From: susan.mara@enron.com
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Date: 2001-06-25 12:56:00+00:00
Subject: Sunday's SF Chronicle - Direct access falls victim to crisis



Sue Mara
Enron Corp.
Tel: (415) 782-7802
Fax:(415) 782-7854
----- Forwarded by Susan J Mara/NA/Enron on 06/25/2001 12:55 PM -----

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		 Subject: Sunday's SF Chronicle - Direct access falls victim to crisis




> Greg Lucas' long-awaited Chronicle story about DA ran this weekend ...
> 
> ENERGY CRUNCH 
> Direct access falls victim to crisis 
> Power-buying plan's future is in doubt 
> Bernadette Tansey, Greg Lucas, Chronicle Staff Writers
> Sunday, June 24, 2001 
> ,2001 San Francisco Chronicle 
> 
> URL:
> http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2001/06/24/MNL67535.DTL 
> 
> 
> The option to shop around for the best deal on electricity -- one of the
> cornerstones of California's deregulation plan -- could soon be scrapped. 
> 
> Businesses may lose the right to cut their own deals with private power
> suppliers, and environmentally conscious consumers could be barred from
> shifting their business from utilities to renewable energy firms, unless
> the Legislature acts quickly to save the program. 
> 
> The potential cost savings of so-called direct access to competing
> electricity providers was the plum that incited big businesses to fight
> hard for deregulation in 1996. But the program -- although it was not
> responsible for the soaring rates that piled up state and utility debt --
> may be sacrificed in the state's drive to recoup its costs. 
> 
> The fate of the program was thrown into doubt last winter, when
> skyrocketing wholesale electricity costs collapsed the nascent direct
> access market, weakened the utilities and caused the state to take over
> power purchases. 
> 
> Industry has been lobbying hard since then to keep the option open for the
> future. But the problem for Gov. Gray Davis' administration is that the
> state needs big industrial consumers to stay on as utility customers to
> help pay off the $8 billion it has already spent buying power and the
> estimated $43 billion worth of power it has contracted to buy over the
> next 20 years. 
> 
> Otherwise, the utility customers left behind -- householders and small
> businesses -- will be stuck with the whole bill. 
> 
> Competing proposals to allow companies to bail out by paying an "exit fee"
> to cover a share of the cost are working their way through the
> Legislature. 
> 
> But time is running short, state Treasurer Philip Angelides warned the
> Legislature and the state Public Utilities Commission this month. 
> 
> The state plans to issue $12.5 billion in bonds in September for power
> purchases, and officials say underwriters want to be assured that there is
> a large enough revenue stream to repay the bonds. 
> 
> Angelides and other state officials urged the Legislature and the PUC to
> decide by the end of June either to ban direct access or lock in a
> procedure to charge each departing company for its share of the state
> power costs. 
> 
> "The hypothetical and theoretical desires for a direct access market and
> the hypothetical and theoretical desire for a bond sale are now
> intersecting in reality," said Assemblyman Fred Keeley, D-Boulder Creek
> (Santa Cruz County). 
> 
> Industry advocates agree that firms should pay a fair share of the
> electricity purchased on their behalf. But how much -- and how to make
> that calculation -- is a complex issue they fear will be decided in haste,
> said Dorothy Rothrock, a lobbyist for the California Manufacturers and
> Technology Association. 
> 
> "We are reacting to crises, real or man-made, and making decisions in a
> rush without considering the consequences," Rothrock said. 
> 
> The PUC is set to vote Thursday on a proposed urgency measure to suspend
> direct access as of July 1. The ban recommended by a PUC administrative
> law judge would continue as long as the state functions as power buyer for
> utility customers -- conceivably through the term of state contracts
> ending in 2020. 
> 
> Lawmakers had authorized the PUC to suspend direct access last winter when
> the state took over electricity purchasing. But a divided PUC delayed
> action as legislators worked with industry to salvage the program. 
> 
> Although direct access contracts are still legal until the PUC acts, in
> effect the program was slammed into suspension by the brutal power price
> hikes of the past 18 months. Threatened by exposure to rising wholesale
> electricity rates, virtually all direct access customers have returned to
> the utilities, where they are protected by the state rate freeze. 
> 
> Even though the right to deal directly with generators has been on the
> books since 1996, few businesses or householders actually did it. 
> 
> Many of the residential customers who signed on with alternative suppliers
> did so to support the growth of renewable power like solar and wind
> energy. At its peak, the program drew about 224,000 households -- about
> 2.5 percent of the customer base of California's major utilities. About 13
> percent of the industrial market contracted for their own power. 
> 
> Industry has until tomorrow to file plans with the PUC to preserve direct
> access under a proposal by public utilities Commissioner Richard Bilas, a
> strong supporter of the program. 
> 
> Commissioner Jeff Brown said he favors direct access, but the continuing
> uncertainty over the form it would take jeopardizes the state's ability to
> float its bonds. 
> 
> Commissioner Carl Wood, a direct access opponent, said it should be
> abolished, because it creates a danger that residential and small business
> customers will be stuck paying for relatively high-cost contracts secured
> by the state during the energy crisis, while large industries would be
> free to buy cheap power from the newer, more efficient plants that will be
> coming online in the next few years. 
> 
> But Wood said even if the PUC suspends the option, the state Legislature
> could order its reinstatement. 
> 
> Sen. Debra Bowen, D-Marina del Rey, is carrying a bill to do that while
> requiring the exit fees demanded by Angelides and state finance officials.
> 
> 
> Without those safeguards, utility revenues would dive into a "death
> spiral, " where rates would keep rising as more companies abandoned the
> system, Bowen said, giving the remaining customers a deeper incentive to
> bail. 
> 
> State legislators are set to meet this week to start deciding how
> California's electricity market should be structured in the future. But
> deadlines to deal with the state's financial hangover are pushing
> decisions on direct access. 
> 
> Bowen said it's unlikely her bill will be passed within a few weeks, the
> time frame Davis administration officials have urged to give certainty to
> the terms of the bond deal. 
> 
> Angelides said the Legislature could still pass a law reviving direct
> access before the bond language is written in July. But after that, the
> Legislature cannot pass laws that change the terms of contract commitments
> made by the state, he said. 
> 
> "There is still a window to act here, but they have to act fast,"
> Angelides said. 
> 
> E-mail Bernadette Tansey at btansey@sfchronicle.com and Greg Lucas at
> glucas@sfchronicle.com. 
> 
> ,2001 San Francisco Chronicle   Page A - 21 
>