Please see the following articles:

Sac Bee, Tues, 5/10: No deal in energy refund talks

Sac Bee, Tues, 5/10: Third power plant opens: But the Los Medanos 
facility isn't pouring out electricity yet

Sac Bee, Tues, 5/10: State reveals high-priced power deals

Sac Bee, Tues, 5/10: Government finds ways to conserve: The Santa Rita 
Jail goes solar as agencies get creative to cut costs

SD Union, Tues, 5/10: Energy talks reach no settlement; state threatens suit

SD Union, Tues, 5/10: Refunds in jeopardy as talks fail

SD Union, Tues, 5/10: State's massive outlays detailed

SD Union, Tues, 5/10: State releases early spot market energy purchases

LA Times, Mon, 5/9: FERC Judge Says State Owed No More Than $1 Billion

LA Times, Tues, 5/10: Electricity Cost Data Spread the Blame

LA Times, Tues, 5/10: Duke Energy Asked to Allow Release of Data

LA Times, Mon, 5/9: Concern Over Price of Long-Term Power Pacts Grows

SF Chron, Tues, 5/10: State's refund demand rejected 
Judge ends rebate talks, rebukes $9 billion claim 

SF Chron, Tues, 5/10: Davis opens another new power plant 
Pittsburg facility will generate 555 megawatts

SF Chron, Tues, 5/10: California rejects B.C. Hydro $125 million settlement

SF Chron, Tues, 5/10: Davis' criticism of Texas misdirected, report finds

SF Chron, Tues, 5/10: Developments in California's energy crisis

SF Chron, Tues, 5/10: Energy talks reach no settlement; state threatens suit

SF Chron, Tues, 5/10: Toxic fumes not linked to blackouts 
Backup power OK in facilities, report says

Mercury News, Tues, 5/10: Power suppliers, state fail to agree on refund total

Mercury News, Tues, 5/10: Power purchase bills exceed $7.5 billion
Biggest suppliers are not from Texas

OC Register, Tues, 5/10: Refund outlook dims

OC Register, Tues, 5/10: State reveals details of power purchases

OC Register, Tues, 5/10: Ghost of Bob Citron roaming halls of capital
Gray Davis is following footsteps of former O.C. treasurer into fiscal 
chaos      (Commentary)

Individual.com (PRnewswire), Tues, 5/10: Calpine's Los Medanos Energy Center 
Adds
Needed Generation to California Second New Major Base Load Generator for 
California 

NY Times, Tues, 5/10: California and Generators Still Split After 2-Week Talks

Wash. Post, Tues, 5/10: Energy Refund Talks Fail In Calif.; Federal Agency's 
Judge To Propose Settlement

WSJ, Tues, 5/10: California and Energy Companies Miss Deadline

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No deal in energy refund talks 
By David Whitney
Bee Washington Bureau
(Published July 10, 2001) 
WASHINGTON -- Negotiations to settle a tangle of issues arising out of 
California's electricity debacle sputtered to an end Monday with the sides 
light-years apart on refunds for overpriced wholesale power sales. 
The impasse raises the specter of years of litigation, with a regulatory 
judge proposing a formula that could limit refunds to about $1 billion while 
California is seeking at least $8.9 billion and perhaps much more. 
Federal Energy Regulatory Commission administrative judge Curtis Wagner said 
that within a week he'll urge the five FERC commissioners to begin 
fact-finding hearings on how much is truly owed, following guidelines he 
outlined sketchily Monday. 
Among them would be limiting the time when refunds are allowed -- something 
that could reduce state claims by about one-third -- and changing the way 
power plant costs are calculated to a formula more favored by generators. 
Gov. Gray Davis said he was heartened by the judge's belief that California 
is due some amount of refund money, rejecting the generators' arguments for 
no refunds. 
With the 15-day negotiation session nearly moribund, generators and power 
traders had offered up $716 million in proposed refunds in the final days. 
But Wagner indicated that that would have to be offset by money the state 
still owes power companies, meaning no cash would actually change hands. 
The judge held out the possibility that at least two parties, including San 
Jose-based Calpine Corp., could reach separate agreements with the state. 
"From what I know, it looks like we can reach an agreement," Calpine 
spokesman Bill Highlander confirmed Monday. But he said he could not disclose 
any details under Wagner's gag order on participants in the negotiations. 
Enron Corp., one of the nation's highest-profile power traders, said 
California officials killed the talks by never budging from their claims that 
the state's consumers deserved at least $8.9 billion in refunds for 
overcharges. 
"These talks never had a chance," said Enron spokesman Mark Palmer. "Their 
political skins are worth more than $716 million that the taxpayers of 
California could have used. It was about creating and maintaining a tool for 
a witch hunt." 
Of the $716 million compromise offer, $510 million was put on the table by 
what Wagner called the "Big Five" generators -- Reliant, Duke, Mirant, 
Williams and Dynegy -- some of whom are under state investigation. Another 
$125 million was offered by BC Hydro, British Colombia's government utility, 
which is not under FERC jurisdiction, and $16.5 million was offered by six 
California municipal utilities. 
The Sacramento Municipal Utility District, the state's second-largest 
municipal utility, also declined to comment on the talks or any settlement 
amount it may have offered, but said it would outline its position in writing 
Thursday, the judge's deadline for comments on his proposal. 
Consumer advocates and some industry officials said the judge's brief public 
remarks make it difficult to predict exactly what the impacts could be on the 
state's troubled electric scene. 
"If the judge is saying that the refund is topped at a billion that's 
outrageous," said Nettie Hoge, head of The Utility Reform Network. "If 
they're going to start doing some fact finding, hallelujah." 
Hoge said the talks had been unrealistic from the start, because there was no 
effort by FERC to determine how high the overcharges had actually been and 
then work toward a compromise from there. 
The state used a formula calculated by its nonprofit grid operator, the 
Independent System Operator, which was attacked by marketers as wildly high 
even while the state called it conservatively low. 
Joel Newton, representing all five of the big generators, said Monday that 
the ISO has consistently based its demand on "sketchy and incomplete" data. 
The face-off between Davis and power merchants began last fall, as wholesale 
electricity costs were soaring and California utilities warned that they 
could be driven into bankruptcy. 
The governor said generators and traders took advantage of the state's power 
shortage to manipulate markets and gouge consumers. Generators said they 
followed all laws and were only deriving fair profits in a scarcity 
situation. 
FERC, which entered the picture because by law it has to ensure that 
electricity rates are "just and reasonable," has made repeated, unsuccessful 
efforts to craft a solution that could appease both sides. 
State Assembly Speaker Robert Hertzberg, D-Sherman Oaks, said Monday that the 
failure of the settlement talks to agree on a refund figure "comes as no 
surprise." 
Negotiators representing generators "refused to even acknowledge the 
inescapable fact that they have profited enormously by exploiting a 
dysfunctional market -- at California's expense," he said. 
Davis, who had accused the generators of failing to negotiate in good faith 
with state representatives, said that although FERC commissioners have been 
slow to respond to his requests for refunds and for price caps on wholesale 
electricity, they "now have the opportunity to redeem themselves." 
He suggested the commissioners can opt to award California more than is 
recommended by the judge. 
Wagner, after mediating talks that continued throughout the weekend, seemed 
resigned to the fact that trying to bring more than 50 government, utility 
and power generating entities together proved to be an exercise in futility. 
Michael Kahn, head of the California delegation and consultant to the 
California ISO, nonetheless came away thinking the state had fared pretty 
well. 
"We came here wanting $8.9 billion," Kahn said. "In all candor, we didn't 
receive any meaningful settlement offers and so the negotiations were not as 
helpful as we had hoped they would be. But our positions were vindicated" 
because refunds were offered. 
Meanwhile, Pacific Gas and Electric Co. and Southern California Edison 
sounded the call for more talks. 
"We're willing to talk to anyone, anytime about a settlement," said Steve 
Pickett, general counsel of Southern California Edison. PG&E said in a 
prepared statement that the sessions "provide a solid basis for further 
negotiations." 
How much money the state might eventually receive remains the big question 
mark. Wagner said settlement offers of $716 million suggest that eventual 
refunds will amount to "hundreds of millions of dollars, maybe a billion." 
But he also stressed that he would recommend no specific figure to FERC 
commissioners and does not know how big refunds might eventually be. 
Other recommendations Wagner said he would make to the commission were a 
mixed bag for the state. 
The judge said he would recommend refunds no further back than Oct. 2, 2000, 
an action that Kahn said would immediately slice $3 billion off the state's 
refund analysis that stretched back to May 2000. 
But Kahn said that was no defeat for the state, which would turn to the 
courts to recover that and any other sums excluded from a final refund order. 
"We still have a viable litigation claim for the remainder," Kahn said. 
Brent Bailey, vice president and general counsel of Duke Energy of North 
America, said he felt the formula laid out by Wagner would generate a refund 
order in the range of $1 billion to $1.5 billion. 
"It's a reasonable amount in the context of these settlement talks," Bailey 
said. 

The Bee's David Whitney can be reached at (202) 383-0004 or 
dwhitney@mcclatchydc.com. 
Staff writers Emily Bazar and Dale Kasler contributed to this report.



Third power plant opens: But the Los Medanos facility isn't pouring out 
electricity yet. 
By Carrie Peyton
Bee Staff Writer
(Published July 10, 2001) 
The flood of new electricity being welcomed by Gov. Gray Davis was only a 
trickle at the latest power plant that the governor opened on Monday, 
according to sources close to California's energy crisis. 
Heralded by Davis as part of a "powerful one-two-three punch" that will bring 
California closer to energy independence, the Los Medanos Energy Center in 
Pittsburg spit out no more than 20 megawatts on its opening day, they said. 
That is less than 5 percent of the plant's 555-megawatt operating capacity. 
Los Medanos could generate a couple of hundred megawatts later this week but 
is not expected to reach its full output for two to three weeks, according to 
knowledgable sources. 
Representatives for Calpine and the governor's office, when pressed for 
details, acknowledged that the plant was not running at full tilt but said 
they did not know how much electricity was actually produced Monday. 
Calpine, which will bill someone for whatever electricity it sells from Los 
Medanos, is keeping track of the production but the figure wasn't immediately 
available for the media, spokeswoman Katherine Potter said. 
"Even if it was two megawatts, that's two more megawatts that we didn't have 
yesterday," said Davis spokesman Steve Maviglio. 
He said the opening was "largely ceremonial," timed for the convenience of 
the governor and Calpine's top executive. 
But consumer advocate Harvey Rosenfield called the media event "a deception." 
It was the third highly publicized power plant launch the governor has 
attended in the past two weeks. 
"It's the governor trying to convince people he's hard at work solving the 
problem when it's all for show," Rosenfield said. "He's governing by sound 
bite. He's certainly getting his money's worth from the consultants he 
hired." 
Davis political adviser Garry South said last week that the governor's new 
radio ad campaign will highlight the efforts to produce more power in 
California. 
"Generation comes up in our polls as being the No. 1 thing people want us to 
do -- build more power plants," South said then. "People want the sense that 
progress is being made -- that this is not spiraling out of control." 
The other two plants that Davis kicked off -- Sunrise in Kern County and 
Sutter near Yuba City -- have since been running at maximum capacity. 
Calpine anticipates pumping the full 550 megawatts out of Los Medanos within 
a week to 10 days, company officials said. 
"In the first month of these new plants, there are always stops and starts," 
said Calpine spokesman Bill Highlander. "Sometimes we shut down altogether." 
Including the three just-opened facilities, new or expanded power plants are 
expected to add 1,500 megawatts to the state's struggling electric grid by 
the end of July, and 870 megawatts of that is already in place, according to 
the state Independent System Operator. 
Another 1,000 megawatts is anticipated for the end of August and 1,100 more 
for the end of September, under a rough timetable that is likely to see some 
plants zip ahead of schedule and others fall behind. 

The Bee's Carrie Peyton can be reached at (916) 321-1086 or 
cpeyton@sacbee.com.



State reveals high-priced power deals 
By Dale Kasler and Chris Bowman
Bee Staff Writers
(Published July 10, 2001) 
The state Monday released details of its adventures in buying electricity on 
the spot market, revealing a chaotic world in which prices fluctuate wildly 
within minutes. 
The Department of Water Resources, which has been criticized for keeping its 
power-purchasing practices a secret, released 1,770 pages of invoices and 
trade confirmations that provided the most detailed look yet of its purchases 
since it jumped into the energy-buying business Jan. 17. The information was 
released a week after state Controller Kathleen Connell put out details of 
the state's long-term power contracts over the objections of Gov. Gray Davis, 
her political nemesis. 
The state has committed about $8.1 billion to buying power on behalf of 
California's crippled utilities, straining the budget surplus and raising 
questions from lawmakers and others about Davis' policies for resolving the 
state's energy crisis. In turn, state officials have accused many suppliers 
of gouging California to the tune of several billion dollars. 
When it came to the spot market, the water department was at the mercy of a 
business run amok. The state paid upward of $300 a megawatt-hour for days in 
January and February -- months when electricity normally should be a lot 
cheaper. Water officials said prices have dropped to the $100 range largely 
because they've signed a slew of long-term contracts, reducing their 
dependence on spot sales. 
"Our exposure earlier this year to the spot market was at the maximum," said 
Oscar Hidalgo, spokesman for the water department. 
The information released Monday covered the first three months of the year 
and didn't include the highest price the water department has paid for 
electricity: $1,900 a megawatt-hour in May to Reliant Energy Inc., a Texas 
generator that owns several plants in the state. Duke Energy Corp. of North 
Carolina charged even more for power in January, $3,880 a megawatt hour, but 
that sale was made to the Independent System Operator, which runs the state's 
transmission grid. 
The documents show that while the state's stricken utilities no longer buy 
power for themselves, their sister companies have sold expensive power. 
Through May 31, the state paid a trading arm of Sempra Energy, the parent of 
San Diego Gas & Electric, some $429 million for power. It paid PG&E Energy 
Trading, an unregulated sister company of Pacific Gas and Electric Co., about 
$23.7 million. 
Among others, the Los Angeles Department of Water and Power was paid $331 
million through May 31; Canadian utility BC Hydro was paid $1.05 billion; 
Atlanta's Mirant Corp. $1.24 billion; the federal government's Bonne'ville 
Power Administration $167 million; and the Sacramento Municipal Utility 
District $80.7 million. 
Generally, the more desperate the state was for power, the higher the prices. 
For instance, Oklahoma-based generator Williams Cos. commanded $565 a 
megawatt-hour March 20, when blackouts struck more than 1 million 
Californians. 
Location also was critical. On March 8 the state paid the PG&E trading unit 
$250 but only $180 to Arizona-based Pinnacle West Capital Corp. The 
difference was that PG&E's power was delivered to energy-starved Northern 
California, while Pinnacle's was sent to Southern California where energy 
wasn't so scarce. 
Split-second timing was also crucial. At 9:09 a.m. Feb. 14, the state paid 
$400 to Mirant for power to be delivered the next day. By 10 a.m. it was 
paying Mieco Inc., a Long Beach trading firm, $475 for the same product. 
"That's the spot market -- it's the most volatile market in the world, and it 
changes on a second-by-second basis," said Enron Corp. spokesman Mark Palmer. 
For all the criticism leveled at Duke, Reliant and other big corporations, 
government-owned entities were among the most aggressive at charging high 
prices. 
BC Hydro, the electric utility owned by the Canadian province of British 
Columbia, submitted bills for up to $1,000 a megawatt-hour. The city of 
Glendale charged $375 a megawatt-hour for power in January, while SMUD 
charged $309 a megawatt-hour in March. The city of Eugene, Ore., averaged 
$450 a megawatt-hour in February. 
"We play by the rules of the electricity trade marketplace," said BC Hydro 
spokesman Wayne Cousins. "Our traders worked very hard to find additional 
sources of electricity to keep the lights on in California. Had we not come 
through and stepped forward with these supplies, the consequences to 
California customers would have been severe." 
The state also said it has spent $14.4 million on administrative costs in 
buying power. 

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




Government finds ways to conserve: The Santa Rita Jail goes solar as agencies 
get creative to cut costs.
By Cheryl Miller
Bee Correspondent
(Published July 10, 2001) 
To Matt Muniz, the solar panels sprouting on the rooftop of the Santa Rita 
Jail in Dublin aren't just energy-makers; they're money in the bank. 
When all 4,000 panels are completely installed this month, the 500-kilowatt 
photovoltaic system -- the largest rooftop project ever constructed in the 
United States -- will cut the jail's demand on the electric grid by up to 20 
percent, according to Muniz, Alameda County's energy program manager. 
That sun power, combined with conservation projects already completed at the 
jail, will slash about $300,000 a year from the facility's energy bill. Muniz 
is already scouting other county rooftops for solar potential. 
"With the cost of electricity going up, you can start looking at it as a 
business decision, just investing your money," said Muniz. "There's virtually 
no maintenance on this equipment. It just sits on your roof and converts 
right into electricity that you're using as soon as you generate it. I think 
(solar) is the wave of the future, even though it's been around 30 or 40 
years." 
The Santa Rita Jail project is among the largest, and perhaps most 
conspicuous, examples of steps government agencies are taking to cut 
electricity use in response to skyrocketing power bills and Gov. Gray Davis' 
call for public entities to conserve. 
Among the examples: 
San Francisco leaders are pondering a bond measure to finance solar-powered 
rooftop projects around the city. 
The Tulare County town of Lindsay will open City Hall two hours earlier -- at 
6 a.m.-- and close at 4:30 p.m. Monday through Thursday this summer so 
offices can stay dark all day Friday and during peak-use afternoon hours. 
Sacramento County has instituted a casual dress policy so employees can 
better withstand office temperatures that climb as high as 78 degrees. 
Workers have also set sprinklers to run at night so that electric water pumps 
operate during low demand. 
"When you start to see the bills going up and you start to hear concerns from 
some citizens, that obviously raises the threshold of wanting to help out," 
said Jolena Voorhis, an energy analyst at the California State Association of 
Counties. "Certainly (counties) stepped up to the plate when they were asked 
to increase conservation efforts. They've done about as much as humanly 
possible." 
Kings County leaders thought they made a great deal in 1992 when they signed 
up for Southern California Edison's interruptible load program, which 
promises customers lower rates in exchange for agreeing to shut down 
electrical services in times of shortage. 
Then California's power crisis hit full-force this year. Since January, 
Edison has called on the Central Valley county to cut electricity at its 
Hanford government center 16 times -- for up to six hours each cycle. 
At times that meant no lights to greet the public, no computers to process 
food stamp requests and during the Valley's foggy winter days, no heat to 
warm many of the 1,200 employees. 
"We had one week in January when we were virtually shut down," said Chief 
Administrative Officer Larry Spikes. "We just decided we couldn't function 
that way." 
So Kings County supervisors bought a $550,000 diesel-powered generator to 
match those already at the jail and juvenile center. They also decided to 
open and close administrative offices one hour earlier this summer so 
buildings can power down before high demand hits the grid around 4 p.m. 
The new hours, dimmed hallways and moments of darkness that occur when the 
generators kick on have become a routine part of doing government business 
these days, Spikes said. 
So far, most counties have been able to absorb higher energy costs without 
cutting into programs because of relatively healthy budgets in recent years, 
Voorhis said. 
Public agencies' power troubles have proved a boon to some businesses. 
Revenues at PowerLight, the Berkeley company that installed the Santa Rita 
Jail photovoltaic system, have tripled since last year. 
"The last six months have been particularly intense," said Janice Lin, 
director of business development for PowerLight. "In some ways the energy 
crisis in California has been a call to action." 
The Sacramento Municipal Utility District, which already boasts the largest 
photovoltaic program in the country, has a 2,000-customer waiting list for 
solar projects and plans to bring sun power to the state Capitol, said Don 
Osborn, SMUD's solar program manager. 
Back in Dublin, the 3,600 inmates at the Santa Rita Jail still receive three 
meals, air conditioning and hot showers -- powered now, in part, by the 
plentiful sun in this relatively fog-free part of the East Bay. 
The $4 million project, financed entirely with state and utility subsidies, 
should generate enough savings to pay for itself within the decade, Muniz 
said. 
"It's a good investment for the money we're putting up front," he said.








Energy talks reach no settlement; state threatens suit 






By Mark Sherman
ASSOCIATED PRESS 
July 10, 2001 
WASHINGTON ) With talks between the state and power generators stalled, 
California may go to court to help win the $8.9 billion state officials 
believe it was overcharged for electricity. 
"I think we have demonstrated very clearly both to the FERC and to the judge 
that the state is owed $8.9 billion and will settle for nothing less," said 
Roger Salazar, a spokesman for Gov. Gray Davis. 
With negotiations at an impasse, the administrative law judge for the Federal 
Energy Regulatory Commission said California is probably owed no more than $1 
billion in refunds.



"The numbers were too far apart," said Curtis Wagner, the FERC chief 
administrative law judge. 
California, Wagner said, may receive nothing at all, because generators may 
be owed more than they have to return for any overcharges. 
He placed the refunds owed the state at between $716 million and $1 billion. 
Power providers had offered $716 million as part of an overall settlement, 
while California state officials sought $8.9 billion, Wagner said. 
He said California officials had not made the case for $8.9 billion in 
refunds. 
Salazar, however, said the state would go to court and may ask for $20 
billion. 
Separately, Wagner split off claims of overcharges from the Pacific 
Northwest, saying he has not had time to consider those allegations under the 
short timetable ordered by FERC last month. 
Wagner served as a mediator during the 15 days of negotiations and will 
recommend a settlement to FERC by next Monday. The commission ordered the 
talks last month in an effort to resolve differences between producers and 
the state over the breakdown of California's deregulated electricity market. 
Consumer advocates assailed the judge's recommendation and urged the state to 
continue its attempt to get refunds from what they say are profiteering power 
companies. 
"It's like catching a bank robber, but instead of making him give back all of 
it, you only make him give back 5 percent of what he stole," said Douglas 
Heller, spokesman for the Santa Monica-based Foundation for Taxpayer and 
Consumer Rights. 
Power generators, however, were generally pleased with Wagner's comments. 
Brent Bailey, general counsel for Duke Energy, said even if the formula 
Wagner recommends produces $1.5 billion in refunds, "that's a reasonable 
amount in the context of these settlement talks." 
California officials, negotiating on behalf of utilities, the Public 
Utilities Commission and state power buyers, accused the producers of 
manipulating supply to unfairly drive up prices. 
The producers have acknowledged prices are high, but blame jumps in the price 
of natural gas, which fuels many power plants, and the workings of the free 
market. 
The bill for wholesale power in California soared to $27 billion last year 
from $7 billion the year before. Davis has estimated the state could spend as 
much as $50 billion this year. 
The producers reiterated Monday that California's numbers are grossly 
inflated. Attorneys for the five major generators ) Duke Energy, Dynegy, 
Mirant, Reliant Energy and the Williams Cos. ) said in a statement that they 
have made a "very substantial global settlement offer." 
Reliant would agree to no more than $50 million in refunds as part of an 
overall settlement that also would have to include protection from additional 
legal claims, said John H. Stout, a company senior vice president. 
But Stout also said, "Reliant's fundamental position has been and remains 
that no refunds are justified." 












Refunds in jeopardy as talks fail 






Judge sees possibility of offsets equal to the billions sought by state
By Toby Eckert 
COPLEY NEWS SERVICE 
July 10, 2001 
WASHINGTON -- Settlement talks between California and power providers accused 
of electricity price gouging collapsed yesterday, and the judge who will now 
hand the case over to federal regulators set a course far from favorable to 
the state's demand for $8.9 billion in refunds. 
"There are refunds due that total hundreds of millions of dollars and maybe a 
billion dollars," Curtis L. Wagner Jr., chief administrative law judge for 
the Federal Energy Regulatory Commission, said in previewing the 
recommendations he will make to the commission. 
But Wagner, who mediated the talks, also suggested that power sellers are 
still owed sums for electricity "that probably are higher than any 
overcharges" for which they may have to pay refunds. 
That opened the possibility that California could see no cash refunds, only a 
reduction in the billions of dollars the power generators and marketers claim 
they are owed by state entities and utilities. 
Wagner said he would recommend that FERC hold a "fast-track hearing" to try 
to untangle the complex financial claims and counterclaims arising from 
California's power crisis. 
Wagner also outlined a method that he said FERC should use for calculating 
refunds. 
While his proposed formula includes part of one method the state used, it 
contains several elements for calculating electricity costs that were favored 
by power sellers, who maintain that California's numbers are wildly 
exaggerated. 
"I would suspect that would result in a number much below $8.9 billion," said 
Joe Ronan, vice president of Calpine, a San Jose-based electricity generator. 
"I think (Wagner's method) reflects more accurately what actually happened" 
in the state's dysfunctional power market. 
But Michael Kahn, the state's lead negotiator, said Wagner "vindicated" 
California's core arguments. 
"The hundreds of people who came here on the other side had argued to the 
mediator that there should not be any refunds, and that position was loudly 
rejected," said Kahn, chairman of the organization that manages most of 
California's power grid. 
"We think the numbers, even using the judge's formula, are going to be in the 
multiple billions. Whatever amount of money .?.?. is awarded to us, we will 
have viable claims in state court and other jurisdictions for the remainder. 
So what we have here is a situation where California will get its $8.9 
billion." 
Power sellers acknowledged that the threat of litigation remains worrisome to 
them. They sought an end to investigations of their conduct, and immunity 
from legal action as part of their bargaining position. 
During two weeks of negotiations ordered by FERC, the two sides came nowhere 
near bridging their differences. Wagner said a number of power sellers had 
put forward offers that totaled $716.1 million. 
"That's a long way from splitting the difference," he said. "In 15 days, you 
can't work miracles." 
Yesterday -- the deadline for completing the talks -- the ill will between 
the two sides broke into the open as Wagner allowed reporters into the 
previously closed hearings. 
Each side essentially accused the other of bargaining in bad faith and 
failing to put forward realistic proposals. 
John H. Stout, a senior vice president at Reliant Energy Wholesale Group, 
said the state used "biased calculations" to arrive at its $8.9 billion 
refund demand. He also said that Reliant offered to knock $50 million off the 
$300 million it claims it is still owed for power sold into the state. 
Kahn shot back that Reliant made the offer confidentially to Wagner and never 
approached the state. 
Figures scrutinized
"This is the first time we've heard any of this information. And to give the 
impression that somehow there's been cooperation or forthcomingness, I think 
is misleading," Kahn said. 
The state's refund calculations were scrutinized repeatedly during the talks. 
The $8.9 billion figure emerged from a study by the California power grid 
operator of charges for electricity between May 2000 and May 2001, a period 
when wholesale power prices soared. 
Kahn said the figure was essentially duplicated when the state went back and 
calculated what power costs would have been if a pricing method instituted by 
FERC last month had been in effect for the entire yearlong period. 
FERC ordered the pricing method in a bid to tame wholesale prices in the 
West. 
In a partial win for the state, Wagner said he would recommend that FERC use 
the order retroactively as a basis for calculating refunds, an approach 
resisted by the power sellers. 
But he said that FERC should only scrutinize charges going back to October 
2000, and should make several key changes in how power-generating costs are 
calculated. 
For instance, he said, FERC should determine the actual amount of gas heat it 
takes to generate a megawatt of electricity and use spot market prices in 
Northern and Southern California to determine the cost of gas, rather than a 
statewide average cost, computed monthly. 
Fewer overcharges?
Those and other parts of the complex formula Wagner will recommend could 
increase the benchmark cost of producing power and drive down the amount of 
overcharges. 
Kahn said that applying FERC's pricing method only back to October would put 
about $3 billion of the state's refund claim off-limits. 
Brent Bailey, vice president and general counsel for Duke Energy North 
America, said, "We think (Wagner's) modifications are certainly a vast 
improvement over FERC's June 19 order and also certainly over (the state's) 
model." 
America. 
In Sacramento, Gov. Gray Davis issued a statement characterizing the 
electricity suppliers as pirates who refused to negotiate in good faith. 
"While in the past the FERC has shown little, if any, interest in consumers, 
they now have the opportunity to redeem themselves by returning the $8.9 
billion California has demonstrated it is owed," Davis said. 
Despite the harsh rhetoric, both sides indicated that they would continue 
trying to reach one-on-one settlements. 
Ronan of Calpine said the generator was close to making a deal with the 
state. Bailey said that while Duke would continue to push for a "global 
settlement" between all the parties, "We've had serious settlement talks with 
the state over the last few days and hope to continue." 













State's massive outlays detailed 






Energy bill exceeded $100 million on 3 days
By Jennifer Coleman 
ASSOCIATED PRESS 
July 10, 2001 
SACRAMENTO -- On three days in May, California's daily power spending topped 
$100 million, according to a report released yesterday by state power 
traders. 
The California Department of Water Resources report, which addressed spot 
market electricity purchases since January, was released along with 1,770 
pages of documents that specifically detailed the first three months of 
last-minute power purchases. 
Such power buys on the spot market typically get the most expensive 
electricity available. 
The report details the department's electricity spending since Jan. 17, when 
the state took over electricity purchases for Pacific Gas and Electric Co., 
San Diego Gas & Electric Co., and Southern California Edison. 
The utilities had amassed billions in debts and were no longer creditworthy 
enough to purchase power. Since then, the state has spent nearly $8 billion 
to keep the lights on. 
The state's daily spending peaked May 10 at $102.4 million. The 
second-highest daily total was May 23, when the state spent $101.8 million. 
The day before, the state spent $100 million. 
But since May, spot market prices have dropped, due in part to moderate 
weather, lower natural gas prices, increased conservation which lowered 
demand and because of increased scrutiny by lawmakers and investigators into 
possible price manipulation. Gov. Gray Davis has said long-term contracts 
also drove the price down. 
"It does look like some of the spot market prices have gone down, but it 
looks like it's primarily due to natural gas prices," said Jamie Fisfis, 
spokesman for Assembly Republicans. 
The slight reduction in spot market prices "underscores questions about the 
strategy of locking us into long-term contracts, if natural gas prices 
continue to drop," Fisfis said. 
Most of the long-term contracts run for 10 years, with one lasting for 20 
years. 
"It's unfortunate that it looks like we'll never get out from under these 
contracts," Fisfis said. 
Davis has already released details of the state's long-term power contracts 
after losing a court battle with Republican legislators and several news 
organizations, including The Associated Press and The Copley Press, which 
publishes The San Diego Union-Tribune. 
Davis released copies of those contracts, but wanted to delay the release of 
the spot market buys and short-term contracts. Releasing those details too 
soon after the purchases would reveal the state's buying strategy and could 
cause generators to raise their already sky-high prices, Davis said. 
The number of spot market buys will lessen, the Davis administration says, as 
more long-term contracts are signed, reducing the state's exposure to the 
high-priced purchases. 
The governor's office will release future short-term contracts and spot 
market buys will be released on a quarterly basis, with a 90-day lag time. 
Second quarter information will be released in October and third quarter 
documents will be available in January. 
Davis maintains the delay is needed to protect its ability to negotiate 
further spot-market power buys. 
According to the water department, Canadian Powerex, the marketing arm of BC 
Hydro, has been paid $1.05 billion for spot market purchases as of May 31. 
But Atlanta-based Mirant Corp. topped that list, getting $1.24 billion as of 
the end of May. 
The newly released short-term contracts also show what the state had to pay 
when it needed power the most. 
On March 19 and 20, when rolling blackouts hit California again, the state 
was forced into paying above-average prices in its largest short-term 
contracts. 
For example, Mirant sold the state 650 megawatts an hour at off-peak usage 
times on March 20 for $345 a megawatt hour, more than $70 above the average 
price of $272.96. 
The day before, Mirant charged $343 a megawatt hour at off-peak in northern 
California when the average cost was $254.52. 
Also on March 19, Mirant charged the state about $96 above the average price 
for power in Northern California on a sale of 6,400 megawatt hours during 
off-peak times. 
Other top-selling generators, as of May 31: 
?Sempra Cos., $429 million. 
?Los Angeles Department of Water and Power, $331 million. 
?Dynegy, $296 million. 
?TransAlta Energy, $202 million. 
?Bonneville Power, $168 million. 
?Duke Energy, $164 million. 







State releases early spot market energy purchases 






By Jennifer Coleman
ASSOCIATED PRESS 
July 10, 2001 
SACRAMENTO ) On three days in May, California's daily power allowance topped 
$100 million, according to a report released Monday by state power traders. 
However, the source of those high prices was from not solely from Texas, home 
to many of the power marketers and wholesalers Gov. Gray Davis has blamed for 
much of California's power woes. 
Public and private power companies such as Canada's B.C. Hydro, the Los 
Angeles Department of Water and Power and Sacramento's public utility also 
were high on the list. 
The California Department of Water Resources released the report, along with 
1,770 pages of documents that also detailed the last-minute power purchases 
the state made on the spot market in the first three months of the year. 
Last-minute power buys on the spot market typically get the most expensive 
electricity available. 
The report details the department's electricity spending since Jan. 17, when 
the state took over electricity purchases for Pacific Gas & Electric Co., San 
Diego Gas & Electric Co., and Southern California Edison. 
The utilities had amassed billions in debts and were no longer creditworthy 
enough to purchase power. Since then, the state has spent nearly $8 billion 
to keep the lights on. 
The state's daily spending peaked May 10 at $102.4 million. The 
second-highest daily total was May 23, when the state spent $101.8 million. 
The day before, the state spent $100 million. 
But since May, spot market prices have dropped, due in part to moderate 
weather, lower natural gas prices, increased conservation which lowered 
demand and because of increased scrutiny by lawmakers and investigators into 
possible price manipulation. Gov. Gray Davis has said long-term contracts 
also drove the price down. 
"It does look like some of the spot market prices have gone down, but it 
looks like it's primarily due to natural gas prices," said Jamie Fisfis, 
spokesman for Assembly Republicans. 
The slight reduction in spot market prices "underscores questions about the 
strategy of locking us into long-term contracts, if natural gas prices 
continue to drop," Fisfis said. 
Most of the long-term contracts run for 10 years, with one lasting for 20 
years. 
"It's unfortunate that it looks like we'll never get out from under these 
contracts," Fisfis said. 
Davis has already released details of the state's long-term power contracts 
after losing a court battle with Republican legislators and several news 
organizations, including The Associated Press, who said keeping the contracts 
veiled violated the state's open records law. 
Davis released copies of those contracts, but wanted to delay the release of 
the spot market buys and short-term contracts. Releasing those details too 
soon after the purchases would reveal the state's buying strategy and could 
cause generators to raise their already sky-high prices, Davis said. 
The number of spot market buys will lessen, the Davis administration says, as 
more long-term contracts are signed, reducing the state's exposure to the 
high-priced purchases. 
The governor's office will release future short-term contracts and spot 
market buys will be released on a quarterly basis, with a 90-day lag time. 
Second quarter information will be released in October and third quarter 
documents will be available in January. 
Davis maintains DWR needs the delay to protect its ability to negotiate 
further spot-market power buys. 
According to the DWR, Canadian Powerex, the marketing arm of BC Hydro, has 
been paid $1.05 billion for spot market purchases as of May 31. 
But Atlanta-based Mirant Corp. topped that list, getting $1.24 billion as of 
the end of May. 
The newly released short-term contracts also show what the state had to pay 
when it needed power the most. 
On March 19 and 20, when rolling blackouts hit California again, the state 
was forced into paying above-average prices in its largest short-term 
contracts. 
For example, Mirant sold the state 650 megawatts an hour at off-peak usage 
times on March 20 for $345 a megawatt hour, more than $70 above the average 
price of $272.96. The day before, Mirant charged $343 a megawatt hour at 
off-peak in northern California when the average cost was $254.52. 
Also on March 19, Mirant charged the state about $96 above the average price 
for power in Northern California on a sale of 6,400 megawatt hours during 
off-peak times. 
Other top selling generators, as of May 31: 
) Sempra Companies, $429 million. 
) Los Angeles Department of Water and Power, $331 million. 
) Dynegy, $296 million. 
) TransAlta Energy, $202 million. 
) Bonneville Power, $168 million. 
) Duke Energy, $164 million. 









FERC Judge Says State Owed No More Than $1 Billion
From Associated Press

July 9 2001

WASHINGTON -- California is owed no more than "a billion dollars" from power 
wholesalers, a federal regulatory judge said today at the end of 15 days of 
settlement talks in the state's electricity crisis.

Curtis Wagner, the Federal Energy Regulatory Commission's chief 
administrative law judge, said that at the same time the power suppliers 
probably are owed more than that.

The net effect of his preliminary recommendation is that California probably 
will receive no refunds from wholesalers.

Wagner said power generators had offered $761 million in refunds. The state 
has asked for $8.9 billion since May 2000. Wagner said he will not recommend 
refunds for power sales that occurred before Oct. 2.

It was not immediately clear what impact the judge's preliminary 
recommendation would have on efforts to settle the dispute.

Both sides said before the judge's announcement that they expected a 
protracted legal battle in the event the talks did not produce a settlement.

Michael Kahn, Gov. Gray Davis's representative in the talks, has said the 
state would seek more than twice the claimed overcharges if the dispute moved 
from mediated talks to a courtroom.

The producers reiterated today that California's numbers are grossly 
inflated. Attorneys for the five major generators-- Duke Energy, Dynegy, 
Mirant, Reliant Energy and the Williams Cos.-- said in a statement that they 
have made a "very substantial global settlement offer."

John H. Stout, a senior vice president for Reliant Energy, said his company 
would agree to no more than $50 million in refunds, as part of an overall 
settlement that also would have to include protection from additional legal 
claims.

But Stout also said, "Reliant's fundamental position has been and remains 
that no refunds are justified."

FERC ordered the talks last month in an effort to resolve differences between 
producers and the state over the breakdown of California's deregulated 
electricity market.

The state has accused the producers of manipulating supply to unfairly drive 
up prices. The producers have acknowledged that prices are high, but blame 
jumps in the price of natural gas, which fuels many power plants, and the 
workings of the free market.

The bill for wholesale power in California soared to $27 billion last year 
from $7 billion the year before. Davis has estimated that the state could 
spend as much as $50 billion this year.

----

On the Net:

Federal Energy Regulatory Commission: http://www.ferc.fed.us/ 
Copyright 2001, Los Angeles Times 




Electricity Cost Data Spread the Blame
Power: Many suppliers charged more than the firms that Davis has pilloried, 
records show.
RICH CONNELL and ROBERT J. LOPEZ and DOUG SMITHS
TIMES STAFF WRITER

July 10 2001

SACRAMENTO -- California's energy meltdown involves a far more diverse group 
of wholesale electricity merchants than suggested by Gov. Gray Davis, who has 
aggressively blamed a handful of Texas companies, state records show.

During the first three months of this year--one of the worst stretches of 
power shortages during the crisis--an assortment of public and private 
entities charged the state prices averaging well above some of those paid to 
Texas firms, according to documents released to The Times on Monday by the 
Department of Water Resources, which now buys power for California.

Among those setting and collecting some of the highest average prices per 
megawatt-hour were a Canadian public utility, a subsidiary of San Diego Gas & 
Electric's parent company, and the Los Angeles Department of Water and Power, 
the report shows. Their average prices ranged from $498 a megawatt-hour 
charged by Powerex, the trading arm of British Columbia's BC Hydro, to $292 
an hour by the DWP. In fact, some of the biggest private power companies 
singled out for criticism by Davis and other state officials--Dynegy Inc., 
Duke Energy and Mirant--charged less than the average prices the state paid 
for the period. Those companies' average prices ranged from $146 to $240 per 
megawatt-hour, according to an analysis of the documents.

The figures cover the various types of spot and longer-term power purchased 
by the state during three months that included rolling blackouts and more 
than a month of razor-thin reserves, leading to continuous power emergencies.

Davis spokesman Steve Maviglio said the governor has directed his sharpest 
barbs at private out-of-state generators because, in general, they have 
reaped the highest profits over the longest period.

"You have to look at the whole picture," Maviglio said.

"The governor was expressing his displeasure with the arrogance of the 
generators who wear cowboy hats," he said. "Their profits were 100% to 400% 
above last year. . . . Just because there are other entities who are charging 
us more [per megawatt-hour] doesn't change the fact that we are getting 
ripped off by companies from Houston, Tulsa, Atlanta or Charlotte."

The report by the Department of Water Resources was provided to The Times on 
the same day the state released 1,700 pages of documents on California's 
electricity purchases on the volatile spot market for the year's first 
quarter.

The records detail how the state spent nearly $8 billion buying power in the 
first five months of the year, and underscore the complexity of the state's 
energy problem. They also show that patterns of high prices are not limited 
to a few generators.

Oscar Hidalgo, a spokesman for the water resources agency, said that the 
reports together show that prices were extremely volatile early in the year. 
"All the prices were high," he said, noting the downward trend in costs since 
his agency began buying power in mid-January.

The average price per megawatt-hour for all state purchases went from $316 in 
January to $243 in May. Spot prices fell from an average of $321 per hour to 
$271, the reports show.

In the first quarter of the year, some public entities' prices far exceeded 
those of the biggest private companies. For example, Houston-based Enron, one 
of the nation's biggest power traders, charged an average of $181 per 
megawatt-hour. And Atlanta-based Mirant, which sold the most to the state, a 
total of $706 million, charged an average of $225 per megawatt-hour.

By contrast, a Calgary, Canada, firm, TransAlta Energy, averaged $335 a 
megawatt-hour, and the Sacramento Municipal Utility District had average 
charges of $330 per megawatt-hour.

A spokesman for Enron, Mark Palmer, said recently that the "vilification of 
Enron was based on politics, not facts." Spokesmen for BC Hydro could not be 
reached late Monday to comment on its huge sales to the state. In the past, 
the utility has defended its pricing practices, saying it has offered 
last-minute hydroelectric power that helped keep California's lights on.

A spokeswoman for Sempra, the parent company of San Diego Gas & Electric, 
said late Monday the company was unable to comment because it had yet to see 
the figures released by the state. Officials at DWP, who could not be reached 
Monday evening, have defended their pricing, saying the costs of producing 
the power needed by the state were extremely high.

More Power Bought Than Projected

Hidalgo, of the Department of Water Resources, said his agency's efforts, 
coupled with conservation by business and consumers and falling natural gas 
prices, have begun to tame the state's market.

Still, the state had to purchase $321 million in power in April and May, 
about 10% more than Davis' analysts had projected.

Hidlago said that was because of hot weather in May and other supply problems 
in April. He said reports will show that power purchases fell short of state 
projections in June and early July.

The reports also will show that prices paid by the state were down in June 
and July, partly because spot prices have fallen sharply, often to well under 
$100 a megawatt-hour.

A summary Department of Water Resources report released Monday credited 
Davis' program of nurturing new power generation and establishing long-term 
power contracts with with "moving the California electric energy industry 
closer to normalcy." 
Copyright 2001, Los Angeles Times 




Duke Energy Asked to Allow Release of Data
Power: Senator says the generator is refusing to make public some information 
crucial to the price-gouging probe. Firm says it's complying.
CARL INGRAM
TIMES STAFF WRITER

July 10 2001

SACRAMENTO -- The chairman of a Senate committee probing suspected price 
gouging during the California energy crisis charged Monday that Duke Energy 
is refusing to allow him to make public information key to his investigation.

Sen. Joe Dunn (D-Santa Ana) said Duke has made the price bidding information 
from its Chula Vista plant available to committee members and staffers. But 
under a federal confidentiality rule, the data cannot be made public without 
Duke's consent.

The documents concern the Chula Vista plant, which former employees have 
alleged was ramped up and down to drive up power prices during three days in 
January. However, state records show that the agency overseeing the 
electricity grid ordered those gyrations to keep the power flowing throughout 
the state. Dunn said Duke's refusal thwarts the committee's investigation and 
efforts to enact possible remedial legislation because the confidential 
information cannot be shared with others in the Legislature or the public.

Dunn said Duke cited a rule of the Federal Energy Regulatory Commission that 
gives the company the authority to decide which records it makes public and 
which stay secret.

"The only one who can release the data is Duke. We agreed to be bound by what 
is provided in the FERC tariff, nothing more or less," he said.

Former Employees Tell of Maneuvers

Dunn noted that the committee is considering trying to obtain the information 
elsewhere and "release it over Duke's objections."

Three former workers at the Duke plant near Chula Vista testified last month 
under oath that the plant, among other things, was ramped up and down in what 
seemed to be an effort to maximize revenue during the Jan. 16-18 emergency.

But Duke countered immediately that it had merely obeyed orders of the 
California Independent System Operator, which keeps the state's electricity 
grid in balance. Duke later provided Cal-ISO documents backing up its 
explanation.

Duke executives insisted that the former employees failed to provide a full 
picture of the plant's operation during the three days.

But Dunn, chairman of the select Senate committee on alleged price gouging, 
said Monday that by refusing to authorize release of all the subpoenaed data, 
Duke was guilty of the same tactics.

"Duke is trying to draw the impression that it has [provided] the full 
picture. But they are fully aware that we cannot draw any final conclusions 
until all that data has been released. That hasn't occurred," Dunn said.

To make a determination whether the Chula Vista power was withheld to drive 
up prices, Dunn said, the committee must publicly examine "the bids Duke 
submitted from which the ISO issued orders to the plant." They include the 
expensive hour-ahead and day-ahead markets, he said.

Duke, a North Carolina-based wholesaler that operates several plants in 
California, noted that it considers the information proprietary and 
off-limits to legislators not on the committee.

Duke spokesman Tom Williams insisted that the generator is attempting to 
comply with the committee's demands. But he was unable to say whether Duke 
would agree to make the bidding documents public along with other records the 
committee plans to turn over.

"We are complying now," Williams said. "There is some suggestion that we are 
leaving stuff out when we have not had a chance to testify. . . . I don't 
know what we are ultimately going to do."

The committee had threatened to cite eight wholesale generators unless they 
provide pricing and bidding documents by Wednesday. Six, including Duke, have 
said they would comply to avoid a contempt citation. Two, Enron and Mirant, 
were cited.

Dunn said the committee on Wednesday likely will give companies that are 
trying to comply an extra week to do so, but others probably will be formally 
charged with contempt in a report to the full Senate. The upper house is the 
final arbiter of such issues.

Although there is scant precedent for levying penalties against those cited 
for contempt, Dunn said he favors imposing severe fines. In 1929, the most 
recent case, a cement company executive was sent to jail. 
Copyright 2001, Los Angeles Times 





NEWS ANALYSIS
Concern Over Price of Long-Term Power Pacts Grows
Embedded costs may yield more rate hikes, critics say, and the $43-billion 
total could complicate plans to rescue Edison.
DAN MORAIN
TIMES STAFF WRITER

July 9 2001

SACRAMENTO -- Even as the summer progresses without blackouts, and Gov. Gray 
Davis prepares for yet another news conference today to symbolically switch 
on a new power plant, the work in the Capitol has shifted to the seemingly 
more daunting task of balancing the books.

It's a task with potentially far more long-lasting implications for state 
coffers, for businesses' bottom lines and for consumers' wallets.

In particular, long-term power contracts trumpeted by the governor's office 
as helping to bring stability to California's out-of-control electricity 
market are having the opposite effect politically. A growing concern about 
the $43-billion price tag of the contracts is complicating one of Davis' most 
ambitious energy initiatives: a proposed financial rescue of Southern 
California Edison, which already faces an uncertain fate in the Legislature. 
Questions about the contracts come as California readies a complex 
$13.4-billion bond sale to reimburse the state's general fund for other power 
purchases.

Critics worry that costs embedded in the contracts, on top of the billions 
needed to pay for the Edison rescue, could lead to additional electricity 
rate hikes for consumers. Key lawmakers, consumer advocates and business 
lobbyists are urging that at least some of the pacts be renegotiated.

Citing a recent plunge in wholesale energy costs, these critics say the state 
should work to shorten the duration of the contracts and lower some of the 
prices. They argue that the state entered into the deals under duress after 
California's utilities neared insolvency and the state Department of Water 
Resources took over the purchasing of electricity for more than 25 million 
residents.

"They are vulnerable," Senate Energy Committee Chairwoman Debra Bowen 
(D-Marina del Rey) said of deals the state struck with independent power 
companies when prices were at record highs.

Bowen lauds Davis administration negotiators for signing "the best deals they 
could." But she said that in the crisis atmosphere in which the negotiations 
took place, "the state had two cards and the generators had 50."

Contracts Open to Challenges

The contracts could be challenged in court or, more immediately, before the 
Federal Energy Regulatory Commission in Washington. There, an administrative 
law judge could direct that the pacts be reworked as part of a settlement of 
allegations by Davis that generators overcharged the state for electricity by 
$8.9 billion.

"We ought not to say, 'Fine, the contracts were the best we could do,' " 
Bowen said.

For his part, Davis says he is willing to accept partial payment of the $8.9 
billion in the form of contracts with terms more favorable to the state. He 
attributes the recent sharp drop in wholesale electricity prices to 
conservation, the administration's effort to increase power supply and--a 
major factor--the long-term contracts, which slashed the state's reliance on 
the volatile daily, or spot, market.

"You can see the value of these long-term contracts . . . dramatically 
shrinking our overall price, which is what matters to Californians," Davis 
said, pointing out that the average cost of power plunged 30% from May to 
June.

Davis energy advisor S. David Freeman, who helped negotiate the contracts, 
said they may end up costing less than $43 billion, given the recent decline 
in prices for natural gas, the main fuel for California's 
electricity-generating plants.

Freeman also compared critics to someone who calls the fire department to 
douse a blaze. "After the fire is out," he said, "you complain about the 
water damage."

The contracts have other defenders, among them UC Berkeley economics 
professor Severin Borenstein, who says the deals helped to tame the volatile 
spot market by reducing generators' incentive to drive up prices, while 
reducing the state's exposure to wild swings in price.

"The point of signing long-term contracts is not to get a great price; it's 
to reduce risk," Borenstein said.

Still, experts have been picking through the pacts ever since a Superior 
Court judge in San Diego, ruling in a California Public Records Act lawsuit 
by news organizations and Republican lawmakers, ordered last month that Davis 
unseal the contracts.

An analysis done for the Assembly by three experts--one each representing 
Southern California Edison; the Utility Reform Network, a consumer group; and 
large electricity consumers--concluded that the about $43-billion price tag 
announced by the administration may not account for all the costs. When other 
expenses are factored in--ranging from environmental equipment upgrades to 
any new energy-related taxes--the contracts could cost an additional 10% to 
20%.

"Once the contracts were made public," Senate Republican leader Jim Brulte of 
Rancho Cucamonga said, "just about anyone who can read began calling for 
those contracts to be renegotiated."

As buyers' remorse spreads through the Capitol, the contracts increasingly 
are seen as a hurdle--or a bargaining chip--as Davis and lawmakers confront 
fast-approaching deadlines in their effort to prevent the energy crisis from 
morphing into a broader financial crisis.

A bill pushed by Davis to avert bankruptcy for the financially hobbled 
Southern California Edison must be approved by Aug. 15. The deadline could be 
tighter, because the Legislature is scheduled to adjourn for a monthlong 
break July 20.

Davis' rescue plan, along with legislative alternatives, languishes in the 
Legislature. The plan, which has little apparent support, would require the 
state to buy Edison's system of transmission lines for $2.76 billion and 
permit the utility to charge ratepayers for the rest of its back debt of $3.5 
billion.

Some lobbyists and lawmakers believe that the electricity rate hike approved 
in March by the California Public Utilities Commission--at 3 cents a 
kilowatt-hour the largest in state history--may not be enough. The revenue 
generated under the new rate structure must cover the costs of the long-term 
power contracts and repay the planned $13.4 billion in bonds, which would be 
the largest municipal deal ever.

Whether there would be sufficient money left to pay for the Edison rescue 
remains to be seen. But some experts say the utility may need to seek a 
separate rate hike to cover its costs.

As written, the contracts have few escape clauses; Davis cannot simply walk 
away from them if he concludes that prices are too high. Still, criticism 
persists and crosses political lines.

Harry Snyder, longtime Sacramento lobbyist for Consumers Union, and Jack 
Stewart, president of the California Manufacturers and Technology Assn., 
rarely find themselves on the same side of a debate. But in separate 
interviews, they sounded similar themes.

"If there is a way to buy our way out of these contracts, even if we have to 
pay damages, we'd be better off in the long run," Snyder said.

Stewart, like other business leaders, does not advocate abrogating the 
contracts. But like many familiar with the terms, he hopes that some deals 
can be renegotiated.

"They are problematic," he said.

In a move that critics fear could lock in high electricity prices for the 
next decade, the Davis administration is pushing the PUC to agree within a 
month to limit its authority to question costs incurred by the Department of 
Water Resources as it goes about procuring power.

State Treasurer Phil Angelides said the PUC must act so he can complete the 
$13.4-billion bond sale. A binding agreement is necessary so that Wall Street 
investors can be assured that they will be repaid.

"The state will be out of cash by the end of the year without the bond sale," 
he said. "We will move toward fiscal insolvency."

The so-called rate agreement, a draft of which was obtained by The Times, 
would bind customers of the three big regulated utilities to pay more than 
just the principal and interest on the $13.4 billion in bonds. Consumers 
would have to pay for consultants, lawyers, to pay taxes, fees and other 
as-yet-undefined charges that may be incurred by the Department of Water 
Resources.

Additionally, the PUC would be obligated to approve payments for programs by 
which the state would pay large and small customers to cut electricity use, 
although the Legislature has not approved the programs and their details 
remain to be worked out. The Department of Water Resources estimates the cost 
to be $800 million, spread over this year and next.

"It is loaded up," Senate President Pro Tem John Burton (D-San Francisco) 
said of the proposed rate deal, adding that it would require the commission 
to "raise rates to cover whatever the Department of Water Resources decides 
to do."

"That is giving a blank check to some bureaucratic office," he said.

'Dictatorial Power' Warning

Stewart of the manufacturers group also is alarmed by the plan, saying it 
would provide the water agency with "dictatorial power."

"As skeptical as we are of the PUC process, at least there is a process," 
Stewart said, referring to the commission's procedures to set electricity 
rates. "There is no process for DWR. DWR just tells the PUC, 'This is what we 
need,' and the PUC must approve it."

Others say the rate agreement is a standard piece of work, given the 
extraordinary step the Legislature took in January when it authorized the 
Department of Water Resources to buy power for utilities that had fallen so 
deeply into debt that they could no longer carry out their obligation to 
consumers.

In essence, Davis energy advisor Freeman said, lawmakers in January created 
"the equivalent of a public power purchasing agency" beyond the jurisdiction 
of the PUC.

"There is no public power agency in California that is reviewed by the PUC," 
said Freeman, former head of the Los Angeles Department of Water and Power.

*

Times staff writer Nancy Rivera Brooks in Los Angeles contributed to this 
story. 
Copyright 2001, Los Angeles Times 





State's refund demand rejected 
Judge ends rebate talks, rebukes $9 billion claim 
Zachary Coile, Christian Berthelsen, Chronicle Staff Writers
Tuesday, July 10, 2001 
,2001 San Francisco Chronicle 
URL: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2001/07/10/MN117914.DTL 
Washington -- An administrative law judge, delivering a powerful message to 
Gov. Gray Davis and California energy officials, cast aside the state's claim 
that it is owed $8.9 billion in electricity overcharges by generators and 
called for further hearings to determine "hard numbers." 
The judge, ending talks designed to settle the dispute between California and 
power sellers, said the state and its cash-strapped utilities may owe more in 
unpaid electricity bills than they are owed for overcharges by the 
generators. 
The comments by Federal Energy Regulatory Commission chief administrative law 
Judge Curtis L. Wagner, although a strong endorsement of the generators' 
position, seemed to indicate that neither side wanted to settle the issue 
before it reached the five-member regulatory commission. 
"There are refunds due (to California) that total hundreds of millions of 
dollars and maybe a billion dollars," Wagner said yesterday. 
"At the same time, there are sums due to sellers from the California 
Independent System Operator and the investor-owned utilities in the state of 
California that probably are higher than any overcharges that (the state) may 
come up with." 
Now, it will be up to the federal regulators to settle the case. But the 
recommendations by Wagner, who mediated the talks, carry significant weight 
with the commission and cast doubt on the state's chances of collecting the 
full $8.9 billion it claims to be owed. 
The judge said he will recommend that the commission order new hearings to 
calculate what the state and the power sellers are each owed. The hearings 
would be overseen by an administrative law judge and would last 45 to 60 
days, Wagner said. 
CLOSING SESSION
Wagner made his comments in the closing session of the 15-day talks, which 
were ordered last month by the regulatory commission to try to defuse the 
dispute between power wholesalers and California officials before it reached 
the courts. 
The judge's message was a sharp rebuke to the unyielding stand by California 
leaders -- especially Davis, who last week said he wouldn't take a dime less 
than $8.9 billion for California's consumers. 
The governor issued a statement shortly after the close of talks insisting 
that California had won its basic case that the state is owed refunds. 
"I am pleased that Judge Wagner accepted our methodology for calculating 
refunds and rejected the generators' position that no refunds are due," Davis 
said. 
The governor's chief representative at the talks, Michael Kahn, called the 
judge's statement a "ringing endorsement" of the state's call for refunds. 
Kahn said the judge's order would improve the state's legal position if it 
files suit against power sellers. 
GENERATORS FAVORED
But much of the judge's order seemed to favor the generators. 
For example, state officials have made the case they should be refunded $8. 9 
billion for alleged overcharges from May 2000 to May 2001 -- even though the 
regulatory commission has said only that the period starting Oct. 2, 2000 
could be considered. 
The judge said yesterday that he would stick with the October date, meaning 
that more than a third of the state's claim -- at least $3 billion -- would 
not be refunded by the commission. 
Brent Bailey, vice president and general counsel of Duke Energy North 
America, said that under Wagner's guidelines, the state may be eligible for 
$1 billion to $1.5 billion. 
"Certainly to the extent that it helped refute what California has been 
saying, it's a victory," Bailey said of the judge's statement. 
But Davis said the nation's big power sellers never came to the table with a 
serious offer. 
"Not surprisingly, the energy pirates that bilked ratepayers out of billions 
of dollars stonewalled and refused to negotiate in good faith," Davis said. 
$716 MILLION OFFER 
Wagner disclosed yesterday that the generators had made an offer to 
California: $716 million in refunds. 
The judge said the figure included about $510 million from the so-called Big 
Five generators, as well as $125 million from BC Hydro's Powerex, $49.6 
million by a group of 15 electricity marketers, $16.5 million by six 
California municipal utilities and $25 million offered by other out-of-state 
power sellers. 
California officials say it was not a legitimate offer because it included no 
cash. It was simply an agreement by the companies to wipe some of the state's 
debt off the books. 
Throughout the talks, generators complained that the California team was 
trying to shield some California companies and government power providers 
from having to pay any refunds, and trying to disproportionately extract sums 
from out-of-state power companies. 
FAVORITISM CHARGED
According to documents and interviews, the state attempted to remove Pacific 
Gas and Electric Co., Southern California Edison, San Diego Gas & Electric., 
the Los Angeles Department of Water and Power and other government power 
suppliers from the group from which it was asking for refunds, even though 
they were paid the same high rates for power as everyone else. 
Representatives for the power sellers said they believe that Davis made a 
political decision to demagogue the companies while refusing to compromise on 
the state's claims. They say the governor calculated that his reputation 
would be enhanced by continuing to attack the generators. 
"The California delegation did not come into these talks with any willingness 
to compromise," said Mark Stultz, vice president of the Electric Power Supply 
Association, a Washington, D.C., trade group. "They went in with a dollar 
figure and never budged on that figure. If you're looking for a settlement, 
you have to be willing to compromise." 
Up next 1. The Federal Energy Regulatory Commission will consider, probably 
on July 25, 
new hearings on how much, if anything, California was overcharged. 2. If 
ordered by the commission, an administrative law judge will take testimony on 
how much the state says it was overcharged and how much generators say they 
are owed. 3. Regulators will rule based on the judge's recommendation. If the 
parties disagree, they can go to court. 
E-mail the writers at zcoile@sfchronicle.com. and cberthelsen@sfchronicle.com
., Zachary Coile reported from Washington, D.C., and Christian Berthelsen in 
San Francisco. 
,2001 San Francisco Chronicle ? Page?A - 1 




Davis opens another new power plant 
Pittsburg facility will generate 555 megawatts 
Bernadette Tansey, Chronicle Staff Writer
Tuesday, July 10, 2001 
,2001 San Francisco Chronicle 
URL: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2001/07/10/MN175828.DTL 

Pittsburg -- Workers were still scraping wet concrete on support columns as 
Gov. Gray Davis celebrated the startup of a new power plant in Pittsburg 
yesterday -- the latest in a string of openings Davis hopes will help 
California "build its way" out of the energy crisis. The state rushed to 
throw as many megawatts on line as it could when it looked like the summer 
would feature regular blackouts, and yesterday the governor said it was 
paying off. 
"This is the third plant I've helped open in the last 13 days," Davis said, 
pumping his fist as the Calpine Corp. plant belched an impressive burst of 
steam. "In the past 13 days, we've put more power on the grid than California 
did throughout the 1990s." 
The 555-megawatt Los Medanos Energy Center and the Sutter Energy Center that 
Calpine opened in Yuba City last week bring a total of 1,115 megawatts 
online. Last month, Davis threw the switch on a Bakersfield plant that opened 
more than a month ahead of schedule. 
Davis used yesterday's event to blast out-of-state generators that he 
maintains have gouged the state for electricity. Yet he lauded San Jose-based 
Calpine as a sort of energy favorite son. 
"They were the first to enter long-term contracts with us," the governor 
said. Calpine is among the big energy firms being pressed by the state to 
issue refunds for what the governor insists were overcharges, but unlike the 
others, Davis said, Calpine is giving ground in negotiations. 
"They likely will be the first to enter into settlements with us," he said. 
Although the Los Medanos plant is one of a generation of efficient new gas- 
fired plants that will be as much as 40 percent cheaper to run than their 
forebears, the state will be paying well above current market rates for the 
first three months of its contract with Calpine. 
Calpine President Peter Cartwright insisted, however, that the company is not 
making excess profits off the deal. To ensure that Calpine could provide the 
electricity even if plant construction wasn't finished by its mid-July target 
date, the company bought the needed power from other energy traders at $232 a 
megawatt hour when market rates were higher, he said. 
In addition to the 300 megawatts it has pledged to the state, Calpine will 
supply electricity to the Sacramento Municipal Utility District and other 
power agencies. 
In the long term, Calpine will be selling power to California at $59 a 
megawatt hour, Cartwright said. 
A spokesman for the state Department of Water Resources, which started buying 
power in January after state utilities buckled under high prices, said 
Calpine's rate is well below the $70 a megawatt hour the state is aiming for 
as an average price for the long-term contracts. 
Cartwright said that with its recently opened plants, along with an 875- 
megawatt facility it plans to open in Pittsburg next May, the company is 
doing its share to ease the state's supply crunch. 
"Ours are the lowest contracts in the state," he said. "If these plants 
weren't online, we'd be having blackouts." 
A spokeswoman from the state agency that manages the power grid said 
California is skating so close to blackouts that "every megawatt counts." 
"It's definitely making a difference and it will continue to do so over the 
summer," said Lorie O'Donley, a spokeswoman for the Independent System 
Operator. 
E-mail Bernadette Tansey at btansey@sfchronicle.com. 
,2001 San Francisco Chronicle ? Page?A - 11 





California rejects B.C. Hydro $125 million settlement 

Tuesday, July 10, 2001 
,2001 Associated Press 
URL: 
http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2001/07/10/state0
321EDT0105.DTL 
(07-10) 00:21 PDT VANCOUVER, British Columbia (AP) -- 
California has rejected an offer by B.C. Hydro's power trading subsidiary to 
refund $125 million to settle the state's allegations that it was overcharged 
by the Canadian power company. 
The dispute will now be resolved by U.S. judicial and regulatory authorities. 
The offer from Hydro's Powerex subsidiary came during 15 days of settlement 
talks between power generators and distributors, California and other western 
states. 
The talks, initiated by the Federal Energy Regulatory Commission, which 
regulates cross-border power sales in the United States, concluded Monday 
evening without resolution. 
Hydro spokeswoman Elisha Odowichuk said that under the offer, the Crown 
corporation would have been subtracted $125 million from the $290 million 
California still owes British Columbia for power sales. 
The $125 million was Powerex's first offer and it did not change through the 
negotiations, she said. The company put conditions on that refund figure, but 
Odowichuk would not say what those conditions were. 
California has charged that Powerex gouged it by more than $430 million. 
Odowichuk said Hydro had to join the settlement talks to preserve its 
otherwise lucrative power trading relationship with California. 
Electricity imports and exports statistics compiled by Canada's National 
Energy Board show Powerex exported more than $900 million worth of energy 
from January to April. 
The average cost of that power was $661.56 a megawatt hour. 
Prices have dropped to around $140 a megawatt hour since the regulatory 
commission instituted price caps on June 19. 
,2001 Associated Press ? 





Davis' criticism of Texas misdirected, report finds 
Lynda Gledhill, Mark Martin, Chronicle Staff Writers
Tuesday, July 10, 2001 
,2001 San Francisco Chronicle 
URL: 
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/07/10/M
N48875.DTL 
Sacramento -- Texas-based electricity generators have received the brunt of 
criticism from Gov. Gray Davis for gouging California during the power 
crisis, but financial information released yesterday shows the lion's share 
of the money went elsewhere. 
Companies with headquarters in Texas garnered less than 10 percent of 
California's multibillion-dollar energy purchases, while public and private 
energy companies from Canada to Georgia to California got the rest. 
The $424 million that went to Texas companies may still be more than the 
state should have been charged, and administration officials are attempting 
to get refunds from a host of companies, both in and out of Texas. 
Earlier this year, Davis lambasted the Bush administration for not acting 
against power firms in his home state. "What's going on here, pure and 
simple, is unconscionable price-gouging by the big energy producers -- most 
of them, incidentally, located in Texas," he said in May. 
Yesterday, a spokesman for the governor broadened the verbal assault, saying 
the Texas firms are representative of the many other out-of-state generators 
who have also gouged California. 
"Anywhere they wear cowboy hats, they probably have handkerchiefs across 
their face because they are robbing us blind," said Steve Maviglio, Davis' 
spokesman. 
The latest financial information is contained in a report by the state 
Department of Water Resources detailing $7.2 billion in power purchases from 
Jan. 17 through the end of May. 
About $5.2 billion of that was spent on the spot market where power buys are 
made a day, hour or even a few minutes before the electricity is actually 
used. 
Because the spot purchases are made with little notice, they are the most 
expensive kind of power on the market. The state was forced to step in and 
buy the power when the credit ratings of California's major utilities dropped 
as the energy crisis worsened. The crisis was caused by a series of events 
that forced the utilities to pay more for electricity than they could recover 
from customers. 
The numbers released yesterday show that Texas companies weren't alone in 
receiving a share of the energy crisis pie. Some $1.2 billion went to Mirant, 
an Atlanta-based company. Mirant has refused to turn over documents 
subpoenaed by the state Legislature as part of its investigation into alleged 
market manipulation. Mirant could face contempt proceedings. 
Municipal generators have also fared well during the energy crisis. Powerex, 
a wholly owned power marketing subsidiary of Vancouver-based BC Hydro, 
received $1 billion from the state for spot market electricity. 
The Los Angeles Department of Water and Power, which Davis said charged 
higher average spot market prices than some generators, received $331 
million. 
E-mail Lynda Gledhill at lgledhill@sfchronicle.com. 
,2001 San Francisco Chronicle ? Page?A - 9 





Developments in California's energy crisis 
The Associated Press
Tuesday, July 10, 2001 
,2001 Associated Press 
URL: 
http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2001/07/10/state1
041EDT0134.DTL 
(07-10) 07:41 PDT (AP) -- 
Developments in California's energy crisis: 
TUESDAY=
* No power alerts Tuesday as electricity reserves stay above 7 percent. 
MONDAY=
* A Federal Energy Regulatory Commission administrative law judge says that 
California is entitled to no more than $1 billion in refunds for excessive 
energy costs. Gov. Gray Davis had been seeking $8.9 billion for overcharges. 
* The Department of Water and Power releases 1,770 pages of documents 
detailing the state's spot market power purchases in the first quarter of the 
year. DWR also releases a report showing that the state's daily power buys 
topped $100 million on three days in May. 
The DWR report says the energy companies that were paid the most by the state 
for last-minute power were: Mirant Corp., which was paid $1.24 billion as of 
the end of May; Canada-based Powerex, $1.05 billion; and Sempra Companies, 
$429 million. 
* Davis ceremonially switches on the largest licensed power plant to come 
online this year, Calpine's 559-megawatt Los Medanos Energy Center in 
Pittsburg. 
* No power alerts as electricity reserves stay above 7 percent. 
* Shares of Edison International closed at $14, up 69 cents. PG&E Corp. rose 
65 cents to close at $14.10. Sempra Energy, the parent company of San Diego 
Gas & Electric Co., closed at $27.52, down 21 cents. 
WHAT'S NEXT=
* U.S. Bankruptcy Judge Dennis Montali decides Tuesday whether millions of 
Pacific Gas and Electric Co. ratepayers can form their own creditors' 
committee to represent them in the utility's bankruptcy proceeding. 
* The Senate committee investigating possible price manipulation in 
California's energy market meets Wednesday. The committee will vote on 
contempt citations against generators Mirant and Enron, which failed to 
comply with subpoenas for documents. The committee will meet again July 18 to 
consider compliance by six other suppliers that have until Tuesday to turn 
over documents. 
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. 
,2001 Associated Press ? 




Energy talks reach no settlement; state threatens suit 
MARK SHERMAN, Associated Press Writer
Tuesday, July 10, 2001 
,2001 Associated Press 
URL: 
http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2001/07/10/state0
400EDT7473.DTL 
(07-10) 01:00 PDT WASHINGTON (AP) -- 
With talks between the state and power generators stalled, California may go 
to court to help win the $8.9 billion state officials believe it was 
overcharged for electricity. 
"I think we have demonstrated very clearly both to the FERC and to the judge 
that the state is owed $8.9 billion and will settle for nothing less," said 
Roger Salazar, a spokesman for Gov. Gray Davis. 
With negotiations at an impasse, the administrative law judge for the Federal 
Energy Regulatory Commission said California is probably owed no more than $1 
billion in refunds. 
"The numbers were too far apart," said Curtis Wagner, the FERC chief 
administrative law judge. 
California, Wagner said, may receive nothing at all, because generators may 
be owed more than they have to return for any overcharges. 
He placed the refunds owed the state at between $716 million and $1 billion. 
Power providers had offered $716 million as part of an overall settlement, 
while California state officials sought $8.9 billion, Wagner said. 
He said California officials had not made the case for $8.9 billion in 
refunds. 
Salazar, however, said the state would go to court and may ask for $20 
billion. 
Separately, Wagner split off claims of overcharges from the Pacific 
Northwest, saying he has not had time to consider those allegations under the 
short timetable ordered by FERC last month. 
Wagner served as a mediator during the 15 days of negotiations and will 
recommend a settlement to FERC by next Monday. The commission ordered the 
talks last month in an effort to resolve differences between producers and 
the state over the breakdown of California's deregulated electricity market. 
Consumer advocates assailed the judge's recommendation and urged the state to 
continue its attempt to get refunds from what they say are profiteering power 
companies. 
"It's like catching a bank robber, but instead of making him give back all of 
it, you only make him give back 5 percent of what he stole," said Douglas 
Heller, spokesman for the Santa Monica-based Foundation for Taxpayer and 
Consumer Rights. 
Power generators, however, were generally pleased with Wagner's comments. 
Brent Bailey, general counsel for Duke Energy, said even if the formula 
Wagner recommends produces $1.5 billion in refunds, "that's a reasonable 
amount in the context of these settlement talks." 
California officials, negotiating on behalf of utilities, the Public 
Utilities Commission and state power buyers, accused the producers of 
manipulating supply to unfairly drive up prices. 
The producers have acknowledged prices are high, but blame jumps in the price 
of natural gas, which fuels many power plants, and the workings of the free 
market. 
The bill for wholesale power in California soared to $27 billion last year 
from $7 billion the year before. Davis has estimated the state could spend as 
much as $50 billion this year. 
The producers reiterated Monday that California's numbers are grossly 
inflated. Attorneys for the five major generators -- Duke Energy, Dynegy, 
Mirant, Reliant Energy and the Williams Cos. -- said in a statement that they 
have made a "very substantial global settlement offer." 
Reliant would agree to no more than $50 million in refunds as part of an 
overall settlement that also would have to include protection from additional 
legal claims, said John H. Stout, a company senior vice president. 
But Stout also said, "Reliant's fundamental position has been and remains 
that no refunds are justified." 





Toxic fumes not linked to blackouts 
Backup power OK in facilities, report says 
Jason B. Johnson, Chronicle Staff Writer
Tuesday, July 10, 2001 
,2001 San Francisco Chronicle 
URL: 
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/07/10/M
NC115768.DTL 
Despite a power-related mishap that released toxic fumes from an industrial 
plant in May, rolling blackouts are not expected to cause dangerous releases 
in Contra Costa, a county study concludes. 
The county Health Department report found that 52 industrial facilities have 
adequate backup power plans. 
The report to be presented to the Board of Supervisors today was prompted by 
a freak traffic accident that knocked out power at Richmond's General 
Chemical Corp. plant. When the plant powered back up, a cloud of sulfur 
trioxide and sulfur dioxide was released. 
Contra Costa hazardous materials director Lew Pascalli said that there is 
always a possibility that a plant's hydraulic or mechanical systems could 
fail but that those chances are slight given the growing number of power 
plants coming online and the state's successful conservation effort. 
He also said industry has done a good job preparing for outages. 
"The industry is doing a good-faith effort in this particular instance to 
make sure that nothing happens," Pascalli said. 
County officials relied on industry records in determining the adequacy of 
the different plans, such as having multiple electrical leads feeding a 
source regulating hazardous materials. 
Denny Larson, spokesman for the group Communities for a Better Environment, 
said the report relied too heavily on industry self-reporting. 
"Unfortunately, the conclusions of the report can't be backed up by the 
facts," Larson said. "Oil and chemical plants in Contra Costa have repeatedly 
had toxic releases due to power failures over the years." 
The 52 facilities include chemical plants, oil refineries and small shops 
that produce limited amounts of hazardous materials. 
For many of these businesses, the loss of power would shut down their 
operations and make it impossible for substances to be released. 
Larger facilities, like oil refineries, have either their own backup 
generators or contracts with cogeneration plants that could supply all or 
most of their power independent of the electricity power grid, according to 
the report. 
Plans are also in place to conduct partial shutdowns at plants running on 
reserve power during a blackout. 
General Chemical said all electrical feeds to the chamber processing 
chemicals are automatically pulled in the event of loss of power. A backup 
generator will automatically come online to keep operations stable. 
Dow Chemical has a contract with a Calpine power plant to supply it with 
electricity. Battery backup and diesel emergency engines are also at the site 
to ensure enough power to run lights, alarms, controls and emergency shutdown 
equipment. 
e-mail Jason B. Johnson at jbjohnson@sfchronicle.com. 
,2001 San Francisco Chronicle ? Page?A - 11 







Power suppliers, state fail to agree on refund total 
Posted at 10:41 p.m. PDT Monday, July 9, 2001 
BY JIM PUZZANGHERA 

Mercury News Washington Bureau 


WASHINGTON -- California officials and power suppliers failed to agree on 
refunds for electricity overcharges as 15 days of contentious negotiations 
ended Monday, leaving the matter in the hands of a federal judge who said the 
state is owed much less than the $8.9 billion it demands. 
The judge overseeing the talks for the Federal Energy Regulatory Commission 
put the refunds at between several hundred million dollars and a billion 
dollars. His estimate is closer to the $716.1 million offer made by power 
suppliers during negotiations. The offer was rejected by California 
officials. 
But it was unclear Monday which side in the bitter refund battle would 
prevail, and California officials indicated the dispute is probably headed to 
court. At stake is how much the state's electricity consumers will ultimately 
have to pay for costs that skyrocketed as California's deregulation system 
collapsed. 
Curtis Wagner, the commission's chief administrative law judge, will 
recommend a formula for the commission to use to calculate a refund dating 
back to October. That formula -- a complex methodology that involves factors 
such as daily natural gas prices -- includes many of the provisions the 
energy suppliers had advocated during the talks. 
Michael Kahn, who headed the California negotiating team, said the state 
would contest some aspects of the formula. But even without changes, Kahn 
said he was confident the formula will result in more refunds than Wagner 
estimated. 
``We think the numbers even using the judge's formula are going to be in the 
multiple billions,'' said Kahn, chairman of the state Independent System 
Operator, which runs the electricity grid. ``California will get its $8.9 
billion dollars. If we don't get all of it from the commission .?.?. we'll 
still get the remainder of the money'' through the courts. 
Amount in dispute 
Power industry representatives appeared pleased with the judge's plan. 
``We haven't gone and run the full numbers but it's going to be nowhere near 
the $8.9 billion,''' said Brent Bailey, vice president and general counsel 
for Duke Energy North America. ``But let's face it, that's a pie-in-the-sky 
number that nobody in there believed in their right mind was a legitimate 
number.'' 
Wagner acknowledged he had not calculated any figures using his formula, 
saying he arrived at his dollar estimate based on the offers made by the 
suppliers. 
The energy commission ordered the private settlement conference last month 
when it enacted new price controls to try to rein in soaring electricity 
prices in California and throughout the West. Commissioners hoped that under 
pressure of a deadline and their looming intervention the state and the power 
suppliers could resolve the refund issue and stave off future litigation. 
But the suppliers and state officials never came close to a deal, 
participants said. 
``The numbers were too far apart. You saw $8.9 billion on one end and you saw 
$716 million on the other end, and that's a long way to splitting the 
difference,'' Wagner said. ``I think a lot of the parties genuinely wanted to 
settle. Others didn't.'' 
Wagner now has until Monday to make his recommendation to the five-member 
commission, which will make the final ruling on refunds. To date, the 
commission has ordered $125 million in refunds for periods since last Oct. 2. 
Wagner said Monday that he will ask that a special hearing be set up in the 
next 60 days to get the detailed information from the state and power 
suppliers needed to determine a refund total using his formula. 
The state may not end up with any cash, as any refund total could be applied 
to the several billion dollars California and its utilities still owe many of 
the power suppliers. 
Reflecting the tone of the negotiations, California Gov. Gray Davis on Monday 
blamed power suppliers for the failure of the talks and challenged the 
commission to resolve the situation. 
``Not surprisingly, the energy pirates that bilked ratepayers out of billions 
of dollars stonewalled and refused to negotiate in good faith with our team 
in Washington, D.C.,'' Davis said. ``While in the past the FERC has shown 
little, if any, interest in consumers, they now have the opportunity to 
redeem themselves by returning the $8.9 billion California has demonstrated 
it is owed.'' 
Davis may go to court 
At the opening of a new power plant in Contra Costa County on Monday, Davis 
told reporters that he's prepared to take the power generators to court if 
FERC doesn't order the full refund. Davis also said the ISO's estimate of 
$8.9 billion doesn't represent all the overcharges. He said other estimates 
put the figure as high as $20 billion, although he did not elaborate about 
how those figures were calculated. 
John H. Stout, senior vice president for Reliant Energy Wholesale Group, said 
the state used faulty methodology to arrive at the $8.9 billion figure. 
California officials and several suppliers said they would continue to 
negotiate separately, and an official with San Jose-based Calpine said his 
company is close to a settlement with the state. 
Power suppliers urged Wagner not to calculate refunds by applying the energy 
commissions' June price-limits plan retroactively. But that's what Wagner 
said he will do. It was a victory for California officials, who had pushed 
for it. Wagner, however, also made some changes to the price-limit plan that 
power suppliers had wanted. He applied it only back to Oct. 2, 2000. State 
officials wanted it to cover up to May 2000. 
$3 billion difference 
The state's $8.9 billion figure comes from May 2000 through May 2001. 
Factoring refunds beginning with Oct. 2, 2000, eliminates about $3 billion in 
overcharges the state says occurred in the earlier period. 
Among the changes to the commission's formula that Wagner made was to revise 
the way the prevailing electricity price limit is calculated. Wagner wants 
the price limit determined for each hour of each day. The commission's 
formula sets a price limit during Stage One power emergencies that remains in 
effect until the next emergency. 
But in a sign of just how complex the issue is, Stanford University economist 
Frank Wolak said he believes the standards described by the judge will 
produce a much higher figure than $1 billion. 
``That's the methodology the state used,'' said Wolak, who advises the 
California ISO on market issues. ``By using the marginal unit for each hour, 
you'll get refund numbers on the order of what the state estimated.'' 


Mercury News Staff Writers Brandon Bailey and Dana Hull contributed to this 
report. 



Contact Jim Puzzanghera at jpuzzanghera@krwashington.com or (202) 383-6043. 












Power purchase bills exceed $7.5 billion 
Published Tuesday, July 10, 2001, in the San Jose Mercury News 
BY MARK GLADSTONE, NOAM LEVEY AND DION NISSENBAUM 

Mercury News Sacramento Bureau 


SACRAMENTO -- Six months after jumping into the electricity business, the 
Davis administration on Monday provided the first detailed glimpse of 
California's daily power purchases, showing more than $5 billion in payments, 
much of it to government-owned utilities and private companies that state 
officials have branded as price gougers. 
The state spent an additional $2.5 billion on a variety of contracts and 
other electricity services designed to stabilize the volatile energy markets, 
according to documents that the state agreed to release last week amid a 
legal dispute over public access to the data. 
In roughly the first five months of the year, the state shelled out $1.2 
billion to Atlanta-based Mirant, the most any company was paid for 
electricity, followed by $1 billion to Powerex, the marketing arm of BC Hydro 
in British Columbia. It also paid $331 million to the Los Angeles Department 
of Water and Power. 
The documents raise questions about some of the common assumptions that have 
arisen around the electricity crisis. For instance, almost 40 percent of the 
state's purchases have come from government-run power generators in 
California and elsewhere, but not Texas; some of the biggest suppliers are 
from the Northwest. 
Gov. Gray Davis, who has ambitions to run for the White House, has put much 
of the blame for the soaring costs of power on energy companies based in 
President Bush's home state. 
The figures are tucked inside 1,770 of pages of invoices that Davis has 
resisted divulging, saying disclosure would encourage suppliers to charge 
more. The state, which last month released information on its long-term 
electricity contracts worth $43 billion, agreed Thursday to release the first 
quarter details. 
Short on explanation 
The figures were disclosed late Monday by the California Department of Water 
Resources, which buys power for the state's financially strapped major 
utilities, and seem to buttress the administration's contention that the 
price of power is gradually dropping but offer little or no explanation for 
what prompted the decrease. 
In January, for instance, the average price for power on the spot market was 
$321 a megawatt hour. It peaked in April at $332 and dropped to $271 in May. 
One megawatt powers about 750 homes. 
Davis spokesman Steve Maviglio said the price data supports the governor's 
assertions that California has been gouged. ``The bad guys are clearly the 
out-of-state generators,'' Maviglio said. ``There has been a significant 
shift of money out of California.'' 
But the documents fail to shed much light on whether, as the administration 
contends, the price drop was due to long-term power contracts negotiated by 
the state earlier this year. Critics contend that the Davis administration 
panicked and rushed into deals that commit the state to pay high prices for 
many years. 
Used for support 
Republican officials used the price information to bolster their attacks 
against Davis, a Democrat, for signing long-term contracts with power 
generators even as the price of power on the spot market was coming down, 
partly because of the declining price of natural gas used to fuel many 
plants. 
``It's more clear than ever that the long-term contracts are a bad deal,'' 
said Assemblyman Tony Strickland, R-Camarillo. ``The governor's really hurt 
the ratepayers for the next five or 10 years.'' 
The newly released bills highlight the volatility of California's energy 
market, where the price per megawatt hour ranged from $70 to $1,000. On any 
given day, the records show, the prices from seller to seller varied widely, 
with some of the highest prices being charged by public utilities and 
companies outside Texas. 
On one day in February, for example, San Diego-based Sempra Energy was 
charging $165 per megawatt hour, the Eugene Water and Electric Board was 
charging nearly $500 and Duke Energy, a North Carolina company, was charging 
up to $575. 
The state's daily spending peaked May 10 at $102.4 million for all power, 
including the spot market and contracted power. 
The state began buying power in mid-January on behalf of the state's major 
utilities, which were unable to borrow money to buy power after amassing 
enormous debts for electricity. 
San Jose-based Calpine Corp., which is building several new power plants 
around California including one in South San Jose, did only $29 million worth 
of business with the state in the first five months of the year, according to 
the figures. 
The state began buying power in mid-January when Pacific Gas & Electric Co. 
and Southern California Edison Co. were on the ropes financially. PG&E later 
went into bankruptcy. 
On Monday, state lawmakers took another shot at trying to cobble together a 
plan to rescue financially ailing Edison. 
While most concede that a rescue plan Davis worked out with Edison will not 
win the necessary support in the Legislature, lawmakers have created several 
working groups to come up with alternatives. 
Compromise plan 
On Monday, state Sen. Byron Sher, D-Redwood City, unveiled the latest 
compromise proposal that seeks to protect average ratepayers and small 
businesses from further rate increases and forces everyone else to help 
finance the Edison bailout. 
The ``shared pain'' proposal would force power producers, owed about $1 
billion, to take a 30 percent ``haircut'' and agree to forgive about $300 
million in Edison debts. Edison would be asked to swallow $1.2 billion -- 
about a third of its debt. And big users would be asked to pay off the 
remaining $2 billion in debts, possibly by paying higher prices for power. 
In exchange, large companies would be given the opportunity to buy power on 
the open market, a system that would allow many of them to sign cheap energy 
deals. 
Sher presented the proposal to Senate Democrats Monday afternoon, but it 
remains unclear how much support the framework will receive in the 
Legislature. 


Contact Mark Gladstone at mgladstone@sjmercury.com or (916) 325-4314. 

?














Refund outlook dims 
Talks break down; judge says state is owed much less than its $8.9 billion 
demand -- and unpaid bills may offset gains. 
July 10, 2001 
By DENA BUNIS
and JOHN HOWARD
The Orange County Register 
WASHINGTON The nation's chief energy judge said Monday that California is 
owed maybe $1 billion in refunds from power generators, a fraction of the 
$8.9 billion demanded by Gov. Gray Davis. 
And even at that, said Judge Curtis Wagner, the electricity sellers are owed 
so much more in unpaid power bills that in the end California might not see 
one red cent. 
Wagner announced his recommendation to the Federal Energy Regulatory 
Commission after two weeks of fruitless negotiations between all the parties 
to California's electricity crisis. With no settlement, the matter is now in 
the commissioners' hands. 
Power generators, Wagner said, had offered a combined $716 million in 
refunds, an offer the state rejected. "I don't think it's 8.9 (billion 
dollars)," he said afterwards, "because I haven't been shown that it was." 
For California consumers, every dollar the state can extract in refunds is a 
dollar less that ratepayers have to shell out for state-purchased power. And 
the more money the state gets back, the better the chances of warding off 
future rate increases. 
"California will get its $8.9 billion," insisted Michael Kahn, head of the 
state's delegation and the California Independent System Operator. Kahn 
brushed off Wagner's comments, finding victory in the judge's assertion that 
the state is owed some refunds, a concept the generators have been unwilling 
to embrace up to now, he said. 
Since the talks began, some generators have made refund offers -- last week 
Duke Energy offered $20 million and on Monday, Reliant officials revealed 
their refund offer was $50 million, provided all other actions against the 
company were dropped. 
But the net result of the 15- day closed-door sessions is that California is 
no closer to getting repaid for what it claims was price gouging by power 
companies going back to May 2000 than it was the day the talks began. 
And it means the state is in for possibly more hearings before the FERC. If 
unsuccessful there, the whole issue could wind up in court for years. 
"You can take a horse to water but cannot make him drink," Wagner said during 
an afternoon public session where he made his preliminary recommendation. He 
has seven days to put his ideas in writing. At several points during the 
often-tense talks, Wagner expressed frustration to the negotiators and tried 
to get them to agree, even to the point of holding an unprecedented Sunday 
session. 
"The numbers were too far apart," Wagner said. 
While Kahn insisted the state had made progress, on hearing of the judge's 
comments, state Sen. John Burton, D-Francisco, called them "barely better 
than a jab in the eye with a sharp stick." Burton agreed with Kahn that the 
state has to do all it can to get more than that. 
And Davis backed up his team. 
"Our delegation made a clear and compelling factual argument that there were 
overcharges made because the market was broken," Davis said. "Remarkably, the 
energy generators and suppliers refused to recognize their responsibility to 
the people of California and own up to their profiteering." 
Power generators seemed satisfied with the judge's views, even though John 
Stout, vice president of Reliant Energy, said his company's "fundamental 
position has been and remains that no refunds are justified." 
Brent Bailey, general counsel for Duke Energy, called the judge's 
recommendation, "a fair one." 
Republican lawmakers in Sacramento were quick to say it was Davis' failed 
energy policies that brought California to this point. They also distanced 
themselves from the state's refund request. 
"I don't believe there really exists a true justification for that number," 
said Assemblyman John Campbell, R-Irvine. "I've never considered that 
anything more than a wild number to throw out there." 
The two sides are so far apart in their estimates of overcharges because they 
are using different assumptions about how to compute the complex pricing 
structure. And Wagner was more persuaded with the majority of the generators' 
methods. 
To start with, the state is asking for $8.9 billion, but about $3 billion of 
those alleged overcharges happened between May and October 2000, a period 
FERC is not looking at. FERC issued two refund orders in March, finding that 
power companies had $124 million in overcharges during power alerts. But the 
state is challenging that finding, saying there were overcharges beyond those 
limited times. And the state is also asking FERC to reconsider allowing 
refunds for May to October 2000. 
How energy panel affects California 
Six months ago, few people had heard of FERC. Now the Federal Energy 
Regulatory Commission, the agency charged with making sure that the nation's 
power markets are running smoothly and that wholesale prices are "just and 
reasonable," rolls off the tongue. 
The five commissioners who make up FERC - all of whom were members of their 
home state's Public Utilities Commissions - ordered the settlement talks that 
concluded Monday. They had hoped all the parties involved in California's 
electricity crisis could reach an agreement on proposed refunds, long-term 
power contracts and other issues that have divided the parties for months. 
FERC's chief judge, Curtis Wagner, was asked to mediate the talks. 
WHAT WAS AT STAKE? 
For the state: $8.9 billion that Gov. Gray Davis said was the amount power 
companies overcharged California in the past year. Wagner's finding? There 
should be refunds. But more like $1 billion. 
For the generators: More than $5 billion that they say they are owed for 
unpaid power bills. Wagner's finding? Generators are owed more money than the 
refunds they owe California. He did not specify by how much. 
For California consumers: A stable electricity market. Until the refund issue 
is settled and power prices are stabilized long term, what the future holds 
for rate increase remains uncertain. Wagner's finding? No settlement. 
Consumers still in limbo. 
HOW DID WE GET HERE? 
In spring 2000, wholesale power prices began to soar. The state began 
appealing to FERC to cap wholesale prices. In the meantime the utilities were 
running out of money. Generators weren't paid for all the electricity they 
sold. Rolling blackouts began. 
Starting in January, the state began buying the power, replacing the 
near-bankrupt utilities. Politicians from Sacramento to Washington increased 
the pressure on FERC to cap rates. More than $27 billion was spent to buy 
power for California last year, compared with $7 billion the year before. The 
price tag could reach $50 billion this year. 
On June 19, FERC imposed the kind of soft price caps experts say could 
moderate wholesale rates. Wholesale prices have come down, but the caps have 
caused confusion among generators, leading some to hold some power off the 
market. 
WHAT'S NEXT? 
The FERC commissioners will receive Wagner's report within a week. In it, he 
will suggest they hold a fast-track formal hearing that would last no more 
than 60 days. 
If they agree, after that hearing the commission would rule on refunds and 
other California market issues. 
If either the state or the other parties to this dispute disagree, they can 
contest FERC's decision in court. Such legal proceedings could last many 
years.















State reveals details of power purchases 
Report shows last-minute energy buys in first three months of 2001. 
July 10, 2001 
By JENNIFER COLEMAN
The Associated Press 
SACRAMENTO On three days in May, California's daily power allowance topped 
$100 million, according to a report released by state power traders. 
The California Department of Water Resources released the report Monday, 
along with 1,770 pages of documents that also detailed the last- minute power 
purchases the state made on the spot market in the first three months of the 
year. 
The report details the department's electricity spending since Jan. 17, when 
the state took over electricity purchases for Pacific Gas & Electric Co., San 
Diego Gas & Electric Co., and Southern California Edison. 
The utilities had amassed billions in debts and were no longer creditworthy 
enough to purchase power. Since then, the state has spent nearly $8 billion 
to keep the lights on. 
The state's daily spending peaked May 10 at $102.4 million. The 
second-highest daily total was May 23, when the state spent $101.8 million. 
But since May, spot-market prices have dropped, due in part to moderate 
weather, lower natural gas prices, increased conservation that lowered demand 
and because of increased scrutiny by lawmakers and investigators into 
possible price manipulation. Gov. Gray Davis has said long-term contracts 
also drove the price down. 
"It does look like some of the spot-market prices have gone down, but it 
looks like it's primarily due to natural gas prices," said Jamie Fisfis, 
spokesman for Assembly Republicans. 
The slight reduction in spot-market prices "underscores questions about the 
strategy of locking us into long-term contracts, if natural gas prices 
continue to drop," Fisfis said. 
Most of the long-term contracts run for 10 years, with one lasting for 20 
years. 
Davis already has released details of the state's long-term power contracts 
after losing a court battle with Republican legislators and several news 
organizations. 
But Davis wanted to delay the release of the spot-market buys and short-term 
contracts until now to keep the state's buying strategy secret.According to 
the state, Atlanta-based Mirant Corp. got $1.24 billion as of May 31 for 
spot-market purchases. 
Canadian Powerex, the marketing arm of BC Hydro, has been paid $1.05 billion. 
The newly released short-term contracts also show that on March 19-20, when 
the state had rolling blackouts, the state paid above-average prices in its 
largest short-term contracts. 
For example, Mirant sold the state 650 megawatt-hours at off-peak usage times 
on March 20 for $345 a megawatt-hour, more than $70 above the average price 
of $272.96. 















Tuesday, July 10, 2001 






Ghost of Bob Citron roaming halls of capitol 
Gray Davis is following footsteps of former O.C. treasurer into fiscal chaos




JOHN M.W. MOORLACH 
Mr. Moorlach is the Orange County treasurer-tax collector. 

A recent L.A. Times poll found that Californians still remain unconvinced 
that our state suffers from a shortage of energy. Perhaps the state's 
subsidizing of the actual costs for electricity these past five months has 
caused us to believe that everything is fine. It is not. 
The state has been spending an average of $57 million, a medium-sized city's 
annual budget, per day for electricity. Now California is headed toward the 
same financial catastrophe that was imposed on its shareholder-owned 
utilities, finding one of them in Chapter 11 bankruptcy and another on the 
precipice. At this pace, it will not be long before the state will be staring 
a Chapter 9 bankruptcy filing in the face. 
That's why I'm gnawed by this "d,j. vu" sensation. The similarities and 
parallels between California of 2001 and Orange County of 1994 are 
frightening. Here's a refresher. In 1994 the county, through former Treasurer 
Robert Citron, was borrowing at variable rates and investing at fixed rates. 
The "experts" and the "politicos" were comfortable with the investment 
scheme. 
No wonder the electorate was convinced that there were no investing 
improprieties. Even while their former treasurer was very secretive about how 
he was investing and what his "exit strategy" would be. Guess what? The 
unexpected happened. Short-term borrowing rates doubled. The cost of 
borrowing suddenly exceeded the revenues being generated. 
It caused the investment pool to implode and Orange County taxpayers realized 
a $1.64 billion loss. In spite of pleas to avoid or minimize this train wreck 
the county's leadership, he ignored it. The rest is history. In a 
half-pregnant deregulation scheme, the state capped the retail price that the 
utilities can charge. It also eliminated the availability to acquire 
electricity through the use of long-term contracts. 
Guess what? The unexpected happened. The wholesale price for electricity 
spiked dramatically above the inflexible retail price cap. It depleted the 
available funds for the utilities, and then some, and they are imploding. In 
spite of pleas from the utilities imploring Gov. Gray Davis to avoid or 
minimize this train wreck, he ignored them. The rest is also history. 
It gets worse. Davis doesn't allow for the immediate raising of retail rates 
and decides to have the state secretly purchase electricity. Guess what? The 
expected happened. He depleted our budget surplus! Our reserves! Nearly $9 
billion - and counting! He's a Citron, only quintupled! 
And in the light of day, the secret purchases were not attractively priced 
and only compound this financial nightmare. Gov. Davis has done what no 
Libertarian or Republican could ever dream of doing in such a short time. He 
has returned the budget surplus created by taxpayers to the residents of 
California by subsidizing their electricity bills. 
Bravo! It may not be the most equitable way of refunding taxes, but has 
anyone ever thought up a more efficient method? But, that's not all. He wants 
it back! Davis now wants to borrow some $13 billion to replace the spent 
reserves and purchase even more electricity at rates in excess of the retail 
prices! When does this train wreck in slow motion stop? 
And how do we pay off these bonds? Davis did not want to raise rates last 
summer or this past winter. But now he will to pay off this historically 
largest municipal bond offering with a significant utility rate increase. The 
ratepayers will be reminded for 10 years after Davis is gone about his 
expensive brilliance. And this elected official wants to purchase the power 
grids and bureaucratically manage the utilities? I say "no." 
If we don't show some leadership in Sacramento soon, potential bond buyers 
will also say "no," unless they receive an attractive interest rate. Just ask 
Edison International about attractive interest rates. It just subscribed $800 
million in bonds paying 14 percent. Tragically, Gov. Davis walked into his 
position with an existing budget surplus and now has no tangible legacy to 
show for it. No reserves. No improved highways. No new schools. No 
infrastructure improvements. Only interest payments. 
Wasn't that Citron's legacy? If amortized over 10 years at 6 percent, the 
citizens of California will pay an additional $4.4 billion in interest costs. 
Over 15 years it's $6.7 billion. And therein lies the true legacy of Davis, 
squandering the entire budget surplus that he inherited on interest resulting 
from his indecisiveness and lack of leadership! 
It is so tragic that the perpetrator of this colossal mess is still in denial 
and continues to play the "blame game." Orange County played the "blame 
game," too. But it had obvious perpetrators and succeeded in a court of law 
in securing a significant amount in retribution payments. I'm not so sure 
California will have a similar result. 










Calpine's Los Medanos Energy Center Adds Needed Generation to California 
Second New Major Base Load Generator for California 






July 10, 2001 




Second New Major Base Load Generator for California 
SAN JOSE, Calif., July 9 /PRNewswire/ -- San Jose, Calif.-based Calpine 
Corporation (NYSE: CPN) announced today that its 555-megawatt Los Medanos 
Energy Center in Pittsburg, Calif. is providing needed electricity to 
California's strained power grid. Los Medanos is the second major 
combined-cycle facility to be licensed and built in California in over a 
decade. Fueled by natural gas, the facility is designed to add up to 
555-megawatts of clean, reliable electricity to California on a 24 hours a 
day, seven days a week availability. As a cogeneration facility, the project 
also delivers electricity and steam to USS POSCO for use in industrial 
processing. 
Governor Gray Davis and Calpine CEO Peter Cartwright will hold a press 
conference Monday afternoon to commission the Los Medanos Energy Center and 
to recognize the support of the local community, the construction and trades 
people, and numerous organizations that helped develop the facility. 
Cartwright said, "We are committed to creating innovative energy solutions 
for California's growing power market. Los Medanos exemplifies excellence in 
power generation-ratepayers and the environment benefit as Calpine brings to 
California new energy resources like Los Medanos." 
Los Medanos is the second of eleven announced modern, fuel-efficient energy 
centers Calpine is building in the State as part of a $6 billion energy 
initiative. Three additional facilities are under construction, including an 
880-megawatt facility in Pittsburg at Dow Chemical's facility. By year-end 
2005, Calpine expects to be generating 12,000 megawatts of clean, affordable 
electricity to help repower California. 
Calpine broke ground on the Los Medanos Energy Center in September 1999. More 
than 600 construction and trade personnel worked on the project over a 
20-month period. During the past several months, the project scheduled two 
ten-hour shifts, seven days a week to get the plant operating as soon as 
possible in light of the energy crisis. And over the past several weeks, 
technical teams worked round the clock to complete the facility. The total 
cost of construction is estimated to be approximately $350 million. 
The Los Medanos Energy Center is located in Pittsburg, Calif., in Contra 
Costa County adjacent to the USS POSCO plant and is operated by a 22-member 
staff of highly trained personnel. 
As with all of Calpine's modern base load facilities, Los Medanos uses 
combined-cycle design with natural gas-fired turbines in combination with a 
steam turbine to achieve maximum fuel efficiency. Advanced emissions control 
technology enables Calpine to reduce certain emissions by more than 90 
percent. 
Based in San Jose, Calif., Calpine Corporation is dedicated to providing 
customers with reliable and competitively priced electricity. Calpine is 
focused on clean, efficient, natural gas-fired generation and is the world's 
largest producer of renewable geothermal energy. Calpine has launched the 
largest power development program in North America. To date, the company has 
approximately 34,000 megawatts of base load capacity and 7,200 megawatts of 
peaking capacity in operation, under construction, pending acquisitions and 
in announced development in 29 states, the United Kingdom and Canada. The 
company was founded in 1984 and is publicly traded on the New York Stock 
Exchange under the symbol CPN. For more information about Calpine, visit its 
Website at www.calpine.com. 
This news release discusses certain matters that may be considered 
"forward-looking" statements within the meaning of Section 27A of the 
Securities Act of 1933, as amended, and Section 21E of the Securities 
Exchange Act of 1934, as amended, including statements regarding the intent, 
belief or current expectations of Calpine Corporation ("the Company") and its 
management. Prospective investors are cautioned that any such forward-looking 
statements are not guarantees of future performance and involve a number of 
risks and uncertainties that could materially affect actual results such as, 
but not limited to, (i) changes in government regulations, including pending 
changes in California, and anticipated deregulation of the electric energy 
industry, (ii) commercial operations of new plants that may be delayed or 
prevented because of various development and construction risks, such as a 
failure to obtain financing and the necessary permits to operate or the 
failure of third-party contractors to perform their contractual obligations, 
(iii) cost estimates are preliminary and actual cost may be higher than 
estimated, (iv) the assurance that the Company will develop additional 
plants, (v) a competitor's development of a lower-cost generating gas-fired 
power plant, and (vi) the risks associated with marketing and selling power 
from power plants in the newly competitive energy market. Prospective 
investors are also cautioned that the California energy environment remains 
uncertain. The Company's management is working closely with a number of 
parties to resolve the current uncertainty, while protecting the Company's 
interests. Management believes that a final resolution will not have a 
material adverse impact on the Company. Prospective investors are also 
referred to the other risks identified from time to time in the Company's 
reports and registration statements filed with the Securities and Exchange 
Commission. 
MAKE YOUR OPINION COUNT - Click Here 
http://tbutton.prnewswire.com/prn/11690X52413521 
SOURCE Calpine Corporation 
CONTACT: media, Katherine Potter, 408-995-5115, ext. 1168, or investors, Rick 
Barraza, 408-995-5115, ext. 1125, both of Calpine Corporation 
Web site: http://www.calpine.com (CPN) 











National Desk; Section A 
California and Generators Still Split After 2-Week Talks
By JOSEPH KAHN
? 
07/10/2001 
The New York Times 
Page 14, Column 1 
c. 2001 New York Times Company 
WASHINGTON, July 9 -- A federal mediator ended two weeks of negotiations 
about California 's demands for electricity refunds today, with the state and 
power suppliers seemingly no closer to a settlement than when the talks 
began. 
The failure of the negotiations shifts the burden of resolving the yearlong 
dispute to the Federal Energy Regulatory Commission, to which the mediator 
may recommend a pricing formula that would mean refunds of about $1 billion. 
California , which wants $8.9 billion, vowed today that it would seek that 
much and more, through the courts if necessary. 
Although electricity prices in the West have eased in recent weeks, the power 
crisis that has afflicted California and other Western states seems unlikely 
to be resolved unless rival parties can agree on how much electricity should 
have cost during the last 13 months. 
The power market has been mired in an accounting gridlock. The state claims 
that generating companies began grossly overcharging for electricity -- with 
prices soaring by a factor of 10 or 20 over year-before levels -- beginning 
in late spring last year. Generators say they are prepared to pay some 
refunds, but argue that California 's estimates of overcharges are radically 
inflated. 
The mediator in the settlement talks was Curtis L. Wagner Jr., an 
administrative law judge for the federal agency, who said today that the 
negotiations had failed to reach the comprehensive voluntary settlement he 
had sought. 
Mr. Wagner said he would recommend to the agency's commissioners that they 
convene a 60-day evidentiary hearing that would impose an administrative 
solution. He also said he would suggest a method for determining fair prices 
for electricity . 
Under federal law, the energy commission has the obligation to ensure ''just 
and reasonable'' electricity rates. Though the commission declared last year 
that California 's electricity market had broken down, it only recently began 
imposing price controls on the market and has yet to address accusations of 
past overcharges systematically. 
While the scope of any refunds remains uncertain, Mr. Wagner's remarks 
appeared more favorable for generators than for Western states, which have 
collectively pressed for as much as $15 billion in refunds. 
Mr. Wagner said that to determine how much California should have paid for 
power since last September, when the commission began monitoring California 
energy prices, he would suggest that the agency retroactively apply a price 
control formula it adopted in June. He also indicated that he supported a way 
of calculating the costs of power generation that is closer to the method 
favored by power companies than to the one put forward by California 
officials. The judge suggested that the formula he is recommending could 
require generators to pay back hundreds of millions or ''maybe a billion'' 
dollars. 
California officials gave a positive cast to the judge's statements, calling 
them a step forward because he formally acknowledged that companies would 
have to pay some refunds. They also noted that whatever the level of 
federally mandated refunds, they would have the option of seeking more in 
court. 
''We are still going to get the $8.9 billion,'' said Michael Kahn, who 
represented Gov. Gray Davis of California in the talks. ''If we don't get it 
all from the commission, we will get the remainder in the courts.'' 
Governor Davis himself said today that if the agency did not provide refunds 
in the amount the state claims it is owed, it would sue generators for $18 
billion to $20 billion. ''We are in a war with generators, mostly out of 
state, that are trying to bleed us dry,'' Mr. Davis said, speaking at the 
ceremonial opening of a power plant in Northern California . 
Representatives of several generating companies said that during the 
settlement talks, they collectively offered to refund California about $500 
million. They estimated that the calculation method suggested by the judge 
would result in refunds of no more than $1.5 billion -- far closer to their 
offer than to California 's demand. 
Still, several executives said they now hoped to reach individual settlements 
with the state that would end the threat of prolonged litigation and allow 
them to collect several billion dollars they say they are owed by the state 
and its leading, financially pressed utilities, which ran up huge debts to 
suppliers in the last year. 
''We remain very interested in reaching a global settlement with the state 
that will put this problem behind us once and for all,'' said Brent Bailey, 
vice president and general counsel of Duke Energy. 





Financial 
Energy Refund Talks Fail In Calif.; Federal Agency's Judge To Propose 
Settlement
Peter Behr
? 
07/10/2001 
The Washington Post 
FINAL 
Page E01 
Copyright 2001, The Washington Post Co. All Rights Reserved 
California consumers were overcharged by as much as $1 billion by electricity 
suppliers since October, a federal administrative judge said yesterday after 
state officials and power suppliers failed to reach an agreement on the 
disputed charges. 
Gov. Gray Davis (D) and California power officials wanted $8.9 billion in 
refunds dating back to May 2000, when the state's energy crisis began. 
A group of generating companies headed by units of Duke Energy Corp., Reliant 
Energy Inc. and Williams Cos. offered refunds of $716.1 million in the past 
week, going back to October. The companies said refunds should be offset by 
the larger amounts they are owed for unpaid power deliveries to the state. 
"The numbers were too far apart," Curtis L. Wagner Jr., chief judge of the 
Federal Energy Regulatory Commission, told reporters after two weeks of 
closed negotiations ended yesterday. Wagner acknowledged that his refund 
number was imprecise and said further hearings before FERC are needed to pin 
down the figure. 
Calpine Corp. of San Jose and possibly one other supplier are expected to 
reach individual settlements with the state, the judge said. 
"A lot of the parties genuinely wanted to settle and others didn't," Wagner 
told reporters. "There's an old southern saying," said the 72-year-old 
Tennessean. "You can take a horse to water, but you can't make it drink." 
He declined to say which side balked, but previously he had blasted 
California officials for not modifying their initial demands. 
Wagner said he will send his own refund formula to FERC's five commissioners 
within a week. His formula essentially will reflect what he thinks reasonable 
electricity prices would have been in the state at various times since 
October, considering fuel costs and other factors. Charges over those levels 
would be subject to refund, if FERC agrees. 
The judge's recommendation is likely to carry considerable weight with FERC's 
commissioners, according to energy analysts. Earlier this year, FERC 
tentatively ordered $125 million in refunds for the first three months of 
this year, an amount that Davis called far too low. 
Facing increasing political pressure from Congress, FERC -- with two new 
members appointed by President Bush -- has taken a harder line on California 
's power prices. Last month, the commissioners imposed price restraints on 
wholesale power transactions in California and 10 other western states. 
Wagner patterned his formula after FERC's ruling last month. 
The nation's wealthiest state has been battered by an extraordinary surge in 
electricity and gas prices that have pushed its electricity costs up from $7 
billion in 1999 to an estimated $27 billion last year. Power prices did not 
retreat from record levels until last month. 
Davis's top aides quickly claimed vindication yesterday. 
"We think the numbers, even using the judge's formula, are going to be in the 
multiple billions," said Michael Kahn, chairman of the California Independent 
System Operator, the state's power grid manager. 
Kahn noted that the state refused to drop a growing list of legal claims 
against the principal energy suppliers, most of them headquartered outside 
the state. The companies had insisted on being released from the state's 
legal claims as part of any settlement, according to sources close to the 
negotiations. 
"We will have a viable claim in state court and other jurisdictions for the 
remainder," Kahn said. " California will get its $8.9 billion." 
But the state's own expert witness, economist Eric Hildebrandt, chief market 
monitor for the California grid, testified before Wagner that the 
out-of-state generators and other nonpublic power suppliers would owe about 
$3.7 billion using FERC's pricing formula of last month -- less than half the 
$8.9 billion goal. 
Duke Energy is "very pleased'' by Wagner's action, said Brent Bailey, vice 
president and general counsel of the Charlotte-based company. The generators, 
however, repeated their claims that Davis is trying to make them scapegoats 
for the state's failed electricity deregulation plan. 
The major generators, in a statement yesterday, said they had delivered only 
20 million megawatt hours out of the 145 million the state power grid used 
from October 2000 to last May. (A megawatt supplies enough power for about 
750 homes.) 
California utilities and municipal power companies also reaped large profits, 
the generators said. 
"The refunds sought by California would send a profoundly counterproductive 
message to suppliers: when prices are low and surpluses exist, you face a 
steep downside; when scarcity develops and prices rise we will take away all 
upside [profit]. No one will invest [in California power facilities] in that 
climate," the generators' statement said. "The power supply shortage thus 
will continue without relief." 

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Contact: http://www.washingtonpost.com 









Economy 

California and Energy Companies Miss Deadline
By Richard B. Schmitt
? 
07/10/2001 
The Wall Street Journal 
Page A2 
(Copyright (c) 2001, Dow Jones & Company, Inc.) 
WASHINGTON -- State officials and power-company executives failed to meet a 
federal deadline for settling $8.9 billion of disputed California electricity 
charges, as a federal mediator overseeing the talks suggested the state's 
demand was excessive. 
Cautioning that he hadn't done formal calculations, Curtis L. Wagner Jr., the 
chief administrative law judge of the Federal Energy Regulatory Commission, 
put the level of potential refunds at "hundreds of millions of dollars, maybe 
a billion dollars." He also said any sums due the state could well be offset 
by monies its insolvent utilities owe in unpaid power bills. 
Mr. Wagner said he would recommend to the commission that any refunds be 
calculated only from October -- the state had been seeking rebates calculated 
from May 2000 -- in line with an earlier FERC jurisdictional ruling. That 
decision alone would shave $3 billion from the $8.9 billion claim. 
Mr. Wagner, who is expected to issue formal findings in the next few days, 
said he would recommend that the FERC hold an evidentiary hearing to assess 
the correct method for figuring refunds. 
The collapse of the talks doesn't preclude individual deals later between 
energy companies and the state, which has accused them of overcharging for 
power during the past two years. Yesterday, some industry lawyers indicated a 
willingness to keep bargaining, and Mr. Wagner said two "partial" settlements 
were in the works. 
Yet, absent any such solution, the overcharge issue -- a flash point in the 
California power crisis -- is apt to be resolved in protracted legal and 
regulatory proceedings, which could drag on for months or even years. 
The negotiations began June 25, with a deadline set for midnight last night. 
But late yesterday, participants indicated they were billions of dollars 
apart, with basic differences over everything from the disputed charges to 
doubts about whether the FERC, which ordered the talks, could enforce a deal 
because of the industry's questions about the reach of the agency's 
authority. 
"We haven't reached a settlement. We really haven't come close," said John 
Stout a senior vice president of Reliant Energy Inc.'s wholesale-power group. 
Reliant had offered to pay California about $50 million to extricate itself 
from the fight. That is more than a third of the Houston company's operating 
profit during the relevant period, he said, although far shy of the more than 
$375 million California sought from Reliant. 
Mr. Wagner said the industry offered a total of $716 million to settle the 
matter. 
The refund issue is fast becoming a test of the agency's authority and 
credibility. The FERC, a onetime regulatory backwater, has come under intense 
scrutiny of late for its largely hands-off monitoring of deregulated 
California markets. The commission has ordered some companies to pay refunds, 
but they have been relatively small -- such as a $124 million rebate covering 
wholesale electricity bills in California in January and February. 
California Gov. Gray Davis has said he hopes two new FERC members will take a 
much more aggressive tack. The agency is expected to act quickly on the 
judge's call for a hearing and other findings. 
Yesterday, Michael Kahn, a San Francisco lawyer representing Gov. Davis at 
the settlement, declared he was "gratified" by Mr. Wagner's findings, saying 
they validated the state's claims to some refunds, a concept the industry had 
rejected at the talks' outset. "We've had a ringing endorsement of the idea 
of refunds and we'll get back lots of money," he said, adding that what the 
state doesn't recoup via the FERC it will pursue in court. 
But power generators, who derided the state's request for a huge refund as 
"ludicrous" and "unsound," felt vindicated by yesterday's proceedings. "The 
state came away with far less than its expectations," said Robert Loeffler, 
an attorney for a unit of AES Corp. of Arlington, Va. "The common expectation 
now is that any refunds will be way below this $9 billion."