From: miyung.buster@enron.com
To: ann.schmidt@enron.com, bryan.seyfried@enron.com, dcasse@whwg.com, dg27@pacbell.net, elizabeth.linnell@enron.com, filuntz@aol.com, james.steffes@enron.com, janet.butler@enron.com, jeannie.mandelker@enron.com, jeff.dasovich@enron.com, joe.hartsoe@enron.com, john.neslage@enron.com, john.sherriff@enron.com, joseph.alamo@enron.com, karen.denne@enron.com, lysa.akin@enron.com, margaret.carson@enron.com, mark.palmer@enron.com, mark.schroeder@enron.com, markus.fiala@enron.com, mary.hain@enron.com, michael.brown@enron.com, mike.dahlke@enron.com, mona.petrochko@enron.com, nicholas.o'day@enron.com, paul.kaufman@enron.com, peggy.mahoney@enron.com, peter.styles@enron.com, richard.shapiro@enron.com, rob.bradley@enron.com, roger.yang@enron.com, sandra.mccubbin@enron.com, shelley.corman@enron.com, stella.chan@enron.com, steven.kean@enron.com, susan.mara@enron.com, mike.roan@enron.com, alex.parsons@enron.com, andrew.morrison@enron.com, lipsen@cisco.com, janel.guerrero@enron.com, shirley.hudler@enron.com
Date: 2001-03-01 09:55:00+00:00
Subject: Energy Issues

Please see the following articles:

GOVERNOR DAVIS SENDS LETTER TO SECRETARY OF ENERGY ABRAHAM
2/26/2001, www.governor.ca.gov

Pacific Gas & Electric Co. Makes Partial Payments to Suppliers
3/1/2001, bloomberg.net

Governor Davis Comes to Wall Street
3/1/2001,Merrill Lynch report

Energy Deal May Take a Month, Davis Tells Analysts 

3/1/2001, LA Times

PUC chief says summer outages not inevitable
3/1/2001, Sac Bee

Dan Walters: Why has probe stopped short? 
3/1/2001, Sac Bee

					
					PG&E's gas rates to ease in March 
3/1/2001, Sac Bee

Davis optimistic about fed approval for power line deal 
2/28/2001, San Diego Union Tribune

Partial Power Payments / Governor asks that generators take less
3/1/2001 SF Chronicle

PG&E May Be Ready To Deal / Lawyers to advise it on selling lines
3/1/2001 SF Chronicle

Generating Ideas / Deregulation, done right this time -- not state control -- 
is the answer to Calfiornia's energy woes
3/1/2001, SF Chronicle (editorial)
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GOVERNOR GRAY DAVIS SENDS LETTER TO SECRETARY OF ENERGY ABRAHAM
2/28/1 15:25 (New York)


(The Following is a reproduction of a press release from The State of
California. This document was obtained from www.governor.ca.gov.)

GOVERNOR DAVIS SENDS LETTER TO SECRETARY OF ENERGY ABRAHAM

February 26, 2001

The Honorable Spencer Abraham
Secretary, U.S. Department of Energy
1000 Independence Avenue, SW
Washington, D.C. 20585

Re: Update on California's Energy Efforts

Dear Secretary Abraham:

The purpose of this letter is to update you on California's significant energy
conservation and efficiency efforts, as well as our generation development
initiatives.

Energy Conservation and Efficiency

Estimates by the California Energy Commission indicate that the State as a 
whole
used approximately 2,000 fewer megawatts in January 2001 than might have been
expected, absent conservation and efficiency efforts. As you know, since
January, we have implemented the following major initiatives:

Directing more than $800 million for programs to improve conservation and
efficiency.

Implementing aggressive conservation measures in state buildings, resulting in
about 200 MW of savings during energy emergencies.

Developing a comprehensive outreach and education campaign to reach 
businesses,
organizations, and millions of California consumers.

Partnering with other governmental entities, including school districts to
ensure that all 475 cities, 58 counties, and 8,300 schools in California 
reduce
consumption.

Adopting the strongest energy efficiency standards in the world for 
residential
and non-residential buildings and appliances.

Incorporating energy efficient, sustainable building designs in new state
building projects.

Issuing 13 Governor's Executive Orders on energy.

Additional State Conservation Outreach Efforts

The State Department of Consumer Affairs has launched the first stage of a $20
million paid media campaign to encourage California's consumers and businesses
to conserve energy and become more energy efficient. The first three 
commercials
have run in all 12 major metropolitan markets, the most recent of which
encourages consumers to turn down their thermostats.
We are coordinating our conservation efforts with many businesses and business
associations. For example, Safeway agreed to print an energy conservation
message on its supermarket grocery bags. In addition, it will place an energy
conservation message in its weekly advertisement insert, which reaches 11
million households in every major California newspaper each week. Safeway also
has offered to donate 10 to 15 seconds on its advertising buys for the state
energy conservation message. In addition, McDonald's is placing four million
tray liners with the energy conservation message in its 1,100 restaurants
throughout the State.

The Department of Motor Vehicles (DMV) puts conservation and efficiency 
messages
on Vehicle Registration and Driver's License Application and Renewal 
envelopes.
DMV envelopes are expected to the reach 19.6 million vehicle owners and eight
million drivers who apply for or renew licenses this year.
The approaching tax season has enabled the Franchise Tax Board (FTB) to reach
nearly 300,000 Californians a week with the energy message. This past week
alone, FTB included an energy insert in nearly 24,000 Return Information
Notices, reached 71,000 visitors to the FTB home page, which features the 
energy
conservation message, and played a recorded energy conservation message for
nearly 193,000 taxpayers who used the FTB call center.

The California Lottery Commission is placing conservation messages on certain
game tickets and on 7,000 television monitors in stores throughout the State.
The Department of Consumer Affairs, the Franchise Tax Board, California Energy
Commission, and other agencies play energy conservation information during on-
hold telephone messages.

The Department of Consumer Affairs reached an estimated 2.5 million 
Californians
with the energy conservation and efficiency message during Consumer Protection
Week through public appearances, media interviews, handouts, and letters.

The Governor's Office of Planning and Research has worked with your Department
of Energy to get the conservation message to all federal employees and
facilities in California. These communications will reach as many as 265,000
civilian employees and 100,000 military personnel in California. Distribution 
is
provided by the Department of Energy's Seattle Regional Office to key facility
managers and other federal offices throughout the state.

Every state agency website features the state's "Flex Your Power" logo and
energy conservation message. For example, the Energy Commission's home page
features in-depth conservation and efficiency information and receives 3 
million
hits a month. The Energy Commission also has established an 800 number and web
form to handle consumer conservation ideas and inventions. This allows people 
to
make suggestions directly to government.

Articles on energy conservation have been placed in trade publications and
newsletters, such as the Employment Development Department's California
Employer, which reached some 900,000 employers, and the CalPERS PERSpectives,
which reached one million subscribers.

The Technology, Trade, and Commerce Agency e-mailed and broadcast faxed an
energy conservation letter to approximately 97,000 businesses, associations, 
and
partners.

The California Science Center, a state museum in Los Angeles that has 1.3
million visitors a year, including 800,000 children, is providing conservation
tips in English and Spanish to all visitors.

Two weeks ago, I issued an Executive Order that requires retail 
establishments,
particularly shopping malls, gas stations, auto dealerships, and other
commercial properties, to reduce unnecessary outdoor lighting during non-
business hours. The Executive Order is directed at the large banks of 
decorative
and marketing illumination that often stay on all night and do not serve a
public safety function.

Quantifying Impact of Outreach Efforts

The State and Consumer Services Agency is working with the Electricity 
Oversight
Board, the California Energy Commission, the Department of General Services, 
and
cabinet agencies to attempt to quantify the impact of our outreach efforts on
energy efficiency and conservation. Preliminary estimates for January 2001
indicate that the State experienced an overall reduction of approximately 
2,000
megawatts from what the State's overall anticipated load should have been,
absent recent conservation and efficiency efforts. This estimate measured
overall impact by comparing monthly peak load data against data from the same
month one year earlier, while adjusting for projected load growth from last 
year
to this year, significant changes in weather conditions, and other factors.

In addition, we are attempting to measure the overall impact of state agency
conservation efforts by gathering monthly utility bills of state buildings and
facilities and comparing them to the same month in 2000. Some preliminary
highlights include:


The DGS Telecommunications headquarters at 601 Sequoia Pacific Blvd.
(Sacramento) consumed 20.5% less kilowatt hours of electricity in January 2001
when compared with data from January 2000.

The Office of State Publishing facility at 344 N. 7th Street (Sacramento)
consumed 26.6% less kilowatt hours of electricity in January 2001 when 
compared
with data from January 2000.

Caltrans indicated that the electricity bill for its Sacramento headquarters
went down 23.8% last month, compared with January 2000.
The Department of Housing and Community Development reports a 40.5% reduction 
in
energy usage at its Sacramento headquarters building.

Generation Development Initiatives

Objective: 5,000 MW on line by July, and 20,000 MW by 2004.

Since August 2000, I have issued a series of Executive Orders and signed 
urgency
legislation that created:

Fast-track licensing procedures for environmentally-preferred facilities; some
plants will be licensed in as little as 21 days

A State Air Emissions offset bank so fast track plants can obtain air permits 
up
front.

Ability to increase power production at existing facilities and to allow
construction of plants 24/7.

ISO outage scheduling tools so shut downs occur while system reliability is
maintained

Intergovernmental "Green Team" strike force to cut red tape at federal, state
and local levels.

Performance awards for plants that accelerate construction and come on-line
before July, 2001.

I have requested that President Bush direct federal agencies to expedite 
federal
permit reviews for power projects; President Bush granted this request.

I have written Chairman Hebert to urge the FERC to further extend the waiver 
of
certain operating and efficiency restrictions on qualifying facilities from
April 30, 2001 until October 15, 2001; California awaits the Chairman's
response.

I anticipate that by July, 2001, these measures will result in the addition of
1,320 MW from three large power plants, a 320 MW plant licensed under 
expedited
permitting procedure in December, 2000, up to 2,400 MW of "peaking" power
projects, up to 1,266 MW by restarting or expanding production at existing
thermal and renewable power projects - some of this production depends upon 
the
FERC's response to my request, and 145 MW of wind, biomass and other renewable
energy projects receiving California financial incentives

California remains committed to achieving a significant reduction in energy
consumption and to an aggressive program to develop generation for this summer
and beyond.

Best regards,

Gray Davis
Governor

(bh) PN
-0- (CRL) Feb/28/2001 20:25 GMT
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Pacific Gas & Electric Co. Makes Partial Payments to Suppliers
3/1/1 9:32 (New York)

Pacific Gas & Electric Co. Makes Partial Payments to Suppliers

     (For more on the California power crisis, see {EXTRA <GO>})

     New York, March 1 (Bloomberg) -- Pacific Gas & Electric Co.,
California's largest investor-owned utility, will make partial
payments of $228 million instead of $1.442 billion to its
suppliers, a filing with the Securities and Exchange Commission
said.
     Kent Harvey, a senior vice president and chief financial
officer at the utility, told investors in a Feb. 1 conference call
that the utility was paying power suppliers 15 percent of invoices
received. The company would rather ``make partial payments than no
payments at all, to keep electricity flowing to customers,'' he
said.
     The cash-strapped utility, which has defaulted on more than
$731 million of commercial paper since Jan. 17, is conserving
money in order to stave off filing for bankruptcy protection.
     Pacific Gas & Electric paid soaring wholesale energy prices
since last summer, which California regulators prohibited it from
passing on to customers. The utility accumulated $6.6 billion of
debt through the end of 2000 for such power purchases. The filing
didn't update the undercollections through January.
     Edison International's Southern California Edison, the
state's No. 2 utility, has said its unreimbursed costs were $5.47
billion through January 31. Sempra Energy's totaled $605 million.

                        Some Power Payments

     Pacific Gas and Electric's filing said it is making partial
payments for January power deliveries from certain suppliers,
known as qualifying facilities, and for December deliveries from
the California Independent System Operator, which oversees about
75 percent of the state's transmission grid.
     As of Jan. 16, the utility had drawn $938 million of a $1
billion credit line. On Jan. 17, banks refused to lend the utility
additional money causing it to default on maturing commercial
paper. The utility and its parent, PG&E Corp., have been shut out
of the commercial paper markets and unable to raise money from
sources other than banks since late December.
     Pacific Gas & Electric has an additional $142 million of
commercial paper maturing by the end of this month, according to
an audit ordered by the California Public Utilities Commission. It
recently had $1 billion of cash reserves, based on a Feb. 14 SEC
filing.
     California Governor Gray Davis has proposed buying the
utilities' transmission systems as part of a broader plan,
including buying power on their behalf, to help PG&E and Edison
avoid bankruptcy.

--Liz Goldenberg in the New York newsroom at (212) 893-3940 or at
egoldenberg2@bloomberg.net and Dennis Walters in Ojai, California,
through the New York newsroom (212) 318-2300 /jm

Story illustration: For more information on electricity markets
and prices, type {VOLT <GO>}.
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Governor Davis Comes to Wall Street
3/1/1 9:47 (New York)


                      M E R R I L L  L Y N C H        Research Bulletin
  Fixed Income Research                               Reference Number 
10906001
  United States                                       Mar/01/2001 09:47
  Leo J. Kelser                                       (1) 212 449-7803

Highlights of This Issue

Governor Gray Davis of California met with a group of sell-side and rating
agency analysts in New York yesterday.  The Governor outlined his plan for
restoring the utilities to financial viability so that they can meet their
obligations.  Below we summarize a few highlights from the meeting.

Trying to Fit Solution Within Existing Rate Structure

The Governor talked about the need to find a solution to the utilities'
problems within the context of their existing rate structures. He indicated
that the temporary 9% rate hike from January 2000 would be made permanent and
that a 10% rate reduction that went into effect in January 1998 would be
reversed in March 2002.

Status of Negotiations with PG&E

As we noted in a February 26(**th) comment, the Governor has reached an
agreement in principle with Southern California Edison (EIX: B3/CC) to address
that utility's past under-collections.  He hopes to also have an agreement 
with
PG&E within the next 30 days, suggesting that progress was made in particular
in the last 2-3 days.  However, the Governor acknowledged that reaching an
agreement with PG&E was more difficult due to its larger under-collected
balance and lower rates compared with SCE.

Some Generators Agree to Haircut

The Governor indicated that a couple of unnamed generators have voluntarily
agreed to accept less than 100 cents on the dollar for their past due
receivables. When pressed about which parties they've had constructive
discussions with, he identified Williams (WMB: Baa2/BBB-), Enron (ENE:
Baa1/BBB+) and Dynegy (DYN: Baa2/BBB+).  We note that most of the generators
and marketers with exposure to California have established reserves against
possible losses.  Importantly, the Governor said that he hoped that the banks
and bondholders would not be asked to take a haircut.

Prospects for Legislation and Possibility of Ballot Initiative

The Governor said he is quite confident that he can reach an agreement with 
the
utilities that the legislature can support.  Although he admitted that he
couldn't prevent someone from proposing a ballot initiative, the governor said
that in the end, the acid test with the public is how it affects their pocket
books.  Thus, if there is ultimately a ballot initiative, Governor Davis is
optimistic that the public will be supportive of his plan given the limited
impact on electric rates.

Status of Defaulted Utility Debt

As we have commented in the past, it appears unlikely that the resulting
legislation will pass with the required 2/3majority to go into effect
immediately.  Accordingly, there will be a several month lag before the
utilities receive any cash.  In response to a question, it appears that the
state will not step in to help the utilities pay off any maturing or defaulted
commercial paper.  But the Governor and his advisers hope that legislation 
will
provide enough certainty so that the companies can get bridge financing.
Essentially, it appears the Governor is leaving it up to the utilities to find
the money from their banks.

Governor's Strategy to Keep the Lights On

The Governor stated that a key reason that deregulation failed in California
was that no new power plants were built in the state for over twelve years.  
In
the intervening time, demand caught up with supply.  In response, he has
proposed various conservation initiatives and is trying to expedite the
construction of new power plants.  He set a goal of having 20,000 megawatts
(mws) of new supply on line by 2004.

In addition, the governor highlighted the need for additional investment in 
the
transmission infrastructure.  In particular, he cited the need to expand the
capacity to import more power from Arizona as well to improve the ability to
move power from south to north within the state. He suggested that part of the
rationale for the state taking over the utilities' transmission grids was to
ensure that the additional investment takes place.  He also suggested that the
state would lease the transmission lines back to the utilities to allow them 
to
continue to operate them.

In the meantime, the focus is to move away from California's over-reliance on
the spot market.  In that vein, Calpine (CPN: Ba1/BB+) yesterday announced the
signing of two long-term contracts with the state's Department of Water
Resources (DWR).  One of those contracts was to sell up to 1,000 mws over a 
ten-
year term.  The other was to provide up to 495 mw of peaking capacity under a
20-year contract.  Earlier in February, CPN had reached agreement with the DWR
on a separate 10-year contract for an additional 1,000 mws.


(EIX, WMB)  MLPF&S was a manager of the most recent public offering of
securities of this company within the last three years.
Copyright 2001 Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S).
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 Provider ID: 10906001
-0- Mar/01/2001 14:47 GM
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Thursday, March 1, 2001

Energy Deal May Take a Month, Davis Tells Analysts 

Power: Wall Street experts appear cool to governor, who tries to convince 
them he is solving the state's electricity crisis. 
California members of Congress vow to keep seeking wholesale price caps. 

By DAN MORAIN and RICHARD SIMON, Times Staff Writers 

?????As a hopeful Gov. Gray Davis extended his East Coast barnstorming tour 
before skeptical Wall Street utility analysts Wednesday,
 members of California's congressional delegation vowed to continue their 
campaign for caps on wholesale electricity prices after a tense
 standoff with a top federal regulator.
?????Davis completed his five-day trip by raising about $200,000 for his 2002 
reelection campaign at private events in Manhattan, and then
 conferring with analysts in an effort to persuade them that he is solving 
California's energy crisis.
?????Although Davis delivered some good news--that some electricity suppliers 
would accept less than the full payments owed to them by the
 state's debt-ridden utilities--he acknowledged that it probably would take 
more than a month to complete his plan to enable the utilities to stave
 off bankruptcy.
?????"Did they leave without doubt? I don't know that is ever the case," 
Davis said of his select audience of 35 analysts. "But I do believe they left 
thinking I'm sincere, I'm making progress, and am confident that I will fix 
it."

?????Reaction Varies
?????Analysts who attended the hourlong meeting came away saying Davis 
offered little that they didn't already know. Some questioned why he excluded 
many analysts who closely track utility bond debt, given that Southern 
California Edison and Pacific Gas & Electric Co. have defaulted
 on several bond payments.
?????Michael S. Worms, senior vice president of Gerard, Klauer & Mattison, 
described Davis as "very cognizant of the situation," adding that the 
governor appears to understand the fundamental problem that California lacks 
sufficient power plants to supply the populace.
?????"I got the impression he is on top of it. He understands the issues," 
Worms said.
?????Others were far less charitable. Davis' lack of specificity added to 
their skepticism.
?????"I'd like to see specifics," said Steven M. Fetter of Fitch Inc., which 
rates companies' credit-worthiness. "I didn't expect specifics, and he lived 
up to my expectations."
?????Davis told the analysts that some power generators have agreed to forgo 
full payments from the utilities. State regulators have barred Edison
 and PG&E from passing on to consumers the skyrocketing wholesale power costs 
charged by independent power generators and marketers, leaving the utilities 
owing billions.
?????Davis spokesman Steve Maviglio confirmed Wednesday that two generators 
made "unsolicited offers" to the governor to write off some of
 their debt. He did not identify the independent generators or say how much 
they would trim from their debt.
?????Representatives of the energy companies that have sold more than $1 
billion in electricity to the state since January reacted coolly to Davis' 
suggestion that they not receive full payment for their goods.
?????"The best insurance against continued energy shortages is full payment 
for all deliveries that have been made in the past," said Gary Ackerman
 of the Western Power Trading Forum, a group of energy marketers and 
generators.
?????Davis last week said he and Edison had agreed to the outlines of a deal 
by which the state would give the utility $2.76 billion in exchange for 
its share of the statewide electricity transmission system.
?????At the time, he said he hoped to have a more detailed version of the 
plan by the end of this week, as well as one to buy transmission lines
 from San Diego Gas & Electric.

?????Fund-Raising Events
?????However, on Wednesday, the governor said a final agreement between the 
state and Edison will not be reached for as long as a month, 
maybe longer. A deal with PG&E, the state's largest utility, "could take a 
little longer," Davis said, adding that the company's debt is far larger
 than Edison's.
?????"This transaction is going to be scrutinized for decades to come," he 
said. "I'm determined to do it fairly but do it in a way that withstands 
scrutiny."
?????After conferring with Bush administration officials and attending a 
governors conference in Washington, D.C., over the weekend, Davis 
arrived in New York on Tuesday to be feted at a fund-raising dinner hosted by 
Richard Medley, an economic strategy consultant and head of Medley Global 
Advisors. On Wednesday, Davis attended a breakfast fund-raiser at the 
headquarters of the banking and financial services firm Citigroup, whose 
chairman, Sanford Weill, served as host.
?????The governor raised an estimated $200,000 in all for his 2002 reelection 
campaign, a source said, requesting anonymity. Neither Medley
 nor Weill could be reached for comment. Both men are significant political 
donors to national campaigns.
?????While Davis sought to make the case for his utility rescue plan, members 
of California's congressional delegation focused on efforts to reduce
 the high wholesale power costs at the heart of the crisis. The bipartisan 
group of lawmakers pledged to press ahead with legislation that would impose 
temporary price caps, after they met behind closed doors with Curt Hebert 
Jr., chairman of the Federal Energy Regulatory Commission. Hebert is a 
free-market advocate and has vigorously opposed price controls.
?????"You heard me screaming?" asked Rep. Bob Filner (D-San Diego) after the 
meeting with Hebert.
?????"Almost everyone argued with Mr. Hebert that we need help from FERC," 
said Rep. Henry A. Waxman (D-Los Angeles), citing Democratic
 and Republican support for temporary limits on wholesale prices. "Mr. Hebert 
didn't care."
?????"It didn't make any difference whether you were a conservative 
Republican or a liberal Democrat," Waxman said. "We all felt that we were
 not getting the help we need from the Federal Energy Regulatory Commission."
?????But Waxman said he considered the meeting worthwhile "because it had to 
impress upon Mr. Hebert" the strong support for price controls shared by many 
California lawmakers.
?????Several Republicans who attended the session were less critical of the 
agency and its chairman but expressed support for providing a 
legislative fix in the absence of FERC intervention.
?????"The chairman is not going to be supportive of our bill, but he's at 
least willing to talk with us and listen to us," said Rep. Duncan Hunter 
(R-Alpine)
?????So far, only about half the delegation has endorsed the price cap 
legislation. Filner noted that he and his ideological opposite, Hunter, have
 found common ground on this issue after hearing from constituents squeezed 
by higher fuel costs.
?????During the meeting, Hebert declined--on his attorney's advice--to take a 
stand on Davis' proposal to have the state take control of the 
electrical transmission system, according to some of those attending. The 
takeover would require FERC approval, and Hebert reportedly 
expressed concern about taking a position on a matter that his agency has not 
yet considered.
?????Hebert bristled when a reporter, chasing him down a hallway, asked if 
FERC were doing enough to help California.
?????"We've worked so hard on California that we have a backlog of 2,000 
cases right now," he snapped, adding that Davis never asked to meet
 with him.
?????Asked if he was aware of talk that another chairman might be named, he 
said, "You'd have to ask the president that." 
?????In other developments Wednesday:
?????* California's electricity grid was jolted into a Stage 2 power 
emergency after several large electricity plants tripped offline in the 
morning. 
The outages were not related to the Seattle earthquake, which had no 
significant effect on regionwide electricity operations, a grid spokesman
 said.
?????* Millions of Californians would receive rebates of 10 cents for every 
kilowatt-hour of electricity they conserve this summer, under legislation 
introduced by state Sen. Don Perata (D-Alameda). The bill, SB 63X, would set 
aside $1 billion to reward consumers who reduce their power
 use compared with that of the same month a year earlier.
?????* Calpine Corp. said it signed two more long-term electricity contracts 
with the state Department of Water Resources valued at $8.3 billion. 
?????* Southern California Gas Co. agreed to provide as much as 30 million 
cubic feet of gas per day to PG&E in the next month to help ease the 
utility's difficulties in obtaining supplies. Under the agreement, PG&E will 
guarantee payment to the Los Angeles gas utility by pledging gas 
accounts receivable as security for unpaid balances that cannot exceed $16.5 
million. Gas Co. Chairman Edwin A. Guiles said the agreement 
should have no adverse effects on natural gas costs or service for any of the 
company's 5 million customers.
--- 
?????Times staff writers Nancy Rivera Brooks and Nicholas Riccardi in Los 
Angeles, Miguel Bustillo and Nancy Vogel in Sacramento and Tim Reiterman in 
San Francisco contributed to this story.
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PUC chief says summer outages not inevitable
By Jim Sanders
Bee Capitol Bureau
(Published March 1, 2001) 
California Public Utilities Commission President Loretta Lynch defended her 
handling of the energy crisis in a speech Wednesday but made no promises that 
blackouts won't occur this summer. 
"We can probably dodge the bullet" if Californians reduce their electricity 
use by 10 percent this summer, she said. 
But the key will be Mother Nature. If temperatures soar far beyond a normal 
year, she said, "We're going to have serious problems." 
Gov. Gray Davis, meanwhile, sought to reassure stock analysts about 
California's plans to cope with the crisis on a trip to New York, where he 
outlined steps the state is taking to reach a deal to retire utilities' 
debts. 
But electric emergencies returned to plague California's grid, as imported 
power from the Pacific Northwest dwindled. 
After five days without issuing any power alerts, which warn that backup 
electricity supplies have dipped too low, the Independent System 
Operator declared a Stage 2 alert at 9:40 a.m. Wednesday. The warning was 
scheduled to stay in place through midnight. 
Unexpected power plant breakdowns and low imports triggered the alert, said 
spokesman Patrick Dorinson. 
California energy experts have predicted the state could be thousands of 
megawatts of electricity short this summer, enough to leave millions of homes 
without lights and air conditioning. 
Lynch, who has been on the front lines as the state has spent billions of 
dollars to keep the power on, declined to predict whether rates will rise
 to help solve California's electricity problems. 
Rates will depend on many factors, she said, including the state's success in 
securing long-term contracts at bargain rates, increasing power generation 
and encouraging conservation. 
Davis has vowed to keep rates "within the existing rate structure," but that 
does not rule out ending a 10 percent rate freeze imposed several
 years ago or increasing rates for heavy energy users of debt-ridden Southern 
California Edison and Pacific Gas and Electric Co. 
Lynch said the state is on track to achieve stability in the electricity 
industry through its proposal to buy 32,000 miles of power transmission 
lines. 
Lynch, a former campaign volunteer for Davis, was director of his Office of 
Planning and Research before being named to the PUC in December 1999. 
She started her speech Wednesday to the Sacramento Press Club with a 
whimsical reference to the biblical character known for his suffering. 
"I now understand what Job must have felt like," Lynch quipped. 
She blamed the energy crisis largely on the fact that California's 
electricity deregulation forced utilities to sell many of their power plants 
and left
 them vulnerable when out-of-state generators failed to meet supply 
expectations and wholesale prices soared. 
"That lack of vision has come at an extraordinary price for California," 
Lynch said. 
Asked what the PUC, in retrospect, could have done to avert the crisis, Lynch 
pointed again to deregulation. 
Officials should have seen that deregulation wasn't working, she said, and 
either reversed it or re-evaluated it. 
"From my perspective, the system we created was built on theory, hope and 
promise," she said. "The promise was not realized because the 
theory was faulty." 
Deregulation of the industry did not lead to the heavy competition that was 
predicted to provide ample supply and lower prices. 
Lynch defended the PUC against criticism that it exacerbated the crisis by 
reacting too slowly to requests that would have allowed utilities to
 raise rates and/or negotiate long-term energy contracts at lower-than-market 
rates. 
Lynch said the PUC has voted consistently since last August to allow the 
utilities to enter into long-term power contracts. 
"When the utilities asked, we gave them the authority -- and in some cases at 
lightning speed," she said. 
In recent legislative hearings, utility officials said the PUC's votes did 
not solve their problems because the agency reserved the right to determine
 in years to come whether the contracts were reasonable. If the PUC 
ultimately decided against the utilities, the officials said their 
shareholders
 could be left holding the bag for large sums of money collected years prior 
to the "reasonableness review."Thus, the utilities hesitated to enter
 into long-term pacts. 
Lynch said her agency has a responsibility to protect consumer interests 
regarding rate hikes. 
"It was their business decision not to (negotiate long-term contracts) 
fully," she said of Edison and PG&E. 
Lynch also said the Federal Energy Regulatory Commission's actions in 
December helped send electricity rates soaring 500 percent in five days. 
Before FERC acted, she said, "the utilities were bleeding, but they weren't 
hemorrhaging." 
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Dan Walters: Why has probe stopped short? 


(Published March 1, 2001) 
Earlier this year, as California's energy squeeze morphed into a full-blown 
crisis, the state Assembly's leadership opened what it said would be 
an in-depth investigation, modeled after the much-acclaimed probe of former 
Insurance Commissioner Chuck Quackenbush. 
A special subcommittee, chaired by Assemblyman Darrell Steinberg, 
D-Sacramento, was established, investigators, many of them veterans of
 the Quackenbush probe, went to work, and a few days of hearings were 
eventually held. 
The reality didn't live up to the advance billing. Utility executives and 
other players were grilled, but the hearings fell far short of laying out who
 made what decisions that brought the utilities to the edge of bankruptcy and 
left California scrambling to find and pay for enough juice to keep 
its lights burning. And then the hearings ended abruptly, the apparent victim 
of a partisan conflict. 
Republicans have been demanding a deeper inquiry into what the Public 
Utilities Commission, and inferentially Gov. Gray Davis, did or not do
 last summer when the crisis first began to make itself felt. And their 
partisan interest is also clear: Pinning the crisis on Davis and the PUC would
 be ammunition for the 2002 election, when Davis is seeking re-election. 
Democrats want to move into aspects of the energy crisis, such as 
shortages of natural gas and the electricity supply prospects for next 
summer, that would not expose the governor or the PUC to any
 embarrassing revelations. 
Steinberg insists that he's not trying to protect Davis. But only this week, 
after Republicans exerted behind-the-scenes pressure, did he send
 a letter to the PUC backing the GOP demand for extensive access to critical 
documents and interviews of key participants in last summer's
 actions. 
Utilities executives say they pleaded with the PUC and Davis last summer to 
acquire long-term, low-cost contracts with suppliers, but that they
 were rebuffed. The issue is critical, because the lack of long-term 
contracts meant that utilities ran up many billions of dollars in debts to 
pay for
 power at soaring spot market prices -- a form of deficit financing that the 
state is continuing. How much of that debt should be eaten by utilities,
 and how much should be recovered from ratepayers is, perhaps, the single 
most controversial aspect of the crisis. 
The touchiness of the issue was underscored Wednesday when PUC president 
Loretta Lynch appeared before the Sacramento Press Club and
 dismissed as "one of the biggest myths" and "a tremendous canard" the 
allegation that the PUC had blocked long-term supply contracting. She
 said the PUC had granted long-term contracting authority to the utilities, 
but they allege that the permission came with too many financial strings
 to be practical. 
Lynch also denied that the PUC has dragged its feet in responding to demands 
for documents, citing the overwhelming volume of both the
 demands and the inquiries from several legislative committees. Earlier last 
month, PUC executive director Wesley Franklin complained in one 
response to legislators that the demanded documents "may include confidential 
information" and complying with the requests would "entail 
considerable time and effort for us to compile ... " 
Whether the legislative hearings ever return to last summer's events is 
uncertain. The Republicans' partisan motives aside, however, it is important
 to establish what role Davis and the PUC played so that the public can judge 
any Davis-brokered settlement of the utilities' debts. It's also an
 important test for Assembly Speaker Bob Hertzberg, who is very proud of the 
investigation of Republican Quackenbush and has pledged that
 other official shortcomings would be ruthlessly examined regardless of their 
partisan origin. 
DAN WALTERS' column appears daily, except Saturday. Mail: P.O. Box 15779, 
Sacramento, CA 95852; phone (916) 321-1195;
 fax: (781) 846-8350
E-mail: dwalters@sacbee.com
Recent columns: http://www.capitolalert.com/voices/index_walters.html 
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Newswatch: PG&E's gas rates to ease in March


(Published March 1, 2001)

Rates for natural gas will inch down in March but will remain more than twice 
as high as a year ago, Pacific Gas and Electric
 Co. said Wednesday. 
Household gas bills will average $95 this month, up from $45 in March 2000, 
but down from this winter's high of $125 in 
January, the utility said. 
Gas rates are high nationwide as the result of years of reduced exploration 
while prices were low. But they have been far 
higher in California and various analysts have suggested a range of reasons: 
pipeline and storage shortages; soaring 
demand by power plants; and market manipulation. 
PG&E figures a different rate each month, based on how much it expects to 
spend buying gas for households and small businesses. Large businesses are 
responsible for lining up their own supplies. 
An average March household bill will be about 16 percent lower than an 
average February bill, which PG&E calculated at 
$113. 
-- Carrie Peyton 
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Davis optimistic about fed approval for power line deal 




ASSOCIATED PRESS 
February 28, 2001 
WASHINGTON ) California Gov. Gray Davis is hopeful federal energy officials 
will back a proposal aimed at easing the state's energy crisis by purchasing 
a wide swath of transmission lines. 
While the Davis administration continued negotiations with three 
investor-owned utilities Wednesday, the state's weeklong respite from power 
alerts came to an end. 
Four Western power plants shut down unexpectedly, prompting grid officials to 
call a Stage 2 alert with electricity reserves expected to drop below 5 
percent, said spokeswoman Lorie O'Donley of the California Independent System 
Operator. The plants included two in Montana and one each in Oregon and 
Northern California. 
In addition, several California plants were down for scheduled repairs, 
O'Donley said. 
The state has been besieged with electricity problems in recent months. They 
include the near-bankruptcy of Southern California Edison and Pacific Gas and 
Electric Co. and a lack of power that resulted in rolling blackouts twice 
last month in Northern California. 
On Friday, the governor announced a deal to purchase Edison's power lines and 
require Edison International, the utility's parent company, to sell cheap 
power to the state for a decade. 
Davis gave the Edison proposal to Energy Secretary Spencer Abraham on Tuesday 
and expects a response by the end of the week. 
Abraham "wants this problem solved and he's been very supportive," Davis 
said. "He's recommended approval on every request I've made, and I believe he 
will support our proposal." 
Supporters say the $2.7 billion plan to buy Edison's transmission system and 
have the state spend several billion more to buy the power lines of its other 
two investor-owned utilities, could lead to quick improvements to a 
bottlenecked system overdue for repairs. Critics contend it would saddle the 
state with an antiquated network that could prove costly to fix. 
The Davis administration continues negotiating with PG&E and San Diego Gas & 
Electric. In all, Davis' plan would put 26,000 miles of power lines under 
state control at a total price that could range from $4.5 billion to $7 
billion. 
Edison officials said Tuesday they would prefer a deal that includes all 
three utilities, but might agree to sell Edison's transmission lines alone as 
long as it is not held responsible for any of PG&E's debts. 
As a member of the California Power Exchange, Edison agreed to pay a share of 
any default by any other member. 
A group of power generators have sued the exchange because they were charged 
a portion of the debt owed by Edison and PG&E. That lawsuit is on hold while 
the issue is being decided by the Federal Energy Regulatory Commission. 
"Clearly it is simpler and a lot cleaner if all three utilities are 
ultimately a party to some sort of agreement with the state," Ted Craver, 
chief financial officer of Edison International, said during a conference 
call with creditors. "It's not necessarily the only way it can be done." 
The governor feels the state won't "have a satisfactory arrangement without 
having 60 percents of the transmission lines and that requires that we have 
an agreement with PG&E," spokesman Roger Salazar said. 
Edison and PG&E say they have accumulated nearly $13 billion in losses 
because the state's 1996 deregulation law prevented them from passing the 
true costs of wholesale energy ) which have soared since last June ) to their 
customers. 
The governor's plan would infuse the utilities with part of the cash they say 
they need to remain solvent. 
Some state lawmakers have said the long-term costs of the plan outweigh the 
immediate benefits because the transmission lines need repairs that could 
cost an estimated $1 billion a year. 
Assembly Minority Leader Bill Campbell, R-Villa Park, said Republican 
lawmakers are unlikely to support the governor's plan, which needs 
legislative approval. 
Without Republican support, the measure could still pass, but it would take 
effect 90 days after the governor signed it, rather than immediately. 
"That's a hurdle, waiting 90 days in these delicate times," Campbell said. 
Addressing a lunch for the California State Society attended by members of 
the state's congressional delegation, Davis outlined his plans to resolve the 
energy crisis, in part by speeding up power plant construction. 
"We have a real challenge this summer and the following summer," he said. 
"The third year I think enough generation will be online so that we're in 
much better shape." 
Davis has issued executive orders to shorten the approval process for new 
plants and expects to gain 5,000 megawatts by summer ) enough to power about 
5 million homes. 
In addition to increasing power production, Davis emphasized the need for 
greater conservation, advising his state's consumers to turn off lights in 
empty rooms, unplug unused appliances and lower thermostats. 
"In my house, my wife has the thermostat down to 55 degrees," he said. "Going 
to the kitchen in the middle of the night is like a trip to Antarctica." 
??

On the Net: 
California Energy Commission: www.energy.ca.gov 
U.S. Department of Energy: www.energy.gov 
California Independent System Operator: www.caiso.com 
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BUSINESS 
Partial Power Payments / Governor asks that generators take less
Christian Berthelsen
? 
03/01/2001 
The San Francisco Chronicle 
FINAL 
Page B1 
(Copyright 2001) 
California Gov. Gray Davis yesterday suggested that power generators accept 
partial payment for the electricity they have supplied to the state's 
financially troubled utilities. 
Analysts at the meeting said the governor made reference to a company that 
had agreed to do so. However, he did not identify the company or offer 
details about how much it would accept. 
Davis' comments at a closed meeting with analysts in New York City are 
significant because they represent an apparent departure from the power 
companies' position that they be repaid in full. 
The move is in line with the governor's view that the generating companies 
selling electricity to California 's utilities should contribute "modestly 
and voluntarily" to solving the crisis. 
Said Richard Cortwright, an analyst for Standard & Poors: "It came across 
pretty loud and clear that he felt they could afford to take less than a 
hundred cents on the dollar and still do pretty well for themselves." 
Several power companies, including Enron Corp. and Reliant, both of Houston, 
were quoted by Bloomberg News as saying they were surprised by the governor's 
statements. 
Davis went to Wall Street yesterday for the first time during the California 
power crisis to reassure the financial world's opinion- makers he is doing 
all he can to resolve the problem. 
During the meeting, Davis presented a history of how California 's 
investor-owned utilities came to be in the sorry financial shape they are in. 
He was also said to have emphatically ruled out electricity rate increases, 
saying they are politically unfeasible and would be easily undone by a voter 
initiative. 
Davis also said he will have a deal within 30 days to purchase transmission 
lines from Pacific Gas & Electric Co. and Southern California Edison. 
Financial analysts are looking forward to that deal as a way of providing the 
utilities with some cash to work their way out from under a combined debt 
load estimated at $13 billion. The utilities have been barred by law from 
passing high wholesale power costs on to customers. 
At a press conference after the meeting, Davis told reporters that 
negotiations are improving between the state and PG&E for a deal similar to 
the one announced with Edison last week. In that transaction, the state would 
buy Edison's power lines for $2.76 billion, and Edison would issue bonds to 
recover its wholesale power costs. 
Yesterday's meeting was closed to the media and investors, and no Internet 
broadcast or teleconference of the event was available. That frustrated some 
investors and analysts who had hoped for greater access -- particularly 
bondholders of the two utilities, who have the greatest power to push the 
utilities into bankruptcy if they decide to do so. 
But a transcript of the session was being prepared yesterday and is expected 
to be made available this morning on the governor's Web site, 
governor.ca.gov. 
Analysts who attended the meeting said the Davis visit was productive, though 
not likely to produce any immediate change in equity recommendations or bond 
ratings. 
"There wasn't any news that's new," said Dave Hitchcock, director of Standard 
& Poor's state and local government group. "He reiterated he expects an 
agreement with PG&E in 30 days. So we have a date we can watch." 
Indeed, there appeared to be little immediate reaction in the market during 
the 45 minutes or so of trading that was left after the meeting broke. 
Trading volume for PG&E remained under 25,000 shares, and the stock closed at 
$13.96, down 9 cents. 
Trading was heavier in Edison shares, which ended the day down 4 cents at 
$14.90. Both stocks are trading at around half of their 52- week highs.
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BUSINESS 
PG&E May Be Ready To Deal / Lawyers to advise it on selling lines
David Lazarus
? 
03/01/2001 
The San Francisco Chronicle 
FINAL 
Page B1 
(Copyright 2001) 
Pacific Gas and Electric Co. has retained outside counsel to advise it on 
selling its transmission lines to the state, The Chronicle has learned. 
The move represents a potential breakthrough in the stalemated talks between 
PG&E and representatives of Gov. Gray Davis on California 's plan to buy the 
utility's power lines for perhaps more than $7 billion. 
Southern California Edison already has voiced willingness to part with its 
transmission lines. But sources familiar with the negotiations said PG&E has 
remained largely inflexible, insisting that its lines are not for sale. 
That stance could be changing. 
According to an internal memo sent to some PG&E employees this week, the 
utility is bringing in attorneys from an unspecified law firm to offer 
guidance on a potential sale of assets. 
"The company has hired a law firm to help deal with a possible purchase of 
the electric transmission system by the state, as proposed by Gov. Davis as 
part of a deal to resolve the utility debt problem," the memo said. 
It added: "Don't read anything into this regarding an agreement by PG&E to 
sell or not to sell." 
Ron Low, a PG&E spokesman, refused to confirm the contents of the memo or 
even that such a memo was issued. 
Choosing his words carefully, Low said: "We are not aware of the alleged 
memo. We cannot speculate on a memo we have not seen." He said he was 
speaking on behalf of the public relations department. 
Asked whether outside counsel had been retained, Low said, "It would be 
inappropriate to comment on ongoing discussions with the governor." 
Nevertheless, sources within the utility said the new lawyers are being given 
workstations in PG&E's land department, where records of real estate holdings 
are kept. 
The sources interpreted this as a sign that the utility is eager to place a 
higher value on its assets -- almost certainly more than the governor has 
offered so far. 
Edison already has agreed to sell its power lines for $2.76 billion, which is 
about 2.3 times book value, or the value placed on the system for accounting 
purposes. 
If PG&E were to accept a similar premium on its lines, the sale price would 
be $7.2 billion. 
Sources within the utility said that if a deal is reached, it will likely be 
for above this amount. The new lawyers, presumably, are intended to help PG&E 
drive a harder bargain. 
"They're trying to play hardball, but I'll bet they submit," said Richard 
Bilas, who sits on the California Public Utilities Commission. "Getting more 
than two times book value doesn't sound like a bad deal." 
The governor told Wall Street analysts in New York yesterday that the 
negotiations with PG&E could last another month. 
On Tuesday, he said U.S. Energy Secretary Spencer Abraham is open to 
California 's buying the utilities' power networks. Federal approval is 
necessary for the plan to work. 
The Bush administration and federal regulators have been less forthcoming, 
however. Privately, they have expressed skepticism about a public entity's 
taking over private energy assets. 
California is hoping to return the state's cash-strapped utilities to 
solvency by handing over billions of dollars in return for hard assets. PG&E 
and Edison have racked up nearly $13 billion in debt as a result of the 
state's bungled efforts to deregulate electricity prices. 
Sources familiar with the talks said Edison's parent company, Edison 
International, appears eager to get out of the utility business, while PG&E's 
parent, PG&E Corp., would prefer to remain a player in the industry. 
"The companies are structured differently," said the PUC's Bilas. "I believe 
Edison has a much broader operation than PG&E." 
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EDITORIAL 
OPEN FORUM 
Generating Ideas / Deregulation, done right this time -- not state control -- 
is the answer to Calfiornia's energy woes
Kenneth L. Lay
? 
03/01/2001 
The San Francisco Chronicle 
FINAL 
Page A23 
(Copyright 2001) 
BLACKOUTS, skyrocketing electricity prices and the threat of bankruptcy of 
two large utilities must mean the failure of deregulation, right? 
No, it's not right. 
What has happened in California over the past four years is not deregulation. 
It is misguided regulation. 
Deregulation does not mean eliminating customer choice and competition for 
most customers. Deregulation does not mean limiting new market entrants. 
Fewer than five percent of customers in California are served by competing 
suppliers. 
Deregulation does not mean creating a single central power pool from which 
all participants must buy and sell their wholesale power; the state Power 
Exchange effectively replaced three monopoly buyers with one monopoly buyer. 
Deregulation does not mean buying all of your commodity at the last minute, 
on the spot market, rather than planning ahead and purchasing most of the 
power under long-term contracts that lock in prices. 
The situation in California is the result of continued regulation, 
complicated by a series of natural and man-made factors. 
In the past two years, California has enjoyed an economic boom fueled by a 
burgeoning technology industry. Since 1995, demand for electricity in 
California has grown by 5,500 megawatts. Supply, on the other hand, has not 
kept pace. 
California was clearly headed for major problems when nature pushed it over 
the edge. November and December 1999 were the warmest in the previous 100 
years. Those same months in 2000 were the coldest in the last century. Add a 
sharply reduced snowpack that has dried up hydro sources from Northern 
California and the Pacific Northwest. Add tight gas supplies across the 
country, and you have an electricity supply problem in the West and an 
electricity supply crisis in California . 
The problem in California 's energy market is simple: There is too little 
supply and too much demand. As a result, every potential solution must 
address either or both of those factors, and the test for any proposal must 
be: Does it increase supply? Does it decrease demand? 
California desperately needs new generation. While Enron and other companies 
have built peaker generation facilities in as little as 10 months in other 
states, it takes years to construct a power plant in California . 
The state also suffers from a congested transmission system, which prevents 
the delivery of power to where it is needed. California needs quicker siting 
for power plants and expanded transmission facilities. 
California also needs real-time pricing -- pricing that reflects the 
difference in the cost of providing electricity at peak periods as compared 
to non-peak periods. 
As a country, we're power hungry. Virtually all of our daily amenities are 
fueled by electricity. We flip switches and use electricity anytime we want, 
with no thought to the cost at a given moment. 
But if customers, particularly large commercial and industrial customers, 
received real-time price signals, they'd know how much they were paying for 
electricity at any given time. This would encourage conservation or shifting 
usage to off-peak times to reduce electric bills. 
This would also spread California 's scarce electricity supplies over more 
users (including those residential customers who don't have the flexibility 
to reduce or shift demand) and reduce the risk of rotating blackouts. 
A complementary demand-side solution would be to purchase demand reductions. 
If utilities or the state are willing to pay $75 for a megawatt hour, they 
ought to be willing to pay $75 for a "negawatt" hour. 
This would free up still additional megawatts to meet peak demand. 
Blackouts are not voluntary, but by giving customers incentives to reduce 
demand, the choice is theirs, and the result is less disruption to business 
and the economy. 
Customer choice is absolutely essential in creating a competitive market and 
in allowing consumers to realize the benefits of competition. 
Just ask utility customers in San Diego, whose supplier purchased most of its 
power on the spot market. When prices jumped, those hikes were passed along 
to the consumer. The only customers who were protected were those who chose 
alternative suppliers like Enron and had locked in a price, thus avoiding the 
sharp price increases. 
California needs to rely less on the spot market. A balanced portfolio of 
short- and long-term purchases by customers would sharply reduce 
Californian's exposure to volatile prices and would bring down prices in the 
near term. 
California needs to restore the creditworthiness of the utilities, which is 
necessary to attract new generation and long-term supply commitments. The 
state has made a significant first step by allowing the state Department of 
Water Resources to purchase power on behalf of the utilities. 
In a crisis, it is equally important to understand what won't work. 
We cannot afford to waste time on things that don't work or make matters 
worse. California does not need state control of the power business. 
There is no reason to believe -- and every reason to doubt -- that government 
will do a better job than private firms in rapidly constructing new 
facilities and operating them efficiently. In every other developed nation, 
governments are getting out of the power business, not trying to get in it. 
What California does not need is price caps, which don't work because they 
neither increase supply nor decrease demand. In fact, they worsen the 
situation. Price caps discourage investment in the development of new 
generation. 
When the state imposed price caps last October, companies such as Enron were 
forced to cancel plans for more than 1,000 megawatts of peaking generation 
that would have been online by this summer. Peaking plants are designed to 
run fewer than 30 days a year -- only on days when supplies are tight. And if 
price caps are in place, companies cannot recover their capital investment. 
Price caps also discourage conservation and sales of power into the state 
from power plants in other states. 
If done right, deregulation means choice and competition. Deregulation means 
lower prices. Deregulation means innovation. California has the opportunity 
now to get it right. 


GRAPHIC; Caption: PAUL LACHINE/Special to The Chronicle