the FERC's resolve to 
form big grid organizations "that can't be gerrymandered according to what 
utilities want to do." 
The FERC orders likely will face resistance in the Southeast, where states 
haven't deregulated their retail electricity markets and where fear of 
federal control is particularly acute. "My guess is that those states will 
say, `We're happy with what we've got and with keeping control over our own 
utilities,'" said Frank Wolak, an economics professor and power-markets 
expert at Stanford University. "Any state that surrenders control to FERC, 
after what's happened in California , isn't thinking clearly." 
The directive also creates big problems for existing grid-running 
organizations that thought they already were doing what the agency wanted. 
Currently, New York, New England and the mid-Atlantic states each are 
represented by separate, nonprofit independent system operators, or ISOs, 
that operate transmission systems still owned by local utilities. PJM 
Interconnection LLC, which controls power flows in the mid-Atlantic region, 
is regarded as having the best market structure. The FERC said it intends the 
PJM "platform" to be used as the basis of a single Northeast grid-running 
organization. 
That upsets the plans of the other two operators that have been working with 
PJM to harmonize market rules and create a "virtual RTO" that would permit 
suppliers to schedule power flows across all three ISO areas. Such a virtual 
structure would preserve the underlying organizations, each of which has its 
own control rooms, computer systems and governing boards. 
Carol Murphy, spokeswoman for the New York ISO, said attempts to smooth out 
market incongruities, or "seams issues," likely will be halted now. She said 
her organization will participate in the mediated talks, as directed, but it 
intends to conduct a cost-benefit analysis to determine whether consolidation 
really offers substantial benefits. 
Some market watchers had expected the FERC to compel utilities to surrender 
operational control of their power lines to the independent operators by Dec. 
15, as required in Order 2000, but only push them to merge into giant 
regional organizations in three to five years. Commissioner Patrick Wood said 
that approach seemed slow and wasteful. "These organizations aren't cheap to 
set up," he said. "And why have eight or 10 organizations in the East when a 
couple will do?" 
The FERC actions also show the commission is becoming more confident about 
the organizational structure it believes best for competitive markets. When 
it began pushing electricity deregulation after 1992, the agency conceded it 
didn't know which market design was best and encouraged experimentation. Mr. 
Wood said the FERC's "glorious inattention to detail" is partly to blame for 
California 's distress. He said the agency may establish field offices to 
better monitor market health. 
Mr. Wood said a FERC workshop last month aimed at eliminating seams issues 
between the three Northeast ISOs convinced him that market participants are 
"crying out for more leadership from FERC."