From: jeff.dasovich@enron.com
To: skean@enron.com, richard.shapiro@enron.com, james.steffes@enron.com, sandra.mccubbin@enron.com, susan.mara@enron.com, karen.denne@enron.com, linda.robertson@enron.com, joe.hartsoe@enron.com, tom.briggs@enron.com, alan.comnes@enron.com, sgovenar@govadv.com, hgovenar@govadv.com, mpalmer@enron.com, janel.guerrero@enron.com, sarah.novosel@enron.com
Date: 2001-03-16 12:09:00+00:00

Please note marked increase in Chron's quality of reporting when it ain't 
Lazarus doing the reporting.  This was the lead, front page story in the 
Chron.  Note Abraham's quote in p.#3 re: "must increase supply or decrease 
demand."  I've heard that somewhere before.

Best,
Jeff


Energy Boss Says State Summer Blackouts 'Appear Inevitable' 
Carolyn Lochhead, Chronicle Washington Bureau
Friday, March 16, 2001 
,2001 San Francisco Chronicle 
URL: 
http://www.sfgate.com/cgi-bin/article.cgi?f=/chronicle/archive/2001/03/16/MN20
0965.DTL 
Washington -- The Bush administration warned yesterday that blackouts "appear 
inevitable" in California this summer, but it firmly rebuffed a deal from 
Sen. Dianne Feinstein that would force the state to lift its rate freeze on 
consumers in exchange for federal controls on wholesale prices. 
Energy Secretary Spencer Abraham insisted that price controls would make 
shortages worse by reducing power sales into the state. The administration's 
top priority is to prevent blackouts, he said. 
"Let me make one point clear," Abraham told the Senate Energy and Natural 
Resources Committee. "Any action we take must either help increase supply or 
reduce demand. . . . Price caps will not increase supply or reduce demand. In 
fact, in our view, they will seriously aggravate the supply crisis." 
Abraham said electricity shortages in California "will get worse, and 
blackouts this summer appear inevitable." He cited projections of anywhere 
from 20 to 200 hours of rolling outages this summer. 
"I'm not saying that people in California don't want lower energy costs," he 
said. "But I know for sure they don't want to be sitting this summer without 
electricity at all. And our goal is to try to avoid that as the primary 
public interest responsibility of this administration." 
Feinstein became the first leading state Democrat to break with Gov. Gray 
Davis in calling for an end to the rate freeze that has kept electricity 
prices low for California consumers, even as soaring wholesale costs have 
driven the state's investor-owned utilities to bankruptcy and now are 
draining the state's budget surplus. 
But Feinstein insisted that the federal government must simultaneously force 
down wholesale prices until ample new power plants come online. 
Feinstein said higher consumer rates would encourage conservation, saying 
that if people just turned off their computers at night, they would save 7 
percent of the state's electricity supply. 
She also said the state, which now is buying electricity for the utilities, 
has already run through $2.7 billion and could spend $10 billion on 
electricity this year. 
"That is gone," Feinstein said. "It doesn't buy a school. It doesn't repair a 
road. It doesn't build the water system many of us believe the state needs." 
The offer came as a compromise with Oregon Republican Sen. Gordon Smith, who 
warned that an "economic and environmental catastrophe" awaits the Western 
states this summer when electricity demand is expected to soar while a 
drought in the Northwest constricts the supply of hydroelectric power. 
Smith's move to embrace price controls, which he had earlier rejected, 
reflected sharply intensifying political pressure on the Bush administration 
to intervene in the electricity market, as Western officials complained 
bitterly yesterday that rising energy prices are forcing layoffs and now 
threaten the region's economy. 
LESSONS OF SUPPLY, DEMAND
"I'm afraid this summer we're going to be in the middle of a dry lakebed 
explaining to very angry farmers and homeowners and former factory workers 
the lessons of supply and demand," said Smith, whose family owns a frozen 
vegetables business. "I don't want to send the wrong signals to the 
marketplace . . . but I'll tell you, the wrong signal is a recession." 
Abraham repeatedly sought to counter criticism that the Bush administration 
is not doing enough to aid the West, citing a letter he sent to Davis 
yesterday that said the White House will not oppose the state's plan to take 
over the investor-owned utilities' transmission lines, despite disagreeing 
with the approach. 
"Regrettably, I think our opposition to price caps has been claimed by some 
to suggest that the administration either does not care about California and 
the West or is doing nothing to help," Abraham said. "That is simply untrue." 
Abraham said the Federal Energy Regulatory Commission's recent order to 13 
power suppliers to refund $69 million in January overcharges to the utilities 
would send "a signal that companies that exploit a serious situation aren't 
going to get away with it." 
He also cited expedited federal approvals and waivers for power plants and 
discussions with Mexico to try to increase electricity exports from Baja to 
California. 
But Abraham firmly rejected price caps, saying they "have already been tried 
and already failed" in California when a price ceiling for electricity sales 
into the state was reduced over the past year from $750 a megawatt hour to 
$150. 
RESULTS OF PRICE CAPS
"The lower the price cap was set, the higher average electricity prices 
rose," Abraham said, in part because municipal utilities were exempt. New 
federal price caps would affect just half of the Western electricity market, 
he said, and so would shift supplies from regulated to unregulated markets 
rather than control prices. 
He also said price caps would "almost certainly" reduce sales from Mexico and 
Canada and induce "cheating and circumvention." 
Armed with charts showing huge wholesale price increases over the past year, 
Feinstein expressed her strong disappointment. 
"Oh, Mr. Secretary," Feinstein said, "I was really surprised by the ideologic 
hardness of your statement. I must tell you that." 
She said California will be 5,000 megawatts short of electricity this summer, 
enough power for 5 million homes. "It's a lot of shortness," she said, 
predicting that prices will reach $5,000 a megawatt hour. "What does 
California do about that if it isn't going to get any help to provide that 
stability and reliability over that period of time? . . . All we're asking 
for is help to prevent price-gouging." 
Abraham countered that the administration's position is "common sense." 
"I'm telling you, I think this summer, if California has worse blackouts than 
currently projected, that (price caps) would have been a disservice to the 
people of your state," Abraham said. "If the rest of the West finds the 
Canadian energy providers refusing to sell at the same levels because of 
price caps . . . that's in my judgment an irresponsible carrying out of our 
public responsibilities here." 
In Sacramento, Davis said he was "particularly grateful" for the 
administration's promise not to oppose the state transmission takeover. He 
also said the state would "have just enough power to avoid blackouts" but 
said "federal officials are of a different view." 
Still, the governor continued to urge ''some effort to temper wholesale 
prices." 
E-mail Carolyn Lochhead at clochhead@sfchronicle.com. 
,2001 San Francisco Chronicle ? Page?A - 1