National crisis eclipses energy woes
The Orange County Register, September 13, 2001 

No confidentiality for energy producers
The Sacramento Bee, September 13, 2001

UCLA: Power Crisis Damage To Calif Economy Seen Lessened 
Dow Jones Newswire, September 13, 2001

PG&E Says California Power Cost Request Is Illegal, Overstated
Bloomberg, September 13, 2001

Developments in California's energy crisis
Dow Jones, September 13, 2001

UCLA: Power Crisis Damage To Calif Economy Seen Lessened
Dow Jones, September 13, 2001

Calif PUC Won't Vote Thu On $12.5B Rev-Bond-Related Items
Dow Jones Energy Services, September 13, 2001

Calif Lawmakers Call For Federal Probe Of State Pwr Mkt
Dow Jones Energy Services, September 13, 2001

State regulators delay decision on power rate agreement 
San Diego Tribune, September 12, 2001

State Faces Crunch Time to Deal With Electricity Costs
LA Times, September 13, 2001




National crisis eclipses energy woes 
State's bond sale, as well as Edison bailout, could be casualties of Wall Street turmoil. 
September 13, 2001 
By JOHN HOWARD
The Orange County Register 
SACRAMENTO -- Terrorist attacks that disrupted Wall Street could further delay California's plan to help itself - and Southern California Edison - recover from the energy crisis, experts said Wednesday. 
Among other things, a $12.5 billion bond sale - designed to repay the state for billions it spent buying emergency electricity - could be delayed until next year, one legislative leader said Wednesday, although others expect a shorter wait. The $12.5 billion in borrowing would be the largest municipal bond sale in U.S. history. It was expected to happen next month, after several earlier postponements. 
Putting it off means that if the state's credit rating drops within the next few months, the interest rate on the bond repayment would be higher. Delays on the sale beyond Oct. 31 could cost ratepayers hundreds of millions of dollars in interest on another loan the state has already taken. 
Several pieces of California's recovery plan are still in play as the Legislature heads toward a scheduled Friday adjournment and Wall Street's attention is on other matters. A summary: 
Terrorist attacks forcing the temporary closure of Wall Street could slow down getting the $12.5 billion in energy bonds being marketed. 
"There certainly is a direct impact on Wall Street," said David Freeman, the head of the new California Power Authority. "If the place that is going to loan you money nearly got bombed out, you have to assume that things won't move at the same pace that they would have. But I think that will be a short-term delay." 
But a top legislator disagrees. 
"We're looking at January at the earliest and probably later," Jaime Fisfis, spokesman for Assembly Republican leader Dave Cox, said, referring to the $12.5 billion sale. 
Another factor, not related to the terrorist attacks, also is conspiring to delay the sale. The PUC's long-awaited decision of whether to sign off on a crucial piece of the bond sale was to be made today. But PUC President Loretta Lynch says the proposal is complex and requires a longer look, perhaps until Sept. 20. The PUC's approval is needed before the bonds can be marketed. 
The state took out a short-term loan of $4.3 billion to cover energy costs while a larger bond sale was developed. 
But that loan, which was to be paid back with the bond money, has a sharp interest penalty if it isn't paid off by Oct. 31. After that, the interest rate rises from the original 4.14 percent to about 7 percent - which means the state would have to cover an additional $123 million to pay back the loan. 
Many, even in Gov. Gray Davis' administration, believe missing the Oct. 31 deadline is likely. 
"I wouldn't be a bit shocked by that," said Steven Maviglio, Davis' spokesman. 
Two unrelated bond sales, one for $5.7 billion and the other for $500 million, have been postponed for at least a couple of weeks because of the New York attacks. State officials say they want to wait to go to market with the two bond sales, both routine, until the turmoil in the East settles down. 
The proposed bailout of Edison also could be hurt by the New York attacks, said one energy expert, who noted that lawmakers have only until midnight Friday to act on the plan, which might include financing the utility's debt with bonds. If the Legislature adjourns without providing help to Edison, it is widely believed the utility will go into bankruptcy. 
"I believe the Edison bailout package is now nonexistent," said Gary Ackerman of the Western Power Trading Forum, which represents energy producers. 
Maviglio disagreed, saying the rescue plan will rise or fall on its own. 
"I don't think there's any effect" on the bailout, he said. 


No confidentiality for energy producers
By Claire Cooper
Bee Legal Affairs Writer
(Published Sept. 13, 2001) 
SAN FRANCISCO -- Energy generators were rebuffed Wednesday in an attempt to force state Attorney General Bill Lockyer not to disclose marketing data he has subpoenaed from them. 
Without comment or dissent, the California Supreme Court voted not to review lower court decisions allowing the attorney general to share the data with others looking into possible manipulation of energy supplies, including state regulators, federal prosecutors and officials in Oregon and Washington state. 
In May, three generators -- Dynegy, Reliant and Mirant -- agreed to turn over the subpoenaed documents to Lockyer. Lockyer, in turn, agreed not to share them, pending court review of the companies' confidentiality claim. 
A Los Angeles trial judge ruled against all three companies. Reliant and Mirant took the issue to the state Court of Appeal and lost there. Only Reliant then appealed to the state Supreme Court, which considered and turned down the appeal at its weekly closed-door case conference. 
Deputy Attorney General Hiren Patel said it would have been absurd if Lockyer, California's chief law enforcement officer, could not divulge unlawful activity to appropriate authorities. 
He said that while some generators have been turning over the subpoenaed documents, Reliant recently reneged on its promise to do so. 
John Pernick, Reliant's lawyer, said he would have "no comment at this time."


UCLA: Power Crisis Damage To Calif Economy Seen Lessened 
Updated: Wednesday, September 12, 2001 05:52 PM ET 
By Jessica Berthold 
OF DOW JONES NEWSWIRES 
LOS ANGELES (Dow Jones)--California's energy crisis will drain the state's economy of billions of dollars, but will have a smaller impact than previously thought, said Christopher Thornberg, economist and co-author of a report issued Wednesday by the University of California at Los Angeles' Anderson Business Forecast team. 
The difference can be largely chalked up to consumers paying less for electricity than was expected, he said. 
In our last paper, we said that, given the price of power and what we expected people to consume, rate increases would have a 1.7% drain on the economy," Thornberg said. "Now we think it will be a one-half percent drain." 
That translates to $5 billion lost yearly because of the electricity crisis, compared to June's estimate of $17 billion. The state's economy produces $1.2 trillion per year. 
Much of the state's lost dollars will come from a decline in consumer and business spending in reaction to higher electricity rates, the report said. The California Public Utilities Commission passed a 3 cent per kilowatt hour rate hike for customers of PG&E Corp (PCG </investments/quotes/?symbol=PCG>, news </investments/news/?symbol=PCG>, msgs </investments/discuss/?symbol=PCG>) unit Pacific Gas and Electric Co. and Edison International (EIX </investments/quotes/?symbol=EIX>, news </investments/news/?symbol=EIX>, msgs </investments/discuss/?symbol=EIX>) unit Southern California Edison in March, and is expected to pass a similar increase for Sempra (SRE </investments/quotes/?symbol=SRE>, news </investments/news/?symbol=SRE>, msgs </investments/discuss/?symbol=SRE>) unit San Diego Gas and Electric Co. soon. 
"The costs imposed on ratepayers by the state's PUC will reduce economic growth from what it otherwise would be," the report said. "These costs will total billion of dollars annually, and will significantly reduce consumer and business spending for other goods and services." 
Still, the state was spared the cost of a widely-anticipated summer electricity crisis, Thornberg noted. 
The UCLA team's last report, in June, predicted that the summer would bring 36 hours of blackouts and sky-high wholesale power prices, dealing a concentrated blow to the state's economy. But the summer crisis failed to materialize due to mild weather, conservation efforts and a federal price control order that has brought wholesale prices down, the report said. 
"(The energy crisis) is in the process of being converted from a short-term crisis into a longer-term vexation which will nag us with a combination of higher energy prices, shakier public credit, bankrupt utilities, and fewer choices in how state revenues will be expended," the report says. 
Because wholesale prices have declined so dramatically, the UCLA team no longer predicts the state will be have $17 billion in debt in 2005 due to the energy crisis, Thornberg said. A co-author of the June report said that utility ratepayer revenue would not be enough to repay a $13.4 billion revenue bond sale planned by the state to smooth out its power purchases. That's no longer the case, Thornberg aid. 
"Under the current circumstances, I'd say there will be enough in retail rates to pay the state for power", he said. 
The costs California has been spared by the lack of a summer electricity crisis will be offset by the effects of the national recession and global economic slump, the report said. Personal income, which accounts for more than 80% of gross state product, slowed to 4% in the second quarter of 2001 from 13% in the third quarter of 2000. Unemployment has risen from 4.5% in February to 4.9% in July, and will hit 6% in 2002, the report said. 
"Although California's economy is not clearly in recession at this point, most indicators of the job market show an end to the expansion," the report said. 



PG&E Says California Power Cost Request Is Illegal, Overstated
By Dennis Walters 
San Francisco, Sept. 12 (Bloomberg) -- PG&E Corp.'s Pacific Gas & Electric, California's largest utility, said a proposed plan to let the state sell $12.5 billion bonds for its power costs is illegal and overstates how much money the state needs. 
The comments came in a filing with the California Public Utilities Commission, which is considering a plan for repaying the state for power purchases. California's Department of Water Resources plans to sell the bonds, the largest municipal debt offering in U.S. history, to repay the state's general fund for loans and to cover other power costs. 
The proposed plan is ``blatantly arbitrary, discriminatory, and unlawful'' and should be rejected, Pacific Gas & Electric said in its filing. 
The water department this year has spent more than $8.6 billion buying power on behalf of the PG&E unit and Edison International's Southern California Edison, the state's No. 2 utility. The utilities became insolvent after buying power at higher costs than they could charge customers under California law. 
In a rush to give the water department a ``blank check,'' the regulator proposes illegally shifting $600 million of costs to Pacific Gas from customers in Southern California, the filing said. Echoing past complaints by the utility, the filing also said the water department has overestimated power costs and should face public hearings over its revenue request. 
Southern California Edison, in comments filed with the PUC today, also disagreed with parts of the proposed plan. Edison said the plan would ``effectively set a fixed rate'' for its own generating plants and contracts with alternative-energy providers, raising the risk that the utility wouldn't recover all its costs under certain circumstances. 
PG&E's utility filed for bankruptcy protection in April. California lawmakers are debating a rescue plan for Edison's utility. 
The PUC, citing the disruption caused by yesterday's terrorist attacks, has postponed a vote on the power plan that had been scheduled for tomorrow. The commissioners will reschedule the vote at tomorrow's meeting. 




Developments in California's energy crisis
By The Associated Press

09/13/2001
Associated Press Newswires
Copyright 2001. The Associated Press. All Rights Reserved.

Developments in California's energy crisis: 
THURSDAY:
- No power alerts Thursday as electricity reserves remain above seven percent. 
WEDNESDAY: 
- State energy regulators said they'll delay a vote on a plan that cedes the Public Utilities Commission's ratemaking authority to the state Department of Water Resources. The PUC still plans to meet Thursday, but the commissioners will choose a new date, possibly for next week, to vote on the plan, said Terri Prosper, PUC spokeswoman. 
- The attacks at the nation's financial center delayed two bond issues for the state of California, one totaling $5.7 billion, but won't have much affect on the state's biggest project - $12.5 billion to repay the state's general fund for energy purchases. 
- State Auditor Elaine Howle said the California National Guard and Office of Emergency Services each have weaknesses in their blackout preparation procedures. 
- An executive with the city's Department of Water and Power, Tom LaBonge, and a former Los Angeles Community College District leader, Beth Farfield, appeared headed for an October runoff for a seat on the Los Angeles City Council. 
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 also is 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 also is 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. 




UCLA: Power Crisis Damage To Calif Economy Seen Lessened
 By Jessica Berthold
 09/12/2001 Dow Jones Energy Service (Copyright (c) 2001, Dow Jones & Company, Inc.) OF DOW JONES NEWSWIRES 
   
LOS ANGELES -(Dow Jones)- California's energy crisis will drain the state's economy of billions of dollars, but will have a smaller impact than previously thought, said Christopher Thornberg, economist and co-author of a report issued Wednesday by the University of California at Los Angeles' Anderson Business Forecast team. 
 The difference can be largely chalked up to consumers paying less for electricity than was expected, he said. 
"In our last paper, we said that, given the price of power and what we expected people to consume, rate increases would have a 1.7% drain on the economy," Thornberg said. "Now we think it will be a one-half percent drain." 
That translates to $5 billion lost yearly because of the electricity crisis, compared to June's estimate of $17 billion. The state's economy produces $1.2 trillion per year. 
Much of the state's lost dollars will come from a decline in consumer and business spending in reaction to higher electricity rates, the report said. The California Public Utilities Commission passed a 3 cent per kilowatt hour rate hike for customers of PG&E Corp (PCG) unit Pacific Gas and Electric Co. and Edison International (EIX) unit Southern California Edison in March, and is expected to pass a similar increase for Sempra (SRE) unit San Diego Gas and Electric Co. soon. 
"The costs imposed on ratepayers by the state's PUC will reduce economic growth from what it otherwise would be," the report said. "These costs will total billion of dollars annually, and will significantly reduce consumer and business spending for other goods and services." 
Still, the state was spared the cost of a widely-anticipated summer electricity crisis, Thornberg noted. 
The UCLA team's last report, in June, predicted that the summer would bring 36 hours of blackouts and sky-high wholesale power prices, dealing a concentrated blow to the state's economy. But the summer crisis failed to materialize due to mild weather, conservation efforts and a federal price control order that has brought wholesale prices down, the report said. 
"(The energy crisis) is in the process of being converted from a short-term crisis into a longer-term vexation which will nag us with a combination of higher energy prices, shakier public credit, bankrupt utilities, and fewer choices in how state revenues will be expended," the report says. 
Because wholesale prices have declined so dramatically, the UCLA team no longer predicts the state will be have $17 billion in debt in 2005 due to the energy crisis, Thornberg said. A co-author of the June report said that utility ratepayer revenue would not be enough to repay a $13.4 billion revenue bond sale planned by the state to smooth out its power purchases. That's no longer the case, Thornberg aid. 
"Under the current circumstances, I'd say there will be enough in retail rates to pay the state for power", he said. 
The costs California has been spared by the lack of a summer electricity crisis will be offset by the effects of the national recession and global economic slump, the report said. Personal income, which accounts for more than 80% of gross state product, slowed to 4% in the second quarter of 2001 from 13% in the third quarter of 2000. Unemployment has risen from 4.5% in February to 4.9% in July, and will hit 6% in 2002, the report said. 
"Although California's economy is not clearly in recession at this point, most indicators of the job market show an end to the expansion," the report said. 




Calif PUC Won't Vote Thu On $12.5B Rev-Bond-Related Items

09/12/2001
Dow Jones Energy Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)

LOS ANGELES -(Dow Jones)- The California Public Utilities Commission won't vote Thursday on items related to the state's sale of $12.5 billion in revenue bonds, a spokeswoman for CPUC president Loretta Lynch said Wednesday. 
The CPUC will either meet Friday, or wait until its next scheduled meeting Sept. 20 to discuss the items, she said.
The items had already been postponed from Sept. 6. 
The postponed items include a rate agreement that would allow the state Department of Water Resources to recover power-buying costs without regulatory review, and an item that would establish how much revenue the DWR can receive for power purchases through 2002. 

The CPUC will still hold its meeting Thursday, but won't be taking any votes, commission spokeswoman Terrie Prosper said. The commission will announce Thursday when it will have its next meeting. 
"We are trying to coordinate the commissioners' schedules to see when they can meet next week," Prosper said. 
The votes are being delayed as a result of the closure of the commission's offices Tuesday after terrorist attacks on the East Coast. Tuesday's deadline to file comments on the DWR revenue requirement order has also been extended to Wednesday at 5 p.m. PDT (0000 GMT Thursday). 
The CDWR has been buying power on behalf of the state's investor-owned utilities since January. CPUC votes on the proposed decisions are crucial to the state's plans to sell a record $12.5 billion in revenue bonds later this autumn. The bonds will be used to repay about $6 billion borrowed from the state's general fund, and a $4.3 billion bridge loan for power purchases. 
State Treasurer Philip Angelides has said he will comment on any revision to the bond sale's timetable after the CPUC takes all necessary votes. 
The postponement of bond-related votes Thursday will also affect items dealing with the suspension of retail choice of electricity providers, and servicing agreements between the utilities and the DWR. A vote on a 12% rate hike for customers of Sempra Energy (SRE) unit San Diego Gas & Electric is also postponed. 



Calif Lawmakers Call For Federal Probe Of State Pwr Mkt
By Jason Leopold

09/12/2001
Dow Jones Energy Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)

OF DOW JONES NEWSWIRES 

LOS ANGELES -(Dow Jones)- A dozen California Republican state senators called for a federal investigation into the state's grid operator and power buying arm, claiming the agencies may be manipulating the wholesale electricity market by understating the state's power needs in order to obtain a higher price out-of-market for its excess supply, according to a letter sent to the chairman of the Federal Energy Regulatory Commission.
The letter signed by Senate Republican Minority Leader Jim Brulte, R-Rancho Cucamonga, Sen. Ray Haynes, R-Riverside, and others in the minority leadership, alleges the California Independent System Operator has understated the state's daily power needs in order to allow the Department of Water Resources to get a higher price for its excess electricity through "out-of-market" calls. 
The ISO maintains reliability of the grid and operates the spot market in California. The DWR is the agency that has been buying electricity since January in lieu of the state's struggling utilities and signed $43 billion in long-term power pacts. 
The ISO has denied the allegations, but the agency has come under fire for what some describe as market manipulation. 
"It could be argued that a higher price for excess electricity is needed for political reasons, because DWR has been selling power for a low as $1 per megawatt-hour, after entering into long-term contracts averaging $138 per megawatt-hour," the letter, sent to FERC Chairman Pat Wood. 
An aide to Wood said the letter has not yet been reviewed by the agency. 
The letter claims the ISO made numerous out-of-market sales for DWR power, "especially" in June. 
"Evidence indicates that the out-of-market calls, especially those in June of 2001, were many times larger than load imbalances." 
ISO Confirms Market Dysfunctional 
Last week, an ISO spokesman said the agency's market "was not working as it was designed to" refusing to elaborate. 
The ISO may also be in violation of its federal regulations requiring it to make the cheapest power available in the state before turning to more expensive supplies. 
Fishman confirmed that the ISO has "at times" taken bids out of sequence, turning to higher priced power because the state can obtain the more expensive power quicker. 
In August, the ISO confirmed that it reduced power at low-cost power plants, possibly, to allow the DWR to keep its excess supply. 
The state's Big Five power generators also filed a complaint with FERC saying the ISO has failed to pay the companies $2 billion for electricity supplied since mid-January. 



State regulators delay decision on power rate agreement 

September 12, 2001 
SACRAMENTO - State energy regulators said Wednesday they'll delay a vote on a plan that cedes the Public Utilities Commission's ratemaking authority to the state Department of Water Resources. 
The PUC still plans to meet Thursday, but the commissioners will choose a new date, possibly for next week, to vote on the plan, said Terri Prosper, PUC spokeswoman. 
With most public offices closed Tuesday due to the terrorist attacks in Washington, D.C., and New York, many parties requested more time to file comments on the plan, Prosper said. That means PUC officials will also need additional time to review the comments, she said. 
The proposed agreement would let DWR pass on all power costs to customers without oversight by state regulators to ensure those costs are fair and reasonable. 
The DWR has been purchasing power for customers of three major utilities since January, when record-high wholesale energy costs brought the utilities to the brink of bankruptcy. One of the utilities, Pacific Gas and Electric Co., filed for Chapter 11 bankruptcy in April. 
The other two, Southern California Edison and San Diego Gas & Electric Co., are working with state officials on rescue plans that would let the utilities issue revenue bonds for their debts. 
Critics of the DWR draft rate agreement, which includes the utilities and several consumer groups, say the PUC plan would let the department raise customer rates to pay for energy costs. It would prevent the PUC from reviewing energy costs or contracts to ensure they were reasonable. 
DWR officials said they need that guarantee to attract investors when they sell $12.5 billion in revenue bonds this fall. Ratepayers will pay off those bonds over 15 years, and state officials say a solid revenue stream could help keep interest low. 




State Faces Crunch Time to Deal With Electricity Costs
 Energy: With one week left in the legislative session, lawmakers and regulators want to resolve questions on how California will recoup its expenditures during power crisis.  After a summer of delays, California regulators and legislators are aiming in one final week to resolve issues crucial to millions of electricity customers and the financial stability of the state and its utilities.

The energy crisis that caused blackouts early this year has receded, but it has left behind a potential fiscal crisis. The state needs to recoup more than $8 billion that it has spent on power, and it has signed $43 billion in long-term electricity contracts.

Final plans for meeting these financial obligations--and spreading the pain of paying them off--have been debated for months. But the decision time has come: Legislators are scheduled to recess for the year on Friday, and the state Public Utilities Commission is under pressure to act on several long-pending measures at a meeting on Thursday. "What's before the state, both at the PUC and the Legislature, is how are we going to provide power to people in the years to come," PUC President Loretta M. Lynch said in an interview. "Are we going to have a healthy utility to provide the power, or are we going to rely on the state?"

The PUC, which approved the biggest rate increase in history earlier this year, now faces another tough choice: Should it surrender its formerly ironclad authority over electricity rates to the state Department of Water Resources, an agency that has come under fire for alleged conflicts of interest and the cost of its contracts? Or should it balk and jeopardize the state's planned sale of bonds to replenish the treasury and repay loans?

Legislation on Related Issues

Legislators are grappling with two complicated and highly contested bills on related issues. One seeks to repair the finances of Southern California Edison through a $2.9-billion aid plan backed by Gov. Gray Davis. The other would limit the powers of the Department of Water Resources, which has been buying electricity for 10 million customers of Edison, Pacific Gas & Electric Co. and San Diego Gas & Electric since January.

The state law that authorized the Department of Water Resources to buy power exempted the purchases from PUC reviews designed to protect consumers from unreasonable charges.

Now, the department is seeking a formal agreement with the PUC that would guarantee that its cost of supplying power to utility customers will be fully covered. Critics say the accord is a blank check for future rate increases, but the department says no increases will be necessary in the foreseeable future.

State officials say the PUC has little choice but to sign the agreement, which they see as necessary to reassure Wall Street bankers that the Department of Water Resources will be able to repay $12.5 billion in bonds the state plans to sell to cover power costs. The money from those bonds will go, in part, to repay the state treasury for money laid out for power.

Top state officials, including the governor and treasurer, want the bond sale to go without a hitch, but the date of the sale already has been pushed back several months, and threatened litigation could further delay it.

The urgency over the bonds comes about because the state already has used $6 billion from the treasury and has taken out a $4.3-billion loan to cover power costs.

State Treasurer Phil Angelides said that if the bonds are unsold and the economy slows down next year, the state could be revisiting the fiscal crisis of the early 1990s.

"People ought to be laying down their arms over their energy agendas and asking the question: What is the best and fastest way to repay the state general fund to ensure critical programs such as education and health get their funding?" he said.

Lynch, one of three Davis appointees on the five-member PUC, finds herself in a particularly difficult position. She sees the value of PUC reviews of the reasonableness of power purchases. But, Lynch said, "If we do not enter into a rate agreement, the bonds do not issue and that could affect the state general fund."

"The thing I care about most," she added, "is ensuring the general fund is repaid."

Earlier this month, Lynch issued a draft decision that would have the PUC essentially rubber-stamp any future revenue requests or rate increases sought by the Department of Water Resources. But she also has publicly endorsed a bill by state Sen. John Burton (D-San Francisco) that the Davis administration opposes.

The bill would ensure that the PUC has the right to scrutinize the revenue needs of the Department of Water Resources and hold public hearings. It would not, however, give the PUC the power to disallow department expenses. To reassure Wall Street, the bill would dedicate a portion of the money that utilities collect from their customers to repaying the bonds.

At a PUC meeting last Thursday, PUC commissioners Richard Bilas and Henry Duque, appointees of former Gov. Pete Wilson, voiced support for the Burton bill, saying it would let the PUC shed additional light on the Department of Water Resources' power-related expenditures.

The Davis administration opposes the bill's present form but is seeking amendments. One concern is that energy providers would sue out of fear that if money runs short, bondholders would be paid before they are.

The bill's passage could be a "deal breaker" for the bond sales, said contractor Joseph Fichera, a financial advisor to Davis.

At the least, contentious debate surrounding energy-related issues could drive up the price of floating bonds, Fichera said.

"Wall Street does not like risk. Conflict implies risk. So the more we create, the more we are costing ratepayers," he said.

The Legislature also is considering a bill that would allow Edison to sell bonds to pay off about three-quarters of the debt it accrued during the energy crisis. The utility would have to handle on its own about $1 billion owed to large energy companies. Consumer activists have threatened a ballot initiative to block the bill, which they call a bailout.

The PUC on Thursday is scheduled to vote on several items designed to ease the sale of the Department of Water Resources' bonds. One is a rate increase for SDG&E customers. Another measure would suspend the right of businesses and other electricity customers to stop buying electricity from their local utility and choose their own power provider.

The Alliance for Retail Energy Markets, an organization that includes many large California businesses, said its members would be forced to sue if the PUC goes ahead with plans to retroactively void the right of customers to choose their own energy providers.

But the most controversial item has been the proposed PUC agreement with the Department of Water Resources. Consumer groups and utilities alike have called for public examinations of the department's contracts and revenue requirements.

"The plan would allow a state agency to operate behind closed doors while it negotiates with ratepayers' money," said Douglas Heller of the Foundation for Taxpayer and Consumer Rights in Santa Monica. "Secrecy in DWR leads to conflicts of interest and that leads to higher rates."

Concerns about the Department of Water Resources' lack of independent oversight have been heightened by recent developments:

Energy experts have questioned the qualifications of the trading team the department assembled, and several traders were fired for alleged conflicts of interest.

Critics seized on reports that the department sold surplus power at a loss of $46 million in July, although officials say surpluses are bound to occur with long-term power contracts.

And the department's projections of its revenue needs for future power purchases have been updated and amended twice, prompting utilities and others to question the reliability of the figures.

PG&E Threatens to Sue Over Revenue

The utilities want the department to be subject to the sort of reviews that have rankled them for years. If the PUC does not provide for that, lawsuits could be coming.

PG&E, which already is in bankruptcy, has threatened to sue if the Department of Water Resources' revenue requirement doesn't leave the utility a sufficient share of the rate increase adopted by state regulators in March.

PG&E recently asked a Sacramento County Superior Court judge to require the Department of Water Resources to hold public hearings on its revenue requirements. The company has reacted angrily to a draft PUC decision to shift $600 million of the state's cost of buying power from Edison to PG&E, saying the plan was illegal and discriminates against PG&E customers.

Davis aides have defended the Department of Water Resources and its power purchases, saying the department's long-term contracts helped cool the energy crisis.

"They look overpriced now," Fichera said. "But four months ago they were underpriced [compared with the spot market]. They are an insurance policy" against market volatility.

Having the PUC review actions of another state agency would be redundant and would serve no purpose, Fichera said, because the contracts already are in place.

"You can't break contracts," he said. "You've got to pay them."

Even some critics acknowledge it is difficult to evaluate the Department of Water Resources' performance to date. One reason is that the department has closely guarded details about its contracts and its spot purchases, arguing that release of too much information would place it at a competitive disadvantage.

Another reason is that market conditions have changed and natural gas prices have declined since the department entered into contracts amid the energy crisis.

"We all have 20-20 hindsight," said PUC Commissioner Bilas. "When DWR entered into contracts, the state was over the barrel. Now we can say that they are not as good as [the department] thought . . . and that DWR does a lousy job of negotiating contracts. But that's unfair." 







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