Remember those  days, so long ago, it now seems, when we were considering one of these deals?   Difficult as it is to predict things in California because of continual reversals,  it appears for now,  that history is continuing to  smile  on our decision not to take the "regulatory" risk by entering into one of these infamous contracts. That very risk which we sought to imagine and draft contractual language to deal with, now looms up before everybody's incredulous eyes.   ----cgy

 -----Original Message-----
From: 	Hall, Steve C. (Legal)  
Sent:	Monday, October 01, 2001 8:08 AM
To:	Yoder, Christian
Subject:	FW: Pacificorp Power Marketing under fire

This could have been us.

 -----Original Message-----
From: 	Hall, Steve C. (Legal)  
Sent:	Monday, October 01, 2001 8:03 AM
To:	'mwood@stoel.com'; 'jffell@stoel.com'; 'pljacklin@stoel.com'; 'jehoran@stoel.com'; 'jrboose@stoel.com'
Subject:	Pacificorp Power Marketing under fire



State PUC seeks to void Davis' power contracts 
Deals gouge consumers, agency tells federal regulators 
Bernadette Tansey, Chronicle Staff Writer <mailto:btansey@sfchronicle.com>
Monday, October 1, 2001 
?2001 San Francisco Chronicle </chronicle/info/copyright> 
URL: <http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2001/10/01/MN48825.DTL>
In a move that could undermine California's hard-won control of the power market, state regulators are urging the federal government to throw out prices for some electricity contracts agreed to by Gov. Gray Davis. 
The state Public Utilities Commission, in what amounts to a rearguard action against the governor's power strategy, is arguing that some of the deals gouge Californians. The PUC says energy firms probably took advantage of the state's power crisis earlier this year to charge unfairly high prices, and it wants some of those prices cut. 
"The state is going to get itself into serious trouble with those contracts if they're not renegotiated," Commissioner Richard Bilas said. "I would support anything that would help us get the prices of those contracts down." 
The PUC apparently did not tell Davis administration officials that it was challenging the contracts before the Federal Energy Regulatory Commission. 
"It's definitely not something that's a favorable thing to have happen to us," said Oscar Hidalgo, a spokesman for the state Department of Water Resources, which negotiated the contracts. 
Hidalgo said the long-term contracts, even though more expensive than current market prices, are the bulwark that protects the state from another round of spiraling spot market prices. 
"It would be a mistake to try to void those contracts out," Hidalgo said. "If that's the goal, then we're back to square one. Prices would start to creep up." 
The state is paying an average of $69 a megawatt hour under the contracts it has signed with private generators. Peak prices for electricity last week were less than $30. 
Hidalgo could not say whether the PUC actions could expose the state to lawsuits by the contractors or threaten a planned $12.5 billion bond issue to repay the state general fund for the power purchases. 
Over the past three months, lawyers for the PUC have filed challenges on various grounds before the Federal Energy Regulatory Commission against deals negotiated with PacifiCorp Power Marketing Inc., Alliance Colton LLC, Sempra Energy and a Calpine Corp. subsidiary, said PUC attorney Sean Gallagher. 
SEMPRA, CALPINE CONTRACTS
Taken together, Sempra and Calpine have sold about half the electricity that the Davis administration has agreed to buy in an array of 53 agreements, some of which last 20 years. In all, California has committed to spending at least $43 billion for electricity. 
The deal with PacifiCorp Power Marketing has already come under attack because while the state was negotiating the $1 billion contract, one of Davis' energy consultants owned stock in the power supplier's parent company. 
Gallagher said PUC attorneys may recommend commission actions against other contracts. 
Davis' spokesman Steve Maviglio said Friday the administration couldn't comment until it had studied the PUC submissions. 
The PUC's challenges mark the latest battle between Davis and the five- member commission, which is resisting administration energy policies even though it is controlled by the governor's three appointees. 
The commission has rebuffed Davis' attempts to nail down a mechanism for utility customers to cover the costs of the long-term power contracts and pay off the planned $12.5 billion bond issue. 
STATE TREASURER'S WARNING
State Treasurer Phil Angelides warned last week that the PUC's actions threatened to delay the bond issue and leave a $9 billion hole in the state budget next year. 
PUC President Loretta Lynch opposes the bond plan because it requires the commission to rubber-stamp the power contracts and forces the state to maintain a prolonged role as an energy buyer. 
"We should not, through the instrument of the bonds, lock down the policy choices for the state for 15 years," Lynch said last week. "We should stay as flexible as possible. 
Lynch could not be reached for comment on the commission's challenges to the contracts. 
Commissioner Jeff Brown, Lynch's fellow Davis appointee, said the filings don't rule out Davis' bond financing deal. Nor do they threaten a state default on the long-term contracts, he said. But federal action could help the state improve the deals, he said. 
"The state of California has never consciously defaulted on a contract," he said. "Even if we renegotiate, we'll renegotiate within the confines of the contract." 
Hidalgo, however, said he doubted the state could modify the contracts. Under power granted by the Legislature, he said, the water department made its own finding that the contract prices were reasonable. 
Jan Mitchell, a spokeswoman for ScottishPower, parent company of PacifiCorp Power Marketing, said both sides agreed to the contract after full negotiations. 
"Now another California agency is disputing it," Mitchell said. "We obviously disagree, and we'll continue to work with FERC, making sure the contracts are honored." 
PUC CRITICAL OF DEALINGS
The PUC argues that the Portland energy firm wielded excessive market power when the state signed its 10-year, $1 billion deal with the company July 6. That forced the water department to accept unfair prices to avoid blackouts, the PUC says. 
"News reports suggest that the (water department) paid substantially over the then-current market prices for this contract, prices which will be passed through to California retail ratepayers," the PUC said. 
An energy consultant to Davis, Vikram Budhraja, admitted in August that he owned as much as $10,000 worth of Scottish Power stock while the deal was being worked out. Budhraja sold the stock July 30, and state officials said he had nothing to do with the PacifiCorp Power Marketing deal. 
Uncertainty over the contracts adds to growing turmoil in the state's energy picture. While the issue has slipped from the public eye, Davis' solutions to the energy crisis are meeting resistance not only from the PUC but from fellow Democrats in the state Senate, which has refused to pass his plan to stabilize Southern California Edison's finances and stave off a second utility bankruptcy filing. 
While officials fight among themselves, the energy industry is moving aggressively to reverse state efforts to put the brakes on deregulation. 
PG&E'S PLANT PROPOSAL
PG&E Corp. has proposed to emerge from bankruptcy protection by transferring all the power plants it still owns, as well as its natural gas and power transmission lines, into subsidiaries free of state regulation. 
PG&E says it will protect consumers from a replay of this year's price spikes by selling the power from its new free-market plants at a stable rate through contracts that phase out in nine to 12 years. 
Consumer advocates and state regulators say that stable rate -- 5 cents a kilowatt hour -- is more than 60 percent higher than PG&E now gets under state regulation. 
Assemblyman Fred Keeley, D-Boulder Creek (Santa Cruz County), warned that the state could be heading into a second wave of the energy crisis. 
"The problem with this new phase we're going into is that the concepts are more theoretical and the impacts are very much delayed," Keeley said. "There won't be the same urgency to wrestle this energy monster to the ground." 
E-mail Bernadette Tansey at btansey@sfchronicle.com <mailto:btansey@sfchronicle.com>. 
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