----- Forwarded by Steven J Kean/NA/Enron on 02/28/2001 02:15 PM -----

	Alan Comnes@ECT
	02/26/2001 12:08 PM
		
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		 Subject: Most of West in the Same Power Jam as California

  
The print version had some good tables showing retail rate increases accross 
the west ....

http://www.latimes.com/business/reports/power/lat_west010226.htm
Back to story
 
 
Most of West in the Same Power Jam as California
 Utilities: Other states ran their grids at fever pitches as populations 
swelled and few new energy sources were developed. Now, also facing 
blackouts, they want to tilt balance of power away from the Golden State and 
toward themselves.


By PETER G. GOSSELIN, Times Staff Writer


     WINTERSBURG, Ariz.--For more than a century, California ran a simple 
account with the rest of the West: It demanded and the West supplied, most 
especially water and power.
     But as the Western states have ballooned in the last decade--in no small 
part because of an outbound trek of Californians--this simple, supply-demand 
relationship has broken down.
     Fundamentally, the rest of the West has outgrown its electrical system 
just as California has its own. And it has done so in very much the same 
way--by adding too many people without enough new power or conservation.
     Indeed, statistics show that much of the rest of the West would have 
been on the verge of trouble even without California's help and may yet face 
the sort of rolling blackouts that have wreaked so much havoc in the Golden 
State.
     The booming Southwest has run its power grid at such a fever pitch that 
its planning reserves--the extra power that utilities build in to handle 
emergencies--have shrunk to levels that many regulators and industry experts 
consider dangerous.
     Almost none of the West save Montana has increased its power production 
at anything like the pace of its population growth during the last decade. 
Despite the long economic boom of the 1990s, which smiled especially on the 
West, several, such as Arizona, have failed to complete a single new power 
plant.
     "We don't know how bad it's going to be yet," said Utah's Republican 
governor, Mike Leavitt. "We won't know that until May, June, July and August, 
when everyone in the Southwest turns on their swamp coolers."
     In trying to dodge the blackout bullet, many Western leaders are seeking 
to force a great change on the region: to renegotiate their states' basic 
deal with California. They want to end an old relationship--that between 
center and hinterland, colonizer and colonized--and establish a new one that 
could curtail California's long regional dominance.
     In the strange chemistry of the moment--when a once-Republican state 
government has turned Democratic and a once-Democratic national government 
has turned Republican, when the battle is to a large extent over privately 
owned electricity rather than publicly controlled water--they could actually 
meet with some success.
     "California spent the 20th century decolonizing itself from Wall Street 
and the East," said Kevin Starr, the state librarian and author of a 
multivolume history of California. "Now, all of a sudden, there's a dramatic 
possibility of it being recolonized, at least in part, by the rest of the 
West."

     Captive Plants Feed Power to California
     Ground zero for these changes lies 50 miles west of Phoenix in the dry 
scrublands of Wintersburg. This is home to the Palo Verde nuclear facility, 
now the nation's single biggest power producer. It will soon be home as well 
to between three and six new gas-fired power plants that, combined, will 
produce even more electricity than their giant neighbor.
     Palo Verde represents a great deal about the old, fraying world of 
regulated utilities and about the supply-demand relationships that California 
once maintained with the rest of the West.
     More than one-quarter of the plant is owned by Los Angeles' municipal 
utility, the Department of Water and Power, several other California cities 
and Southern California Edison.
     A row of steel latticework towers runs off toward California, carrying a 
transmission line from plant to consumer. California has big stakes in a 
half-dozen similarly captive plants in an arc of states from Nevada to New 
Mexico.
     From California's point of view, the beauty of these projects has been 
that they provided near-certain power without the muss of meeting state 
pollution standards or the political hassle of building closer to home.
     And at least until the mid-1990s, California regulators virtually 
guaranteed that their owners covered their costs and made profits, even if 
plants' power wasn't immediately needed.
     "The first principle of the old system was that you had to be able to 
meet demand, no matter what," said Paul L. Joskow, a veteran utility 
economist at the Massachusetts Institute of Technology.
     "If you had too much power, if it cost you a little too much, that was 
less important than being sure you could meet demand." And, he added, "you 
had regulators watching to make sure you did."
     The gas-fired plants that are about to pop up in Wintersburg are also 
representative, but of the new, deregulated world of power production. 
Although they will crowd in around Palo Verde and tap into the same 
California transmission line, they are being built on an entirely different 
business premise: selling power to the highest bidder.
     In fact, the reason this empty patch of desert has become such an 
electricity hot spot lately is not Palo Verde itself, but its huge 
transmission lines. In addition to the California line, four others fan out 
from the plant: two back to Phoenix, one east to New Mexico, and one north to 
Utah and from there to the Northwest.
     All were built to hard-wire the nuclear project to its owners. But they 
are now seen as the means by which a new breed of producer can get top dollar 
by sending power wherever prices are highest.
     "It used to be generating capacity was built by people who looked at the 
market to see if they could meet demand," said Jack Davis, president of 
Pinnacle West Capital Corp., which owns Arizona's major utility and is 
putting up two of the Wintersburg plants.
     "Now," he said approvingly, "it's being built by people who look at the 
market to see if you can make a lot of money."

     Plans Go Awry in Many States
     Money, not the watchful eye of government, was what was supposed to 
assure that electricity deregulation worked. The opportunity to make it would 
cause investors to flock to the electricity business, ensuring that plenty of 
new power plants got built.
     If too many went up, it would be investors, not ratepayers, who 
suffered. If too few, then high prices would attract still more investors, 
more plants and, ultimately, more power.
     But to date, almost nothing about deregulation has gone as planned--and 
not just in California, but in the West in general.
     Take Arizona. The state has a hands-off attitude toward business, 
including its utilities. It has almost none of the environmental restrictions 
blamed for keeping California from putting up the new plants it needs.
     Its population grew by 40% from 1990 to 2000, according to the Census 
Bureau. And its demand for electricity expanded at nearly twice that rate, 
according to industry figures.
     "Arizona should have been a power producer's heaven," said A. Michael 
Schaal, a senior analyst with Energy Ventures Analysis Inc., a prominent 
Washington-area consulting firm.
     But Arizona's power production rose a mere 4% during the 1990s, mostly 
as a result of improving existing plants. Until 18 months ago, no one had 
applied to build a major power plant since Palo Verde in the late 1980s.
     "I guess I go on the assumption that the utilities plan with some sort 
of 10-, 20-, 30-year time horizon," Arizona's Republican Gov. Jane Dee Hull 
said in a recent interview. "I think what we all worry about is: Are they 
planning?"
     Or Nevada. Its utilities apparently did plan and increased 
electricity-making capacity between 1990 and 2000 by a substantial 44%. But 
that wasn't enough to keep up with the state's population, which increased 
66%. On Thursday, Nevada Gov. Kenny Guinn, a Republican and former energy 
company executive, indefinitely halted deregulation in his state.
     Or traditionally energy-rich Washington state. One of its major 
utilities, Seattle City Light, recently learned that all of its previously 
planned supply increase for the next four years will be consumed, and then 
some, by just three new customers: computer server farms being built to 
handle the growing Internet traffic in and out of the high-tech capital.
     But it's unlikely to be able to get extra power soon because regional 
supplies are balanced on a "razor's edge," according to Northwest Power Pool 
President Jerry Rust. "We have no cushion."
     Indeed, the electricity supplies of the entire West are balanced on a 
razor's edge, with a variety of forecasters predicting serious shortages this 
summer.
     Schaal, the Washington-area consultant, for example, said the region 
will come up 6% short. "Westerners can expect 150 to 275 hours of rolling 
blackouts, most of them in California," he said.
     One of the most striking aspects of the current situation is that, in 
contrast to what most people think, supplies have not grown short just 
recently.
     They have been perilously tight for the last several years--before the 
start of California's troubles of this summer and fall, and before the 
near-record dry winter that has left the Northwest dangerously short of water 
for its hydroelectric dams.
     The implication is that California did not cause other states to run 
short of power so much as trigger events that exposed their danger. It did 
that, according to key observers, with one monumentally inept maneuver.
     When California required its major utilities to buy power in the 
volatile spot market and simultaneously prohibited them from passing along 
higher costs to consumers, it set off a furious price spiral.
     That effectively stripped the entire region of its energy security 
blanket, the assurance that it could buy extra power relatively inexpensively 
if local supplies proved inadequate.
     The result has been a string of crises across the West.
     In southern Arizona, for example, the San Carlos Irrigation Project, a 
tiny public utility that tried to jump into the deregulation vanguard by 
dropping long-term contracts in hopes of more power at lower prices in the 
spot market, has announced that its bills are going up 300%. Most of the 
project's 13,300 poor customers say they can't pay.
     In Phoenix, utility executives who had confidently said the state was 
rich with new power projects about to come on line have decided to pull two 
50-year-old steam plants out of mothballs and rent a pair of portable 
generators to reduce purchases from the expensive spot market.
     In Idaho, the big power company is appealing to potato farmers to skip 
planting and sell the electricity they would use running irrigation pumps 
back to the firm. Company executives figure the buyback will be cheaper than 
purchasing power on the open market--and the potato farmers are likely to do 
pretty well themselves.

     Deep Hostility in Rest of the West
     The subtle difference between California's triggering recent events and 
actually causing the region's crisis is largely lost in the current 
atmosphere of apprehension and upheaval. Although leaders of the rest of the 
West are scrupulously evenhanded in commenting to outsiders about their big 
neighbor, they are less guarded at home.
     The normally mild-mannered Leavitt, for example, was recently quoted as 
warning a Salt Lake City audience that "California, if given the chance, 
would put a shunt into our veins and bleed us pretty quickly." (In an 
interview, he denied having made the remark.)
     Such comments reflect an old and easily rekindled view among Westerners 
that their states are, in the words of historian Bernard DeVoto, "plundered 
provinces"--terrain that first Easterners and then Californians have 
regularly raided for minerals, water and, most recently, power.
     But this time, some Western leaders think they can change all this. "A 
lot of people see an opportunity to rewrite the fundamental relationship with 
California to their advantage," said Stanford historian Richard White.
     The attempts at rewriting are taking shape across the West.
     In the Northwest, Oregon, Washington, Idaho and Montana are redoubling 
their efforts to take over the Bonneville Power Administration, the huge, 
federally controlled generating system on the Columbia and Snake rivers that 
is one of California's chief sources of summer electricity. 
     "The crisis has highlighted the danger that power generated in the 
region can be exported without the region's consent," Oregon Gov. John 
Kitzhaber said in an interview.
     In Arizona, state officials have gone from having no proposals for new 
power plants to being buried by them. Regulators recently approved the 
construction of 10 plants, including several around Palo Verde, and are 
considering another eight.
     Although they are requiring the plants to temporarily serve Arizona's 
needs first, the facilities will soon be able to sell their power for 
whatever prices they can command, an arrangement that could leave California 
just one among many bidders.
     (Federal officials are unlikely to get in the way: Gov. Hull is close to 
President Bush, who in turn has shown little interest in helping Democratic 
California.)
     Perhaps the most aggressive efforts at change are occurring in Utah, 
where Leavitt is trying something that could become California's worst 
nightmare--recalling power that Utah produces for the state.
     Los Angeles' DWP and several other California utilities own 
three-quarters of the huge, coal-fired Intermountain Power Project in 
west-central Utah, and have been drawing on it without incident for 15 years.
     But Utah officials recently unearthed a long-forgotten provision in 
their agreement with the plant's owners that gives them the right, with 
proper notice, to recall power for local use.
     The state has already notified Los Angeles that it is taking back 50 
megawatts of electricity capacity this summer and another 170 next summer, 
and it may be able to take back still more, according to plant general 
manager Reed Searle.
     Although the amounts are trivial--the Los Angeles utility either owns or 
has firm contracts for more than 7,000 megawatts of capacity--Leavitt said 
Utah will demand similar recall provisions in agreements for any new plants 
in the state, including a 500- to 750-megawatt facility that Los Angeles is 
negotiating to build.
     "California has chosen not to create its own power generation and has 
depended on us to do that," the Utah governor said. "That's fine and we're 
willing to do that.
     "But," he added, "there comes a point at which, if demand grows too 
large, we've got to hold some of this capacity back for ourselves, and for 
our children and grandchildren."
     If Utah and the rest of the West have reached that point, California 
could be in for a much bigger and more enduring shock than the one from which 
it now suffers.


--- 
     Times researcher Lynn Marshall in Seattle contributed to this report.

Copyright 2001 Los Angeles Times