From: miyung.buster@enron.com
To: ann.schmidt@enron.com, bryan.seyfried@enron.com, 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, mark.palmer@enron.com, mark.schroeder@enron.com, markus.fiala@enron.com, michael.brown@enron.com, mona.petrochko@enron.com, nicholas.o'day@enron.com, peggy.mahoney@enron.com, peter.styles@enron.com, richard.shapiro@enron.com, rob.bradley@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, kathleen.sullivan@enron.com, tom.briggs@enron.com, linda.robertson@enron.com, lora.sullivan@enron.com, jennifer.thome@enron.com, jkradin@marathon-com.com, rlichtenstein@marathon-com.com, syamane@marathon-com.com, ken@kdscommunications.com, hgovenar@govadv.com, sgovenar@govadv.com, bhansen@lhom.com, carin.nersesian@enron.com, robert.neustaedter@enron.com, john.shelk@enron.com, chris.holmes@enron.com, evan.hughes@enron.com, roberta.staehlin@enron.com
Date: 2001-05-14 10:33:00+00:00
Subject: Energy Issues

Please see the following articles:

Sac Bee, Mon, 5/14:  "Energy crisis creates cadre of tattletales"

Sac Bee, Mon, 5/14:  "Dan Walters: Lawyers and business still have 
plenty of energy for their battle" 

Sac Bee, Mon, 5/14:  "Utilities are headed down troubling path: 
The expansion frenzy may eventually lead to consolidation into a
few super-giant energy companies for all of the United States, 
Canada and Mexico"                                 (Editorial)

SD Union, Sun, 5/13:  "Boom Days on the Plains"

SD Union, Sun, 5/13:  "Summer blackout forecasts still hazy"

SD Union, Sun, 5/13:  "Energy companies controlled market,
state panel claims"

LA Times, Mon, 5/14:  "Communities Fighting $270-Million Power Line"

LA Times, Sun, 5/13:  "Bush Tax Incentives Fuel Plan on Energy"

SF Chron, Mon, 5/14:  "State buffer on blackouts near limit 
Program that lets big businesses curb energy use almost exhausted "

SF Chron (AP), Mon, 5/14:  "Natural gas giant says state subcommittee report 
is flawed"

SF Chron, Mon, 5/14:  "SAN FRANCISCO 
S.F. stoplights to get more efficient bulbs"

SF Chron, Mon, 5/14:  "Davis urges Bush to cap "obscene' power prices"

SF Chron, Sun, 5/13:  "Group seeks tax credit for energy-efficient offices 
'High-performance' buildings called vital"

SF Chron, Sun, 5/13:  "Natural gas price squeeze 
Report says supplier manipulated market"

SF Chron, Sun, 5/13:  "Energy firms investing at full throttle"

SF Chron, Sun, 5/13:  "ENERGY CRUNCH 
Conservation inches up Bush energy agenda"

SF Chron, Sun, 5/13:  "Ghost town is gateway to much of state's natural gas 
A major energy lifeline is a pipeline from Arizona"

SF Chron, Sun, 5/13:  "How Texas firm outfoxed state, PG&E"

Mercury News, Mon, 5/14:  "Big companies raising the roof as state considers 
raising
their rates"

Mercury News, Mon, 5/14:  "Regulators' rate increase is too much, Davis says"

Mercury News (AP), Mon, 5/14:  "California power regulators to decide how to 
allocate rate hikes"

Mercury News (AP), Mon, 5/14:  "Bush energy plan offers no short-term fixes"

OC Register, Mon, 5/14:  "Power crunch at top of worry list"

Energy Insight, Mon, 5/14:  "Gas use for power generation leveled out in 2000"

NY Times, Mon, 5/14:  "Blackout Plans of Little Help In California's Energy 
Crisis"

------------------------------------------------------------------------------
--------------------------------

Energy crisis creates cadre of tattletales
By Carrie Peyton
Bee Staff Writer
(Published May 14, 2001) 
An energy-thrifty cadre eager to conserve every kilowatt has targeted a new 
field for electricity savings: the other guy. 
In the war against power waste, people have been manning the phones and 
blasting out e-mails to utilities, state agencies and newspapers. 
Why are fountains bubbling, school air conditioners thrumming at night, store 
lights blazing, pool heaters firing, and Marines getting unmetered 
electricity? 
For Anne Miller, the breaking point came on a sweltering Monday night. 
"That first day of the rolling blackouts when the heat hit, when I went to 
bed I looked at the thermostat and it said it was 90 degrees in my house." 
Miller didn't want to squander electricity by switching on the air 
conditioning in her Gold River home, but she wanted to sleep comfortably. 
"I turned on the fan and had the windows open, and I lay there and listened 
to all the air conditioners running," she recalled, "I thought, what's the 
point?" 
Miller toughed it out, but later sent off a thoughtful e-mail to the 
Sacramento Municipal Utility District, asking what good any one person's 
efforts can do. 
Others are much angrier. 
One anonymous caller to The Bee spat out a list of Roseville-area apartment 
complexes and housing developments with heated pools, saying "this is a 
ridiculous thing." 
"The newspapers ought to get a hold of this, go take pictures and force these 
people to turn off their power so others can have necessary electricity." 
An east Sacramento man wants a crackdown on a neighborhood school that runs 
air conditioners on weekends when no students are in sight. 
A Cool resident wants the Marine Corps to start metering electricity in 
officers' housing on its bases. 
An Elk Grove letter carrier is furious when she drops off a package at a 
household where cranked-up air conditioning comes blasting out the door. 
Countless callers to the state Energy Commission and SMUD want them to shut 
down lighted billboards, golf course fountains, the empty but well-lit 
Montgomery Ward store on El Camino Avenue, and even their neighbors' porch 
lights. 
You could call this the work of energy snitches. Or you could call it the 
voice of a new ethic. 
"It is fascinating that there is some kind of moral dimension to this whole 
thing," said Bruce Hackett, a professor emeritus of sociology at the 
University of California, Davis. 
"There are certain kinds of things, and the blackouts are one of them ( when 
what seems like a matter of individual preference becomes a social, and in 
fact, really a moral issue," he said. 
It reminds Hackett of his childhood days during World War II, when he would 
hear his parents complaining about neighbors who didn't put up their blackout 
shades or recycle their tin cans and household fat. 
Mithra Moezzi, a scientist, also is reminded of a war-era conservation ethic. 
"A lot of that involves people ratting each other out or just complaining," 
she said. 
Moezzi empathizes with the frustration of some energy tattlers, pointing out 
that in a time of shortage, electricity is something we all use in common. 
"Electricity is a shared resource in a lot of ways, even though you pay for 
yours," she said. "When it relates to blackouts ( your use hurts everyone 
else." 
James Felix, a substitute campus supervisor at Elk Grove schools, has 
switched from air conditioning to portable fans and tries not to turn on his 
electric stove before 7 p.m. 
But what he sees around Sacramento eats at him. 
"I walked by Oak Park and the baseball field lights are on and nobody's 
playing. The last three days I drove by Montgomery Ward and all the lights 
are on. Ward's is closed. There's not a piece of furniture in there at all," 
he said. "Somebody should notice this and do something about it." 
Virtually no one monitors California's energy hogs. 
Gov. Gray Davis issued an emergency order in February making it a misdemeanor 
for businesses to overuse outdoor lighting after closing time, but the 
standard it set is subjective, with exceptions for risks to companies' 
employees or property. 
The Governor's Office of Emergency Services, which coordinates with local 
police and sheriff's offices on enforcing the order, believes in all 
likelihood no one has been cited, said OES spokeswoman Sheryl Tankersley. 
For the most part, the governor's order is being enforced informally by 
police agencies throughout the state, through speeches to chambers of 
commerce, impromptu visits to businesses or informational pamphlets, she 
said. 
And the order only limits outdoor lights at "retail establishments." There is 
nothing illegal about lights outside a school or inside, anywhere. There are 
no energy police to turn down someone's air conditioner or to tell your 
neighbor that a pool pump should run overnight instead of during the 
midday-to-evening peak. 
"We can't go in and turn off people's porch lights," said Claudia Chandler, 
assistant executive director of the state Energy Commission, which has 
fielded numerous complaints about electricity squandering. 
"People are getting really grumpy about stores and restaurants leaving the 
doors open," especially during Stage 2 or Stage 3 emergencies, she said. 
Chandler recently wrote an opinion piece for a business newspaper warning 
merchants that "consumers know when you're wasting energy and they're alarmed 
by it." 
Lamps Plus has gotten so many beefs about its lighted-up stores that it 
refers all media callers to corporate headquarters, where the company's 
president explains the stores use 7
-watt bulbs in every lamp and consume no 
more power per square foot than the average household. 
Some hope all the increased attention could lead to less waste. 
Energy Commission forecaster Richard Rohrer, who issues monthly estimates of 
conservation efforts, believes Californians have cut back, collectively, 
about 6 percent in January, 8 percent in February, and 9 percent in March and 
April compared with last year. 
But he acknowledges that the numbers are "squishy" and no one knows for sure. 
Officials with the state Independent System Operator, which runs most of 
California's electric grid, worried aloud last week that people may be 
getting tired of watching every kilowatt. 
Davis sociologist Hackett isn't betting on that. 
He thinks this might be "a new issue being born," one that could evolve, like 
recycling or second-hand smoke, into a new social standard. 
"One of the things that people are doing on a widespread basis is that 
they're noticing the disparity between what is morally called for by the 
occasion we're in and what people are actually doing," he said. 
If that disparity becomes grating enough, he said, the power police may not 
be far behind. 

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

Dan Walters: Lawyers and business still have plenty of energy for their 
battle 


(Published May 14, 2001) 
California's energy crisis is so severe, so complicated, so pervasive -- and 
so politically perilous -- that it has blotted almost everything else out of 
the Capitol's collective consciousness. 
Issues and battles that ordinarily would receive close attention from 
politicians, the media and others in the Capitol find themselves being 
largely ignored this year. And a case in point is this year's renewal of the 
perennial political war between lawyers who make their living off personal 
injury lawsuits, known as "trial lawyers," and the insurance companies and 
corporations who must defend against such suits. 
The stakes in the personal injury game are immense -- countless billions of 
dollars -- and the Legislature, in effect, decides who can sue whom for what, 
how much can be collected in damages and who pays any judgments. 
There have been dozens of specific battles between the trial lawyers and 
their corporate and professional group rivals, who collect themselves under 
the rubric of "tort reform." They've touched on such issues as medical 
malpractice damage limits, tapping "deep pockets" for judgments, "third-party 
liability" and, most recently, whether insurers can be sued for "bad faith" 
handling of claims. The insurers spent tens of millions of dollars to 
overturn a pro-trial lawyer bill that the Legislature enacted on the latter 
issue. 
When Democrat Gray Davis became governor two years ago, trial lawyers 
believed that they would start winning again after 16 years of being 
stonewalled by Republican governors. But they and their lobbyists, despite 
making lavish contributions to Democratic campaign treasuries, have fared 
poorly. The 1999 and 2000 legislative sessions saw the lawyers gain just one 
significant measure, the aforementioned "bad faith" bill. And it was watered 
down so much -- principally by eliminating business lawsuits from its 
provisions -- that the insurance industry could easily muster the money to 
overturn it at the polls while trial lawyers mounted only a token defense. 
The trial lawyers' lobbying arm, Consumer Attorneys of California, is wracked 
by internal dissension over its recent failures. Its lobbyists are hungry for 
a major political victory that will justify the tens of millions of dollars 
they've directed into Democrats' campaign coffers. The lawyers have several 
measures moving this year, but the centerpiece of their lobbying drive is 
legislation that, if enacted, would wipe out the secrecy that now attaches to 
information acquired during the discovery phase of a lawsuit or is contained 
in confidential, out-of-court settlements. 
Lawyers say the secrecy covers up corporate wrongdoing; corporations and 
insurers say that if enacted, the legislation would force trade secrets to be 
revealed and allow lawyers to file more suits. The public arguments aside, 
however, it's another fierce firefight in the tort wars. And while Davis' 
preferences are unknown, the lawyers have strong backing from another major 
Democratic politician, Attorney General Bill Lockyer. 
Privately, the lawyers' lobbyists say they want to move quickly this year not 
only because they need a win, but also because they believe the public/media 
climate is more favorable because of the publicity attached to the recall of 
defective Firestone tires and the popular "Erin Brockovich" movie that 
focused on a woman's legal crusade against one corporation. 
Ironically enough, the corporation that was depicted as the villain in the 
movie was Pacific Gas and Electric, which has since filed for bankruptcy 
protection because of the energy crisis that preoccupies the Capitol. And to 
compound the irony, Davis is claiming the same sort of trade secrecy on power 
purchases that the trial lawyers would have him overturn. 
Will the trial lawyers finally win a big one? And even if they prevail in the 
Capitol, will Silicon Valley and other corporate interests spend tens of 
millions of dollars to overturn a new anti-secrecy law via the ballot? The 
only certainty is that regardless of what happens to this measure, the 
Capitol's tort wars will continue. 

The Bee's Dan Walters can be reached at (916) 321-1195 or dwalters@sacbee.com
. 



Utilities are headed down troubling path: The expansion frenzy may eventually 
lead to consolidation into a few super-giant energy companies for all of the 
United States, Canada and Mexico.
By James B. McClatchy

(Published May 14, 2001) 

If privately owned utilities have their way, their expansion frenzy of recent 
years will probably lead to a consolidation of ownership of electrical 
generating and transmission lines into a few super-giant energy companies for 
all of the United States, Canada and maybe Mexico. 
Their vision of what this would give them in the political and financial life 
of these countries is breathtaking in its scope and boldness. Growth and 
business issues dominate their thinking, and have since the electrical 
industry began to form in the years just before 1900. What a greater golden 
goal than to be the electricity kings of America? 
The first private generating companies were small and inefficient. As time 
went by, utility management became professional, and engineering improvements 
made them financial and political powerhouses. New York financial groups 
became dominant in the industry, smothering or buying up competitors. Fraud 
and violation of securities laws were common, as was the overcharging of 
customers. High rates gave them giant profits. Corruption of public officials 
was wholesale, finally becoming so grossly visible that private citizen 
groups arose, demanding the right to organize publicly and locally owned 
utilities. 
This was the birth of the public-power movement. The disregard for honest 
business practices and the public welfare, the venality, the threat to basic 
democratic values finally collapsed the structures those bandits created. 
J.P. Morgan and Samuel Insull were the linchpins with holding companies that 
owned most of the big utility companies in the United States. They used their 
vast power to squash opposition, and the two of them were on their way to 
dominate the electric utility industry in the United States when the Great 
Depression arrived. Insull was overextended and his dream of a national 
monopoly evaporated in bankruptcy, public disgrace and jail for a long list 
of major crimes against his fellow citizens. Morgan survived. 
The scandals that are being revealed these days in the energy business don't 
have the coarseness of the robber barons of those days. Publicly owned 
corporations are mixed with a great variety of private ventures into a 
growing web of interrelated businesses. It is an international mixture, with 
these conglomerates increasing their size and activities all over the world. 
U.S. names in Japan, Japanese names in Europe, German names in Asia, French 
names in Latin America. 
So our own Pacific Gas & Electric -- once the largest utility in the United 
States -- is now only a cashless subsidiary of a holding company called PG&E. 
The parent company sold off the utility's fossil-fuel generating plants, 
sucked the cash out of their California subsidiary and has gone on to 
continue its growth elsewhere. 
Meanwhile, some old PG&E plants are now owned by Duke Energy, which started 
as an electric utility in North Carolina but now operates power plants and 
gas pipelines in other states and countries. 
Where does public power fit into this depressing scene? It is as 
conservative, American and traditional as apple pie. If it is broadly enough 
accepted as a solution to the past excesses of utilities dominated by 
financial institutions, then local ownership -- regional, city and otherwise 
-- could derail or limit the utilities' strategy of dominating an 
international electricity grid covering the United States, Canada and who 
knows where else. 
Impossible? Not at all. The utilities are run by persons with brilliant 
minds, big ambitions and appetites for profit, and access to enormous 
resources of politics, money and ruthlessness. They also have something few 
other people have -- vision. 
But David has a slingshot, if he has the vision to use it. 

James B. McClatchy is publisher of The McClatchy Co., which owns The 
Sacramento Bee and other newspapers, and is a lifelong California journalist. 




Boom Days on the Plains 



Hunt for energy turns to methane-rich Wyoming, unsettling ranchers who fear 
for impact on land
By Steve Schmidt 
UNION-TRIBUNE STAFF WRITER 
May 13, 2001 
SPOTTED HORSE, Wyo. -- William Friday West is 68. Grew up here. Courted his 
bride here. Married and had kids here, on a grassy homestead with a 
bullet-riddled mailbox. 
He thought he'd seen all a seasoned rancher could see, until some young bucks 
stopped by his weather-beaten ranch house one fall. 
They had a deal for him, they said. He'd make good money, they said. Just 
sign here. 















He did, and more men came to this hiccup of a town -- drillers and 
shed-builders and grubby roustabouts with their bulldozers and backhoes and 
pickups with out-of-state plates. 
The nation's desperate hunt for energy begins here as well as anywhere, in 
the gullet of rural America, under an old rancher's porch. 
But the search is also dogged by controversy. 
Deep under the rolling plains are pools of natural gas so vast they make 
Arctic oil look like chump bait. Inventors, Texas oilmen, even ex-shoe 
salesmen are storming northeast Wyoming to suck the methane from waterlogged 
coal beds. 
Fortunes hang on the new process. Geologists figure that mining just 15 
percent of the nation's coal-bed methane will produce a trillion-dollar 
bonanza. 
Not only that, but hundreds of new power plants planned across the nation, 
from New York to Otay Mesa, will need coal-bed fuel and other natural gases 
to run. 
But in Wyoming, many ranchers and conservationists say runoff water from 
methane mining stunts crops, kills trees and spikes rivers and wells with 
high levels of salt. 
It's reshaping ranch life, too. 
Much of Wyoming remains remote and raw, a land of wood-paneled roadhouses and 
cattle amid oceans of alfalfa. Ranchers relish being off the beaten path. 
Now it seems like every guy with a drilling rig and a dream is moving in, 
erecting power lines and pump sheds and stripping the place of peace. 
"Everything has changed so much in such a short time," West says. "It's hard 
on a person." 

??
Even before the energy chaos in California, things were going great guns 
around Spotted Horse. Most everyone wanted a piece of the gas mining boom. 
Now look at it. 
Drillers and other field workers pack the motels and trailer parks. 
Once-lonely roadhouses are jumping. Hundreds of miles of new power lines lace 
the oatmeal-colored plains of the sprawling Powder River Basin. 















"California's hurting real bad so things are going all wacko around here," 
says Randy Frank, 41, who builds pump sheds. 
Frank struck out for Wyoming last year in his rusty, 1976 Chevy Malibu after 
selling Kinney Shoes in North Dakota. 
He lives in a trailer park and clears $700 a week, more than he ever made 
peddling high heels. 
The Powder River boom began about three years ago when the technology was 
perfected to extract methane sealed in shallow coal beds. With natural gas 
prices near an all-time high, the hunt for coal-bed methane also rages in 
Colorado and New Mexico. 
More than 8,600 wells have been drilled in the river basin, with thousands 
more planned. About 80 coal-bed methane companies operate in the region. 
Many of the companies report fat profits, and some of the nation's largest 
energy firms are staking claims in the region. 
"I don't see how we could be in a better spot," says Steve McNelly, who works 
for a methane company, Well Completion of Gillette, Wyo. 
The state of Wyoming last year projected a $183 million deficit. Now it's 
enjoying a $700 million surplus, largely because of royalties from methane. 
California's surplus has shriveled in recent months because of the energy 
mess. 
Wyoming Gov. Jim Geringer recently told Congress that his state's energy 
potential is huge. "We have it. America needs it," he said. 
This is Dick Cheney country to boot. The vice president is from Wyoming. As a 
young man, he worked in the backcountry, erecting power lines. 
Now Cheney chairs President Bush's energy task force. The panel will make 
long-range recommendations this week for solving the energy crunch. 
Critics complain that Bush, a former oilman, is too cozy with the energy 
industry. Others welcome him, dismissing President Clinton as a tree-hugger. 
Wyoming has a history of mining booms, in oil and coal. 
But this boom, nervous ranchers say, is radically different. 

??
To get the gas out, miners must draw water from the coal beds. Each well 
produces about 12,000 gallons of water a day, much of it high in salt. 
The impact can be jarring. This spring, runoff water from neighboring wells 
flooded William West's ranch, killing creekside Cottonwoods and about 100 
acres of hay. Some of the ground sits bare and bleached. 
"We're extremely worried," says his wife, Marge West. "This water is going to 
kill the land." 
Gary Beach, Wyoming's chief of water quality, says the salty water tends to 
destroy the soil's chemical structure. "It starves plants for water," he 
says. 
Rancher Ed Swartz says that is what's happening at his homestead. "It just 
makes you sick," he says. 
But coal-bed companies say they often work with landowners to soften the 
impact. Some pipe the water into man-made ponds. Others inject it back into 
the earth. 
Some ranchers and others welcome the water, saying cattle and other livestock 
depend on it. 
"Ninety-five percent of the people around here are tickled to death with 
this," says John Kennedy, president of Gillette-based Kennedy Oil. 
Many Wyoming conservationists, however, consider methane mining and the water 
byproducts the biggest environmental threats to the state in decades. 
They don't want to kill the boom, but believe businesses and government are 
failing to address the hard questions because they're blinded by the bottom 
line. 
In neighboring Montana, officials have placed a moratorium on methane wells 
so they can study the risks. Wyoming law doesn't require a similar review. 
The boom comes as the demand for natural gas balloons nationwide. Boosting 
domestic energy production is also a central plank of the Bush 
administration. 
There's talk of developing a pipeline to send the Wyoming gas directly to 
California's Central Valley, where several new power plants are planned. 
Swartz groans at the idea. 
"I don't see why I should have to sacrifice my ranch to help bail you out of 
a crisis." 

??
As a boy, William West rode Shetland ponies on the plains for hours. 
It was the 1940s. The West homestead, staked out by his father in 1919, 
didn't have electricity or telephones. 
Those are West's earliest memories as he sits in his ranch house, eating 
lunch. Today it's spinach, canned ham, cookies and milk. 
He wears dirty jeans and black boots. His hair is wispy and gray. 
His is the life of an American original, the Wyoming homesteader. He keeps 
600 head of cattle and grows alfalfa and wheat. While he's never made a mint 
doing it, he's made enough to raise three daughters. 
He drives a mud-caked, 1975 Dodge Ram truck. 
But when he drives it now, he turns glum. All this runoff water. All these 
power poles on his once-bare land. All these miners he hardly knows. 
"Had we realized there would be these (consequences), we would not have 
signed a drilling contract so willingly," he says. 
For their troubles, the Wests receive $10,000 royalty checks about every 
three months from a drilling outfit. Sweet money after a hardscrabble life. 
But even to some supporters of methane mining, that's not much, considering 
how it's upending ranch life. 
"This was a land of solitude. Now there's somebody everywhere you look," says 
homesteader Robert Sorenson. "It's a complete loss of a way of life." 
Complicating things further are Wyoming's homestead laws, in which the 
federal government sold early settlers the land but not the mineral rights. 
Many gas companies obtain rights to the minerals and then give landowners a 
share in the profits. 
Business boosters in Gillette, the region's largest city, believe the 
trade-offs are worth it. "Agriculture itself does not provide that good a 
living in this area," says Susan Bigelow, executive director of the Campbell 
County Economic Development Corp. 
West's late father thought he'd strike oil some day on the ranch. Never did. 
Now his son has helped unleash a new kind of mining as America's energy 
crisis deepens. 
He takes pills now. He says it's to lower stress, aggravated by the upheaval. 
Dust from the drilling and construction hasn't helped his chronic bronchitis 
either. 
He'll be 69 in January. He was born in Powder River country, and he figures 
he'll die here. 
"I'd like to go away and see the beach maybe," West says. But this, he adds, 
"is home. .?.?. It's my life." 
Even as his slice of frontier slips away. 
"It's just wild out here now. It's a whole new world." 
Next in the series: The ghost fleet of the Pacific. 




Summer blackout forecasts still hazy 




By Karen Kucher 
UNION-TRIBUNE STAFF WRITER 
May 13, 2001 
This promises to be a summer of uncertainty. 
Rolling blackouts pummeled the state twice last week when grid managers came 
up short on energy supplies, and power was cut off to thousands of businesses 
and residents. 
With summer near, everyone is wondering how regular this routine will become. 
But there are no clear answers. 
"It is going to be a great soap opera," said consumer advocate Michael 
Shames. "We are calling this 'our summer of disconnect.'?" 
Predictions abound. One often-repeated estimate is that the lights will go 
out on 30 to 35 days, an educated guess based on last year's consumption 
levels. One local fire chief said he had heard that blackouts would hit two 
to three days a week. 
But the agency that manages the state's electricity grid has issued no such 
estimates. 
Lorie O'Donley, a spokeswoman for the California Independent System Operator, 
said blackout predictions are springing up like urban myths, taking on the 
ring of truth with repetition. 
The real truth, she said, is that no one can say how often the lights will go 
out or for how long. It depends on the weather, the daily fluctuations in the 
wholesale electricity market, how much conservation takes place and whether 
power plants run steadily or suffer mechanical breakdowns. 
"You can understand the dynamics here," O'Donley said. "We have to play the 
cards we are dealt that day, and we will definitely do the best to locate 
enough resources and try, but it is going to be a challenge." 
Grid managers say blackouts are possible on days when consumption exceeds 
40,000 megawatts. The state exceeded that level on 34 days last summer. 
But that measuring stick isn't a strict standard. 
Just this past week, blackouts were ordered on two days when peak usage was 
about 34,000 megawatts. Enough power couldn't be bought to meet demand, and 
about one-third of the state's generating capacity was unavailable because of 
breakdowns or planned maintenance. 
California got into this crisis after its 1996 deregulation plan went 
terribly wrong. The wholesale price of power skyrocketed, and 
electricity-generating capacity suddenly was inadequate to meet growing 
demand. 
Critics of deregulation say electricity suppliers, who have posted huge 
corporate profits from the higher electricity prices, manipulated the market 
and made the supply situation worse. 
Power suppliers say California, which did not build any new generating plants 
in a dozen years, simply does not have enough supply, a situation they say is 
worsened by a reduction in the availability of hydroelectric power from the 
Pacific Northwest. The suppliers also say increased demands on California's 
aging system of power plants are responsible for the historically high level 
of facility outages. 
Shames, who heads the Utility Consumers' Action Network, said he expects 
power emergencies to be declared all summer long. 
It wasn't a good sign that just a few days of warm weather pushed the state 
beyond its tight energy supplies, he said, adding: "It is pretty clear to me 
that we are going to see through May, June, July and probably into August 
almost continual Stage 2 situations. So much of this depends on Mother 
Nature." 
On that front, weather forecasters say not to expect any miracles. 
A statewide 90-day forecast for California says June, July and August should 
hit normal summer temperatures. 
Imperial County, eastern Riverside and eastern San Bernardino counties are 
expected to average about half a degree above normal. The average in San 
Diego and Los Angeles counties and in western Riverside and western San 
Bernardino counties will be about two-tenths of a degree above normal. 
While those changes are significant for meteorologists, they probably won't 
make much of a difference for most state residents. 
"You won't be able to feel the difference," said Philip Gonsalves, a 
meteorologist intern for the National Weather Service. "If you normally set 
your thermostat to 72 degrees and you set it at 74, that's a bigger 
difference than what we are anticipating." 
The ISO has predicted California will be short nearly 3,700 megawatts next 
month, enough to provide power to more than 2.7 million homes. 
Gov. Gray Davis had hoped to have 5,000 additional megawatts online by July 
to help meet that shortfall, but many of those plants have been delayed. 
The California Energy Commission says 2,100 megawatts of new power generation 
is expected to be online by July, far less than what state officials had 
wanted. By September, about 5,200 megawatts should be operational. 
"We are doing everything we can to get new generation online," said Claudia 
Chandler, assistant executive director of the commission, which approves new 
power plants in the state. "It is disappointing to us that all of them won't 
be available earlier in the summer." 
Chandler said there have been delays in getting emergency peaking facilities 
built. Peaker plants are small, relatively inefficient plants used only 
during periods of high electricity demand. 
"Those applications just didn't come in as early as we needed," Chandler 
said. "It took a while before we saw the first peaker application come into 
the process. .?.?. The good news is we are going to have a problem next 
summer, too, and all this generation will be ready for next summer's demand." 
Uncertainty about the electricity market has people rearranging the way they 
do business. 
Scientists at local biotechnology companies put off experiments on days when 
outages are considered possible, said Joe Panetta, president and chief 
executive of BioCom, a local biotech trade association. 
"They are announced, and on the surface they seem to appear to only be a 
nuisance," he said. "But what we are finding is that you essentially have to 
cease everything that you are doing." 
Panetta said business leaders have been asking for utilities to provide 
earlier notification so that staffing adjustments and equipment precautions 
can be made. 
"We are talking a day's notice at least so we have the chance to juggle some 
things around at the companies well in advance," he said. 
Because of concerns like that, state lawmakers last week discussed planning 
daily outages to drive down the price of power and to provide consumers a 
more predictable pattern of blackouts. Some suggested that the state 
institute an odd-even system in which certain blocks of power users face 
blackouts as often as every other day. 
For now, residents and companies are being encouraged to prepare for outages. 
Some companies have obtained backup generators so they can keep operating 
even during rolling blackouts. San Diego Gas & Electric Co. is reminding 
people to switch off television sets and computers during blackouts to 
protect them from surges when power returns. 
Public safety agencies say they can't do much to prepare for blackouts other 
than focus on improving communication. San Diego city officials plan to use 
e-mail, voice mail and pagers to notify public safety workers and city 
officials of impending blackouts. 
"We are educating the city staff, telling them, 'Take out your procedures; 
shake them out,'?" said Deputy Fire Chief D.P. Lee, San Diego's emergency 
management coordinator. 
"We are really fine-tuning things to make sure we have all the i's dotted and 
the t's crossed," Lee said. "Once we are there I'm sure we will make further 
refinements. 
"I'm sure by the end of the summer we will have this down pat."






Energy companies controlled market, state panel claims 



Natural-gas price at prime entry site rose 489 percent
By Bill Ainsworth 
UNION-TRIBUNE STAFF WRITER 
May 13, 2001 
SACRAMENTO -- An Assembly oversight committee will release a report tomorrow 
that blames the astronomical increase in natural-gas prices in California on 
market manipulation by energy companies. 
From March 2000 through February 2001, the price at a critical market entry 
point for natural gas on the Arizona border rose 489 percent, forcing 
Californians to pay by far the highest natural-gas prices in the nation. 
The skyrocketing price of natural gas has been felt by many ratepayers in 
their utility bills, but it also played a key role in the state's electricity 
crisis. Many of the state's power plants are fueled by natural gas. 
In 1999, Californians paid $6.6 billion for natural gas, and a year later 
that figure rose to $12.3 billion. In the first three months of 2001, 
Californians paid $7.9 billion. 
The committee report, based on two days of hearings last month, said 
contracts that gave natural-gas marketers control of vast amounts of the El 
Paso pipeline -- the key entry point for the state's supplies -- helped push 
California's gas prices above the national average. 
The report concluded that El Paso Natural Gas Co. favored its affiliate, El 
Paso Merchant Energy, in a deal that allowed the affiliate to control much of 
the gas that flows on the pipeline owned by El Paso Natural Gas. 
The pipeline brings natural gas from the ground in Texas to homes and 
businesses in California. 
El Paso Merchant Energy offered to resell gas that it owned, but the 
committee concluded that it demanded "unreasonably" high prices so it would 
have no buyers and thus retain control of a large supply of gas. 
That control, the report said, helped "artificially inflate border prices" 
for natural gas. 
The report also said El Paso Merchant Energy had every incentive to drive up 
border prices. The company had an ownership interest in 20 "qualifying 
facilities," which are smaller electricity producers. The price those 
generators are paid for electricity is tied to the border price of natural 
gas. 
During the hearings, Ralph Eads, president of El Paso Merchant Energy, denied 
hoarding gas, saying the price for natural gas rose so high because of the 
increased demand by electricity producers that use natural gas. Eads and 
others denied using their corporate ties for a sweetheart deal. 
Other industry representatives blamed the increase in price on limits on 
pipeline capacity and lower levels of gas storage. 
The report rejected those explanations: "The exorbitant prices cannot be 
defined away by regulators and bureaucrats, or explained away by corporate 
lawyers' wordplay. The economic hardship cannot be justified simply by 
reciting the economic laws of supply and demand." 
The report recommended that the Federal Energy Regulatory Commission, which 
has jurisdiction over natural gas, prohibit deals that allow one marketer to 
control so much pipeline capacity. 
The report noted that something else besides the price of natural gas soared 
during the past two years: corporate profits for El Paso Merchant Energy. In 
1999, the company earned $3 million before taxes and interest, compared with 
$563 million in 2000. 






Communities Fighting $270-Million Power Line 


By SCOTT GOLD, Times Staff Writer 

?????ROMOLAND, Calif.--It has all the trappings of a parochial, 
not-in-my-backyard brouhaha: anxiety over property values, the environment 
and local business.
?????But the subject of this particular debate--a proposed $270-million 
electricity transmission line starting in this scrubby outpost of chicken 
wire, strip mall churches and tumbleweeds--has ominous implications for all 
of California.
?????Effectively using California's energy crisis as ammunition, San Diego 
Gas & Electric Co. wants to build the 500,000-volt line through 31 miles of 
bluffs, parks, wilderness and neighborhoods in southwest Riverside County.
?????That has prompted a boisterous response from area residents, who have 
countered with door-to-door campaigns and picket lines--and challenged the 
very notion, an article of faith in the energy industry, that additional 
power lines are needed to dig the state out of its energy crisis.
?????"We're not human beings to them," said Loma Bosinger, co-chairwoman of 
Save Southwest Riverside County, formed in response to the SDG&E proposal. 
"We're nuisances. We're red tape."
?????SDG&E and other energy companies say that although the lack of 
generators in California is the most pressing component of the crisis, a lack 
of power transmission lines also is a key contributor. During the state's 
first round of rolling blackouts in January, Northern and Central California 
suffered largely because of a transmission bottleneck in the Central Valley.
?????The gaps in generation and transmission mean that California's 
once-sturdy energy grid has become a fussy, delicate contraption, said Jim 
Avery, SDG&E's senior vice president of fuel and power operations.
?????"If one part gets out of balance, it can take down the whole system," 
Avery said.
?????Neighborhoods along the proposed route of the so-called Valley Rainbow 
Interconnect, through dusty Hemet and the wine country of Temecula, aren't 
convinced that California's situation is quite so dire.
?????They point out that SDG&E first pitched the line last summer by saying 
that it was needed to provide power to the San Diego area--because state 
energy officials believe that demand in the region will begin exceeding 
current deliveries in 2004, which would mean blackouts. More recently, 
though, SDG&E has begun pitching the new transmission line as a system to 
export electricity from new generators in the San Diego area to the rest of 
the state power grid.
?????SDG&E insists that those two arguments do not conflict. But residents 
have found the company's position disingenuous at best. And what seemed a 
neighborhood tiff has become something more, widely seen as a harbinger of 
scuffles to come as California confronts its power crisis.
?????The state already has 26,000 miles of electric transmission lines. And 
in the next four years--according to the California Independent System 
Operator, the agency that oversees the state grid--74 transmission-line 
construction projects are expected so energy companies can meet state and 
federal reliability standards.
?????More lines will be added purely for economic gain, said Armando Perez, 
director of grid planning for Cal-ISO, and similar battles are expected to 
dog many of those proposals.
?????"There has always been, and always will be, a tension between the 
proponents' need for lines and locating it so it doesn't have a terrible 
impact on neighboring communities," said Mark Mihaly, a San Francisco lawyer 
who will represent residents in upcoming hearings about the placement of the 
transmission line.
?????"But what you will see is that the power companies are going to be using 
the energy crisis, trying to hitch their wagon to that train. You'll see it 
again and again."
?????In coming months, politics may further complicate the debate.
?????In Washington, the task force developing a national energy 
strategy--headed by Vice President Dick Cheney--is reportedly weighing a move 
to give federal authorities the power of eminent domain to acquire private 
land for new electrical transmission lines.
?????And in Sacramento, Assemblyman Dennis Hollingsworth (R-Murrieta) has 
proposed a bill that would require state energy officials and utilities to 
use public land for transmission lines before they would be allowed to 
acquire private property. That bill, which awaits votes in two Assembly 
committees in coming weeks, targets not only future transmission lines but 
the proposed line in southern Riverside County, Hollingsworth said.
?????"I object to the fact that private property is looked at as the path of 
least resistance," he said.
?????In Riverside County, community leaders say they have a series of 
concerns about the SDG&E proposal. Some are worried that the line will mar 
the picturesque bluffs of the region, which could in turn hurt its ability to 
draw tourists, wine lovers and nature lovers. That could drive down property 
values, they fear. Others are concerned about local businesses, from golf 
courses that are close to the proposed route of the transmission system to 
hot-air balloon companies that would have to steer clear of high-voltage 
lines.
?????In Hemet, residents are enraged that the transmission line apparently 
will cut through parkland near the new Diamond Valley Lake reservoir. A 
series of parks and nature preserves were supposed to be Hemet's "payment," 
of sorts, for welcoming the $2-billion reservoir, the largest in Southern 
California. Now, many--including Metropolitan Water District officials--are 
afraid that the proposed lines could cleave those areas in two.
?????This kind of debate will become increasingly common, said Severin 
Borenstein, a business professor at UC Berkeley's Haas School of Business and 
director of the UC Energy Institute.
?????"There is a tremendous need for transmission," Borenstein said. "This is 
definitely part of the problem, and it will be an increasing part of the 
problem. It is only going to get worse, because we are going to build a lot 
of transmission lines--and nobody wants them in their backyard."
?????On Thursday, Bosinger and two community activists leading the charge 
against the Riverside County transmission line met at what would be its 
northern terminus--Southern California Edison's Valley substation in 
Romoland. The group stopped under a massive power pole, the same type of 
equipment they say will poison the vistas of southern Riverside County if 
they don't block SDG&E's expansion plans.
?????Power lines already in place crackled overhead.
?????"God, listen to that," Bosinger said. "I've never been this close to one 
before."
?????"Smells like electricity to me," said Barbara Wilder, Save Southwest 
Riverside County's other co-chairwoman.
?????"See, this isn't about us not wanting this in our backyard," Wilder 
said, craning her neck to see the top of the towering power pole. "This is 
all for one and one for all. We don't want this in anybody's backyard."
?????Avery, the SDG&E vice president, said there is little choice in the 
matter.
?????"There has to be a line built," he said. "I don't think there are any 
alternatives."

Copyright 2001 Los Angeles Times 







Bush Tax Incentives Fuel Plan on Energy 
Power: President,s 'new kind of conservation' also promotes efficient 
technology. Change in focus follows criticism that his strategy relied too 
heavily on oil, gas. 

By RICHARD SIMON, Times Staff Writer 

?????WASHINGTON--President Bush on Saturday called for a "new kind of 
conservation" that saves power through tax incentives and energy-efficient 
technology, signaling a shift in tone as he prepares to unveil his long-range 
energy policy.
?????Bush,s focus on conservation in his weekly radio address follows 
criticism that he and Vice President Dick Cheney have been drafting a plan 
that is heavily weighted toward more oil and gas drilling while giving short 
shrift to other approaches to the energy problem.
?????In a clear response to such attacks, Bush pledged that conservation 
would be a major element of his plan, to be released Thursday at an 
energy-efficient power plant in St. Paul, Minn.
?????Previewing some of his policy,s details, Bush proposed tax credits for 
the purchase of gas-electric cars and expansion of a government program that 
promotes energy efficiency in buildings and products.
?????However, rather than call for Americans to sacrifice, as President 
Carter did during the energy crisis of the 1970s, Bush said, "Some think 
conservation means doing without. That does not have to be the case."
?????Conservation, he said, can be achieved through technological innovation, 
such as building sensors into buildings to shut off lights as soon as people 
leave the room.
?????"Over the long term, the most effective way to conserve energy is by 
using energy more efficiently," Bush said. "Pushing conservation forward will 
require investment in new energy technology, and that will be part of my 
administration,s energy plan."
?????Bush,s stress on conservation seemed to contrast with recent comments by 
Cheney, who has been in charge of drafting the energy policy. In a recent 
speech, Cheney said, "Conservation may be a sign of personal virtue, but it 
is not a sufficient basis for a sound, comprehensive energy policy."
?????Energy conservation advocates, although welcoming Bush,s comments, noted 
that the administration has adopted less stringent energy-efficiency 
standards for home central air conditioners than those advocated by the 
Clinton administration. The Bush administration contended that the standards 
proposed by Clinton set too high a burden on consumers.
?????David M. Nemtzow, president of the Alliance to Save Energy, a 
Washington-based coalition of business, consumer, government and 
environmental leaders, called Bush,s emphasis on conservation a "great 
start," and he said it reflected a "change in tone from where [the 
administration] has been in the past."
?????However, Nemtzow added, "There needs to be a lot more."
?????Bush, who has been criticized by California officials for not doing more 
to address the state,s electricity crisis, said he is "very concerned" about 
the possibility of continuing blackouts in California this year.
?????He noted that federal facilities in California have been ordered to cut 
peak electricity use--including setting thermostats at 78 degrees and turning 
off escalators during power emergencies--and military bases in the state will 
reduce peak-hour use by 10%.
?????"These are immediate measures to help with an immediate problem," Bush 
said. 
?????But Gov. Gray Davis, reacting to Bush,s address, assailed the White 
House for refusing to back firm price controls on wholesale electricity 
supplies. Bush contends that price controls will discourage energy companies 
from building power plants.
?????California last week had to pay $2,000 a megawatt hour for electricity, 
up from $30 a year earlier, Davis said in a statement. The power supplier, he 
noted, was a Texas energy company.
?????"I hope that President Bush and I can agree that any worthy energy 
policy must address the price gouging of consumers by greedy energy 
suppliers, particularly in states like California that are working valiantly 
to bring additional supply online," Davis said.
?????Based on details that have emerged in recent days, Bush,s energy 
blueprint will, among other things, call for opening up more federal land to 
oil and gas exploration, encouraging development of more nuclear power, 
streamlining the approval process for building new power plants and giving 
federal authorities eminent domain power to acquire private property for 
transmission lines.
?????On the conservation front, the plan will include: 
?????* Tax incentives to encourage businesses to use more energy-efficient 
power plants;
?????* Tax credits for purchase of high-mileage, low-emission "hybrid" 
vehicles that use electronics and fuel cells to significantly improve their 
gasoline mileage. Bush, in his remarks Saturday, did not specify an amount. 
Bipartisan legislation introduced in Congress would provide a tax credit of 
$1,000 for consumers who purchase hybrid vehicles;
?????* Expansion of a federal program that promotes energy efficiency in 
office buildings to cover schools, stores, health care facilities and homes;
?????* Extending the federal "Energy Star" labeling program to additional 
products, appliances and services. The Energy Star is a federal seal of 
energy efficiency coveted by many manufacturers;
?????* Strengthening public education programs on energy efficiency. The 
typical homeowner can save about $400 a year on a home energy bill by using 
Energy Star-labeled products, such as computers and air conditioners, the 
White House said.
?????Skepticism about the administration,s commitment to conservation was 
sparked in part by proposed budget cuts to the Energy Department program 
designed to promote renewable energy sources. White House officials say Bush 
is considering restoring some of the money.
?????Some members of Congress, mostly Democrats, also have been pushing the 
administration to recommend tougher fuel economy standards for sport-utility 
vehicles. But Bush,s policy report is expected to defer a recommendation 
until the National Academy of Sciences completes a study this summer on how 
tougher standards could affect the auto industry.
?????Sens. Dianne Feinstein (D-Calif.) and Olympia J. Snowe (R-Maine), who 
are sponsoring a bill to increase the standards, contend it would save 1 
million barrels of oil a day.

Copyright 2001 Los Angeles Times 





State buffer on blackouts near limit 
Program that lets big businesses curb energy use almost exhausted 
John Wildermuth, Chronicle Staff Writer
Monday, May 14, 2001 
,2001 San Francisco Chronicle 
URL: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2001/05/14/MN197365.DTL 
While some of California's biggest energy users cut their power last week to 
keep the lights on in the rest of the state, the program that provides that 
emergency help is almost out of business. 
Most of the state's 1,600 or so "interruptible customers," who agree to 
short-notice power cuts in return for lower energy costs, were asked to shut 
down four times last week as demand for electricity rose in the hot weather 
and supply was constricted by planned and unplanned generator shutdowns. 
But there are strict limits on how often those customers can be turned to 
during the year -- and the state is fast approaching those limits. 
"There are only about eight more times we can call on them this year," said 
Stephanie McCorkle, a spokeswoman for the California Independent System 
Operator, which runs most of the state's power grid. 
QUOTAS NEARLY FULL
The situation is especially bad in Northern and Central California, where all 
but a handful of Pacific Gas and Electric Co.'s 170 interruptible customers 
have already reached their quotas for the year. 
"These customers are mostly big manufacturers, food processors and companies 
like that," said Staci Homrig, a PG&E spokeswoman. "The ISO called on us a 
lot." 
With the state's creaky, overworked power system poised on the knife's edge 
between demand and capacity, the interruptible customers often are all that 
keep the system from tipping over into rolling blackouts. 
"They are a huge, huge help," McCorkle said. 
Last Monday, for example, the ISO ordered interruptible customers to cut 
their loads shortly after 10 a.m. Within 30 minutes, the power crunch had 
started to ease, as about 900 megawatts of demand dropped out of the system. 
That's enough power to supply 900,000 homes. 
It wasn't until late in the afternoon, when those companies reached their 
six-hour daily limit and were allowed to power back up, that an hourlong 
blackout became necessary. 
Thursday, the cooperation of interruptible customers meant blackouts were 
never called. 
DIFFICULTIES FOR CUSTOMERS
The power cuts aren't easy for the businesses ordered to make them. 
Hanson Permanente Cement in Pleasanton is one of the companies that already 
has used up its voluntary blackout hours for the year. 
"In January, the outages essentially put us out of business," said Earl 
Bouse, who runs the company. "It put us in a situation where we couldn't make 
product." 
The plant, which has 200 employees and operates 24 hours a day, gets only a 
half-hour's notice to shut down. That means the kilns have to be powered 
down, machinery turned off and the lights dimmed. Only a minimal amount of 
power remains online. 
But even when the lights come back on, things don't immediately return to 
normal, Bouse said. 
"If we're down for four hours, it's another 20 hours before we're up and 
running at capacity," he said. 
In exchange for the headaches -- and lost business -- the cement company pays 
an electricity rate that is 15 to 20 percent below what PG&E normally 
charges. That is a major incentive for a company where power makes up about 
15 percent of its total costs. 
"For companies paying a $10 million electricity bill, that's a savings of $2 
million a year," Homrig said. 
For years, it was even a better deal. Although the interruptible power 
program has existed since the mid-1980s, the power was almost never 
interrupted. Companies signing up for the program have received $2 billion in 
reduced rates since 1990, but until recently they never had to turn off their 
lights. 
From 1992 to 1999, for example, PG&E's interruptible customers were asked to 
cut power only 19 times. Southern California Edison, which has the bulk of 
the interruptible companies, had only four curtailments, all in 1998. 
When the power crunch hit last year, everything changed. Both PG&E and Edison 
called for power interruptions 20 times, and their customers started 
screaming. 
"It was an emergency capacity program, and no one expected we'd have so many 
emergencies," said Lynda Ziegler, an Edison executive. 
A report by the state Public Utilities Commission in February was more 
specific. 
"Numerous customers, including some schools and hospitals, 'gamed' Edison's 
tariffs," the PUC said. They figured that they could get the lower rate and 
never have to cut power. 
When Edison ordered the power shutdowns last year, only 62 percent of their 
interruptible customers complied, despite signed contracts with the utility. 
With PG&E, the compliance level was 96 percent. 
NONCOMPLIERS TO THE SOUTH
Many of the Edison customers "are unwilling or unable to lower their energy 
use when requested," the PUC report concluded. 
In 2000, Edison hit noncompliers with $92.4 million in penalties and PG&E 
ordered $2.2 million in fines. Millions of dollars more were assessed this 
year before threats of lawsuits, potential legislative action and howls from 
California manufacturers persuaded the PUC to order the fines suspended late 
in January. Much of the money probably will be returned. 
Because of the controversy surrounding the interruptible program, state power 
officials are trying to have a new, more flexible system in place by June. 
The new program allows companies to cut only part of their electrical load 
and limits the blackouts to four hours a day and 10 days a month. 
"We're trying to get (customers representing) another 400 megawatts signed 
up," Homrig said. "That's the same as we have for the current program." 
Without the help an interruptible user program provides, California residents 
could be spending a lot more time in the dark this summer, ISO officials 
warned. 
"(Interruptibles) have always been a buffer," said Jim McIntosh, the ISO's 
director of operations. "When I don't have that buffer, we'll move to almost 
instant blackouts." 

E-mail John Wildermuth at jwildermuth@sfchronicle.com. 
INTERRUPTING POWER
   Number of days PG&E and Southern California Edison "interruptible" 
customers were asked to go dark, and percentage that complied.
.
.
              PG&E                     Southern California Edison
          Number of     Percent          Number of      Percent
   Year  curtailments  compliance       curtailments  compliance
   1992       1            93%               0            -
   1993       1            92                0            -
   1994       0             -                0            -
   1995       5            96                0            -
   1996       4            98                0            -
   1997       1            97                0            -
   1998       5            96                4           56
   1999       2            (x)               0            -
   2000       20           96               20           62
 
 (x) -  Figure unavailable
Source: California Public Utilities Commission
  Chronicle Graphic


,2001 San Francisco Chronicle ? Page?A - 1 


Natural gas giant says state subcommittee report is flawed 

Monday, May 14, 2001 
,2001 Associated Press 
URL: 
http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2001/05/14/state0
418EDT0124.DTL&type=news 
(05-14) 01:18 PDT SAN FRANCISCO (AP) -- 
A natural gas giant says it's being used as a scapegoat for California's 
soaring gas rates, while a state Assembly subcommittee says the company 
deliberately drove prices up by reducing the state's gas flow, according to a 
report expected to be released Monday. 
In a written statement released Sunday, El Paso Corp. officials called the 
Energy Oversight Subcommittee's April hearings "a sham," saying "the rise in 
California natural gas prices is not attributable to El Paso, but is 
attributable to the fact that demand for gas has far outstripped supply." 
El Paso Natural Gas Co. and its affiliates negotiated contracts with each 
other that gave them the means and incentive to squeeze supplies and boost 
the cost of natural gas 489 percent during the 12-month period ending in 
February, the subcommittee says in its report obtained by The Associated 
Press. 
"For California natural gas consumers, the numbers tell the truth," the 
report said. "The exorbitant prices cannot be defined away by regulators and 
bureaucrats or explained away by corporate lawyers' wordplay." 
El Paso says it received correspondence between subcommittee staff and a 
Southern California Edison legal consultant, revealing "the subcommittee 
majority's conclusions were pre-determined to blame El Paso for California's 
failed energy policies," the statement said. 
Assemblyman John Campbell, R-Irvine, wrote a minority report agreeing with El 
Paso, saying the subcommittee hearings were "a specific inquiry targeted to 
prove a conclusion that was reached by the majority before the hearings 
began." 
Californians paid $6.6 billion for natural gas in 1999, $12.3 billion last 
year, and $7.9 billion through March 2001, the report says. At one point 
there was a 2,795 percent difference between the price of gas at its source 
in the Southwest and its cost at the California border. 
Many of the state's electricity generators are driven by natural gas, 
contributing to California's high electricity prices and the supply shortage 
that has brought six days of rolling blackouts this year. 
The Federal Energy Regulatory Commission is investigating energy overcharges. 
It has installed limited caps on electricity prices but has rejected demands 
for more stringent cost controls. 
,2001 Associated Press ? 



SAN FRANCISCO 
S.F. stoplights to get more efficient bulbs 

Monday, May 14, 2001 
,2001 San Francisco Chronicle 
URL: 
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/05/14/M
N54052.DTL&type=news 
San Francisco plans to become more energy-efficient by replacing standard 
lightbulbs in stoplights at 900 intersections with bulbs using light- 
emitting diode technology. 
The city Parking and Traffic Commission will be asked tomorrow to approve an 
application to borrow $5 million from the state to install the new bulbs over 
the next four months. 
By acting under the California Energy Commission's loan program, the city 
estimates it will cut its electricity bill by $740,000 annually. The loan has 
to be repaid over 5 1/2 years, and if all the new technology is installed by 
September, the state will convert 10 percent of the cost to an outright 
grant. 
The new bulbs will cut traffic signal energy usage by 82 percent, producing 
an annual savings of 7 million kilowatt hours, the city said. 
,2001 San Francisco Chronicle ? Page?A - 14 



Davis urges Bush to cap "obscene' power prices 
Harriet Chiang, Chronicle Legal Affairs Writer
Monday, May 14, 2001 
,2001 San Francisco Chronicle 
URL: 
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/05/14/M
N228804.DTL&type=news 
In the escalating battle between California and the Bush administration, Gov. 
Gray Davis warned yesterday that the state faces economic disaster this 
summer unless the president steps in and imposes a cap on energy prices. 
"I don't think we can get through (the summer) without a price cap," Davis 
said on ABC's "This Week." He said Texas and Southwest energy companies, 
including "buddies" of President Bush and Vice President Dick Cheney, are 
charging California "obscenely" high prices in a bid to squeeze every last 
penny out of the state's shrinking coffers. 
"President Bush could solve this problem in five minutes by asking them to 
impose a price cap," the governor said. 
Cheney, charged by Bush with examining the energy problem, has opposed price 
caps or price regulations, saying they could discourage investment and thus 
supply. 
Davis' charges come at the outset of a week in which the Bush administration 
is expected to unveil its energy plan, which will emphasize conservation, 
alternative energy sources and more oil refineries, gas pipelines and nuclear 
reactors. 
The governor has repeatedly called on Bush to rein in the energy companies. 
But the president, while trying to appear sympathetic, has responded that the 
power crisis is California's problem and the state has to fix it. 
Yesterday, Davis did not rule out the possibility that the state might use 
its emergency powers to take control of private power plants if electricity 
prices continue to soar. State Treasurer Phil Angelides on Friday raised the 
possibility of seizing the power plants. 
"I'm not ruling anything in, and I'm not ruling anything out," Davis said. 
He said his administration has approved building 14 new plants, including 
nine that are under construction, four that will be on line this summer and 
three that will be in operation next summer. 
But Davis stressed the need for the federal government to take action, 
suggesting that energy companies are withholding power to drive up prices. 
He singled out Reliant Energy Services, a Texas company he described as a 
"big buddy" of Bush and Cheney. Last week, Reliant charged the state $1,900 
per megawatt hour to buy electricity for about three hours, dramatically 
higher than the $173 per megawatt hour Davis' financing plan allocated for 
this summer. 
"That is obscene," the governor said. Bush and Cheney "can't just sit back 
and say 'Hey, it ain't our problem.' " 
E-mail Harriet Chiang at hchiang@sfchronicle.com. 
,2001 San Francisco Chronicle ? Page?A - 3 



Group seeks tax credit for energy-efficient offices 
'High-performance' buildings called vital 
Richard Paoli, Chronicle Real Estate Editor
Sunday, May 13, 2001 
,2001 San Francisco Chronicle 
URL: 
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/05/13/R
E239255.DTL&type=news 
The use of tax credits to fund research for energy-efficient office buildings 
is being urged by the Real Estate Roundtable, a national organization of 
property owners, developers and managers. 
"It is vital that federal policies encourage the development and construction 
of high-performance buildings," according to the Roundtable's annual report, 
issued last month in Washington, D.C. 
The push for a federally backed policy on building research, while not the 
major item on the Roundtable agenda, becomes timely as California faces a 
summer of rolling blackouts. 
Energy represents the largest single operating cost for commercial buildings, 
according to the U.S. Environmental Protection Agency. The largest component 
of that cost is lighting. 
The Roundtable urged Congress and President Bush to "support federal research 
and development funding and to consider the use of tax credits as a 
cost-effective means of advancing superior building technologies and 
techniques in new construction and building renovations." 
While many office buildings have been made energy efficient, the Roundtable 
noted, "the consumption of electricity in commercial buildings has doubled in 
the past 17 years and, by some projections, may increase another 150 percent" 
during the next 30 years. 
Designing longer-lasting structures, the report noted, also would represent 
lower energy demands and costs in the future. 

Commercial building energy use
Lighting, heating and cooling rank at the top for commercial building energy 
costs.
   Energy as a percent of total commercial building operating expense
19% Administrative
18% Cleaning
10% Roads, grounds, security
23% Repairs, maintenance
30% Energy
   Percent breakdown of energy use 
31%  Lighting 
22% Space heating 
18% Space cooling  
7%  Water heating 
6%  Office equipment 
6%  Other 
5%  Ventilation 
3%  Refrigeration 
2%  Cooking
   Source: U.S. Environmental Protection Agency; Energy Information 
Administration
Chronicle Graphic


,2001 San Francisco Chronicle ? Page?8 


Natural gas price squeeze 
Report says supplier manipulated market 
Bernadette Tansey, Chronicle Staff Writer
Sunday, May 13, 2001 
,2001 San Francisco Chronicle 
URL: 
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/05/13/M
N230092.DTL&type=news 
A Texas energy company drove California's natural gas prices sharply higher 
by pinching off the flow of gas through a major pipeline into the state, 
according to an Assembly subcommittee report obtained by The Chronicle. 
El Paso Corp.'s marketing arm dominated space on the pipeline and prevented 
other shippers from importing gas into California from the Southwest starting 
in early 2000, according to the majority report by the Assembly Subcommittee 
on Energy Oversight. That created an artificial demand-supply crunch that 
drove up costs for both gas and electricity, the panel's report concluded. 
The three Democrats on the five-member subcommittee, chaired by Assemblyman 
Darrell Steinberg, D-Sacramento, said the price of gas on the El Paso 
pipeline that enters California at the Arizona border rose 489 percent from 
March 2000 to this past February. 
"For California natural gas consumers, the numbers tell the truth," said the 
report, to be issued tomorrow. "The exorbitant prices cannot be defined away 
by regulators and bureaucrats or explained away by corporate lawyers' 
wordplay." 
The state paid $6.6 billion for natural gas in 1999, but that nearly doubled 
in 2000, the subcommittee majority said. By March of this year, Californians 
had already spent $7.9 billion on natural gas. 
By driving up gas costs, El Paso not only stood to gain through gas sales but 
also by increases in the price of electricity produced at its California 
power plants, the report said. The price of that electricity is pegged to the 
cost of natural gas. 
El Paso spokesman Mel Scott said the subcommittee majority "clearly didn't 
understand what happened. These accusations are ludicrous." 
In testimony before the panel last month, company officials maintained that 
the price run-ups were caused by a genuine gas shortage in California. Gas- 
fired power generators increased production to make up for low electricity 
output from hydroelectric plants and gas storage levels in the state were 
down, 
El Paso said. 
The subcommittee's two Republicans said last night that the report was an 
exercise in "finger-pointing" whose conclusions were not supported by the 
subcommittee's brief inquiry. 
"We did not do an exhaustive investigation," said Assemblyman John Campbell, 
R-Irvine, who wrote a minority report. "This was a specific inquiry targeted 
to prove a conclusion that was reached by the majority before the hearings 
began." 
Campbell said the evidence so far didn't prove El Paso to be blameless. But 
he said the Federal Energy Regulatory Commission, which is investigating the 
company's conduct, is better equipped to conduct a full probe. 
The subcommittee majority said the commission's approval of El Paso pipeline 
contracts "raises serious questions about whether (the commission) met its 
statutory duty under the federal Natural Gas Act to protect consumers from 
unjust and unreasonable rates." 
The commission declined requests from the subcommittee to appear at its 
hearings. 
E-mail Bernadette Tansey at btansey@sfchronicle.com. 
,2001 San Francisco Chronicle ? Page?A - 1 



Energy firms investing at full throttle 
New York Times
Sunday, May 13, 2001 
,2001 San Francisco Chronicle 
URL: 
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/05/13/M
N224218.DTL&type=news 
Washington -- The energy industry is drilling for natural gas, building gas 
pipelines and constructing power plants at an unprecedented pace as companies 
respond to high energy prices by significantly boosting investment. 
The latest statistics from government and industry analysts show the energy 
industry shifting into high gear, investing heavily in areas that were seen 
as unattractive just a few years ago. Thus even as high energy prices create 
a sense of crisis in Washington, the investment boom promises a cyclical 
increase in supplies that is expected to stabilize or reduce prices in coming 
months, many industry executives say. 
Big oil companies plan to invest about $41 billion to expand natural gas 
supplies this year, while new drilling rigs in operation have hit an all-time 
high of 955. That is indicative of what is going on broadly in the industry. 
Power companies, reacting to high electricity prices in California and 
elsewhere, plan to add 90,000 megawatts of electricity generating capacity in 
the next 18 months, one industry estimate says. That is nearly one-fourth of 
what the Department of Energy says is needed to meet growth in demand through 
2020. 
Rising natural gas demand has prompted companies to build transportation 
pipelines at a frenzied pace. The federal Energy Information Administration 
says 1,895 miles of new pipelines were added last year. It expects companies 
to complete 4,300 miles this year and 4,650 miles next year, record increases 
in capacity. 
,2001 San Francisco Chronicle ? Page?A - 6 


ENERGY CRUNCH 
Conservation inches up Bush energy agenda 
Mike Allen, Eric Pianin, Washington Post
Sunday, May 13, 2001 
,2001 San Francisco Chronicle 
URL: 
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/05/13/M
N207070.DTL&type=news 
Washington -- President Bush plans to emphasize the need for conservation and 
alternative fuels when he unveils his energy plan this week, but the 
farthest- reaching parts of his proposal would clear the way for more coal 
mines, oil refineries, gas pipelines and nuclear reactors, administration 
officials said. 
The policy, which Bush is to release Thursday, could have even longer- 
lasting effects on business than his tax cut, with the potential for hundreds 
of billions of dollars in savings on regulatory costs, an administration 
official said. 
With recent polls showing the environment as a significant vulnerability for 
Bush, he plans to talk repeatedly about "21st century conservation" as he 
tries to keep a potential energy crisis from becoming a political crisis. 
"The most effective way to conserve energy is by using energy more 
efficiently," Bush said during his weekly radio address. "Pushing 
conservation forward will require investment in new energy technology, and 
that will be part of my administration's energy plan." 
Bush's plan will promote investment in nuclear power by offering assurances 
that safe and efficient reactors will be relicensed, and by calling for the 
renewal of a law protecting reactor owners from unlimited liability for a 
catastrophic accident, sources said. 
It will also say that the nation must prepare to build 1,300 to 1,900 new 
power plants during the next 20 years. 
To sell his plan, the president will have to navigate among hundreds of 
interest groups, governors and local officials with competing concerns. 
White House officials say they counted for months on the element of surprise 
in the unveiling of the report, since it would contain more environmentally 
friendly measures than outsiders expect. But the need to focus on those parts 
of the plan became critical after Vice President Dick Cheney, who led the 
task force, gave an April 30 speech in Toronto that seemed to denigrate 
conservation. 
Officials explained that part of Cheney's intention had been to signal that 
he had no plan to get involved in California's energy woes, which his 
advisers had said could distract Bush from carrying out an energy policy that 
would eventually reduce the nation's dependence on foreign oil. 
Kyle McSlarrow, the Energy Department chief of staff, said the administration 
has focused on California outside the report but that the task force has 
added nothing aimed specifically at averting summer blackouts, despite 
pressure from Capitol Hill. 
The White House said Cheney's National Energy Policy Development Group will 
recommend an income tax credit for the purchase between 2002 and 2007 of 
fuel- cell vehicles or hybrids that operate on a combination of gas and 
electricity. 
Administration officials said Bush will not propose rolling back any 
regulations, but will call for a speedier approval process for prospective 
power plants and transmission lines. 
While Cheney's group has labored in relative secrecy for the past three 
months, House and Senate Republicans and Democrats have been drafting 
competing proposals that will likely become the basis for negotiations over a 
final plan. 
Chronicle wire services contributed to this report. 
,2001 San Francisco Chronicle ? Page?A - 6 



Ghost town is gateway to much of state's natural gas 
A major energy lifeline is a pipeline from Arizona 
Kevin Fagan, Chronicle Staff Writer
Sunday, May 13, 2001 
,2001 San Francisco Chronicle 
URL: 
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/05/13/M
N177949.DTL&type=news 

Topock, Ariz. -- At the westernmost edge of the Arizona desert, where dusty 
winds blow tumbleweeds across the remnants of old Route 66, four skinny gas 
pipelines thrust out over the Colorado River and across the border into 
California. 
They make no sound. Few locals know they exist, and fewer even know the name 
of this forgotten little town that the pipelines snake through. 
It's the perfect spot for a pipe cluster that turns out to be what many call 
the most crucial natural gas artery for California: The pipelines don't get 
in anyone's way, nobody bothers them, and if they blow up, as one nearby line 
did 20 years ago in a spectacular fireball, few people get hurt. 
What makes this little network of steel and cables, owned by power giant El 
Paso Corp., so important is that there are just four points at the border 
where natural gas comes into energy-starved California -- and this is the 
main one. El Paso's critics say the company schemed to crimp off space in 
these very lines to jack up gas prices and help trigger the energy crisis, 
something El Paso adamantly denies. 
But none of that matters much to the squad of nearly two dozen El Paso 
workers who tend the lines and man the nearby pumping station that compresses 
gas to a tight 845 pounds per square inch so it can make its dash across the 
river into California. 
Neither does it matter much to the few hundred folks who live in the local 
trailer park, a smattering of houses and the nearby ghost-town of Oatman, the 
niftiest nearby attraction going in this sandy wasteland of scorpions and 
sage. 
Topock itself hasn't been a real town for decades; all that's left is a few 
vacation houses and these pipelines. 
"Nice and isolated -- that's the way we like it," said Don Cantrell, a 
supervisor at El Paso's pumping station, built in 1952. "You could call us 
truckers without wheels. We just move the gas and do our job." 
Ask the locals about the wild burros that wander the streets of Oatman -- 
prospectors set the critters free in the 1930s after the mines played out -- 
and they'll fill your ears. Go many miles farther down the highways, to 
Needles or to the water recreation spots at Lake Havasu, and they'll tell you 
about how the river boating is good in the summer when the mercury hits a 
hellish 120 degrees. Or how the long-abandoned Route 66 still draws a few 
history-buff tourists through. 
But Topock? El Paso Corp.? Accusations of gas schemes? 
"I've never even heard of Topock or those pipes, and isn't El Paso some town 
in Texas?" Wayne Buchmiller said as he downed a $1 beer in the Oatman Hotel, 
the biggest building in town. "Who cares?" The smattering of other late- 
night customers roared with laughter. 
The pipelines Buchmiller never heard of originate in the Southwest, where the 
fertile Gulf of Mexico oil fields spew natural gas up from the water and the 
ground. They wind 1,000 miles through several states to pop up right where 
Route 66 used to cut over the sluggish Colorado River on its famous arched 
steel bridge -- the one the Joad family crossed in "The Grapes of Wrath." 
Today two of El Paso's pipelines are all that use the old bridge. 
Around the lines and at El Paso's compressor plant, the workers who turn the 
wrenches and check the gauges have certainly heard of the California energy 
crisis. But it's distantly abstract to them -- most of the time. 
Maintenance mechanic Frank Lemoine will rave to you about how great his 31 
years at El Paso have been, and how fair the shrewd multimillionaire CEO of 
his company, William Wise, seems to be, even though he's only seen him on 
satellite feeds at company get-togethers. 
But all the pride in the world won't get him to open his mouth when he's out 
in public. Unless he knows exactly who he's talking to, Lemoine keeps a lid 
on the fact that he works for a natural gas company. 
"These days, people get mad -- say you're the reason their bills are high," 
Lemoine said, taking lunch break one day with his wife, Liz, in their rented 
company bungalow near the pumping station. "They don't understand the 
difference between supply and transportation, or even really where our pipes 
are, or who we are. 
"Heck, we don't have anything to do with the prices here. We just transport 
the gas and pay our bills like everyone else." 
His wife's face hardened until she could contain herself no more. 
"It's the fault of those durned environmentalists, that's what it is," she 
said. "You need more gas fields and power plants, and you need companies like 
El Paso. The trouble with California is it didn't pay attention to its 
needs." 
Frank Lemoine chuckled. "You have to admit, California didn't set itself up 
right for growth," he said. "All those little computers you have over there 
-- they suck up a lot of electricity, now don't they?" 
E-mail Kevin Fagan at kfagan@sfchronicle.com. 
,2001 San Francisco Chronicle ? Page?A - 15 



How Texas firm outfoxed state, PG&E 
Kevin Fagan, Bernadette Tansey, Chronicle Staff Writers
Sunday, May 13, 2001 
,2001 San Francisco Chronicle 
URL: 
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/05/13/M
N166857.DTL&type=news 

El Paso Energy was facing ruin. 
It was the mid-'90s, and California's energy overseers were sure deregulation 
was going to drive the cost of natural gas through the floor. So Pacific Gas 
and Electric Co., with the happy acquiescence of the state, dumped a huge, 
long-term gas contract with El Paso. 
For the state, the decision was a no-brainer: PG&E was buying more space on 
gas pipelines than it needed. 
For El Paso, though, it was a disaster. The company started handing out pink 
slips like they were candy. 
But in the long run, it wasn't El Paso that would end up on its knees. It 
would be PG&E and the state of California. 
That pipeline space that the utility and regulators saw as unnecessary would 
soon become precious -- and El Paso, led by a law-sharp chairman with 
bare-knuckle smarts, would turn itself into the biggest natural gas firm in 
the world. 
So big, in fact, that in the eyes of vengeance-minded lawmakers and 
regulators, El Paso has become a poster monster for how Californians came to 
be plagued by rolling blackouts and sky-high energy bills. 
"They didn't mind seeing all of us at El Paso being dealt a terrible blow 
back then," said Randy Wu, an El Paso manager then. "And now . . . well, 
let's just say they should have planned better." -- -- -- 
It's not like El Paso was some new kid on the block. 
The company was founded in Texas in 1928 and stayed a local concern until 
1947, when it laid out 700 miles of pipeline to deliver gas to California. 
It grew steadily from there until 1964, when the U.S. Supreme Court decided 
El Paso was getting too big and ordered it to divest its pipeline holdings in 
the Northwest. That set off a long tumble that William Wise, who had started 
at the company as a general counsel in 1970, set out to reverse when he took 
over as president in 1989. 
Wise, a 56-year-old whose lean build reflects both his passion for running 
and his reputation for driving himself hard, is a rare bird in the world of 
oil. 
The University of Colorado law school graduate has mastered both the legal 
side of his "litigious" industry, as he once called it, and its hardball 
economic strategies -- skills he honed by surfing the bust-boom cycles of his 
business at its epicenter, Texas. 
Those skills came in handy when El Paso got the hammer blow from PG&E in 1996 
and 1997. 
PG&E had been buying extra space on pipelines crossing into the state at the 
Arizona ghost town of Topock -- enough to import a whopping 1.1 billion cubic 
feet of natural gas a day. 
The trouble for El Paso was that when PG&E dropped the contract for the 
pipeline space, $170 million of the company's annual revenue was erased. 
"It seemed like everyone thought the company was toast," said Wu, the former 
El Paso manager. "Of course, California didn't care at all." 
But Patrick Power, the attorney hired by El Paso to plead the pipeline 
company's case before the state Public Utilities Commission back in 1996, 
could see trouble looming for the state. 
If PG&E and other utilities didn't keep the pipeline capacity to meet future 
needs, he warned, they would probably regret it later. His words fell on deaf 
ears. 
"The mentality at the PUC, PG&E and Southern California Gas was, 'This will 
be El Paso's problem,' " Power said. -- -- -- 
Wise reacted to the loss of the PG&E contract by taking no salary himself for 
a year and freezing his executives' pay, Wu said. While laying off more than 
one-third of the company's workers, he and his staff negotiated a hefty 
settlement from PG&E and other companies in exchange for their having dropped 
the pipeline space. 
Then Wise set off on a plan to absorb other pipeline companies so he could 
expand his system of delivering natural gas throughout the United States. 
"Bill Wise knew California had turned its back on the company, so he had to 
get creative," Wu said of Wise, who has declined interview requests from The 
Chronicle. 
"Attorneys generally don't have a lot of common sense in my mind, but Bill - 
- he's got extra," said former El Paso Mayor Larry Francis. "He cuts his 
losses in a hurry, and he recognizes when he has to move on. And so he 
moved." 
Within a few years, Wise stretched the now Houston-based company to full 
"wellhead to wire" operations, running everything from natural gas drilling 
to electric generation plants. Before El Paso embarked on this expansion, 
California constituted fully two-thirds of El Paso's natural gas sales -- 
much of that to PG&E. 
The strategy was that if the state was going to ditch El Paso, El Paso would 
make sure its reach became so extended in other directions that it would 
never be dependent on one market again. 
Wise's company scooped up interests in 40 electric power plants in 11 states 
by April 2000. Along the way, it spent billions acquiring enough pipeline 
companies to spread the El Paso reach along 58,000 miles of pipe nationwide, 
from Bakersfield to Boston. 
"The company was a very traditional gas company until then," said Fred 
Pickel, a Los Angeles energy consultant who has observed El Paso since the 
1970s. "Wise, though, understands the street-level complexities of the 
business, and what he had the company do was partly smart and partly logic. 
"He was just able to see the possibilities that nobody here in California was 
able to see." 
But some believe that what El Paso did to take advantage of those 
possibilities took unfair advantage of California. 
In his cluttered downtown San Francisco office at the PUC, staff attorney 
Harvey Morris thought he "smelled a rat" as long as three years ago. 
Morris, a natty 47-year-old graduate of Boalt Hall School of Law, takes on 
the look of a determined terrier when he outlines his suspicions about El 
Paso -- and he's been carrying that look a long time now. 
After losing PG&E, El Paso leased the utility's entire block of pipeline 
capacity to another Texas gas and electricity giant, Dynegy. Gas experts were 
stunned that one firm would bid for all that space -- but they, and Morris, 
were even more surprised by what followed. 
Dynegy didn't behave the way PG&E and California officials had expected 
energy companies to behave in the era of deregulation. 
Like PG&E, Dynegy didn't need all that pipeline space to serve its own 
customers. But unlike what PG&E did when confronted with all that extra 
space, Dynegy didn't resell it at a huge discount. In fact, Dynegy didn't 
sell any of the space. Instead, it raised the price so high that seemingly 
nobody wanted to buy it. 
Competing gas marketers were alarmed. They suspected that Dynegy was 
collaborating with El Paso to constrict the supply of gas flowing into 
California so prices would rise. Great for anyone with space reserved on the 
pipeline -- but disastrous for those left out in the cold. 
In 1998, having convinced his bosses at the PUC that what El Paso was doing 
on the Dynegy contract was anticompetitive, Morris filed the first of many 
complaints with the Federal Energy Regulatory Commission. He's still pursuing 
them. 
As it turned out, spot prices didn't rise while Dynegy held the contract; gas 
shippers could still find space on other pipelines for less money. Dynegy let 
the contract lapse in late 1999. 
Not long afterward, the pipeline contract wound up with El Paso's market 
affiliate, El Paso Merchant Energy. And that's when things started to get 
really serious, Morris says. 
El Paso's own marketing arm now controlled more pipeline space heading into 
Southern California than any other trader by far -- just as the demand for 
gas was about to soar. 
In his many filings, in which the PUC has been joined by Southern California 
Edison and others, Morris contends that El Paso Merchant Energy prevented 
pipeline space from being used. 
"They basically kept so much of the capacity to themselves, the prices went 
through the roof," he said. "It was the same as closing off part of the 
pipeline." 
El Paso officials, for their part, say market rates started soaring in 2000 
simply because the demand for gas overwhelmed supply. They say they never 
charged more than what industry rules allowed, and that attempts to prove 
otherwise are preposterous. 
And thus far, except for a mild rebuke here and there on technicalities, the 
free-market-minded Federal Energy Regulatory Commission has not concluded the 
company did anything wrong -- though a commission hearing is set for tomorrow 
on the latest allegations filed by PG&E, Edison and the PUC. 
Edison estimates that El Paso's "manipulation" at Topock jacked up rates all 
over the industry so badly that state gas buyers had to pay $3.8 billion more 
than they should have just in the past year. 
Whatever the reason, the bottom line is that gas prices in California have 
been anywhere from two to 10 times as expensive as on the other side of the 
border in Arizona, and in almost every other state. 
Once prices started to rise at Topock, gas marketers throughout California 
followed suit -- and the ripple spread quickly. 
Gas prices for consumers started going up. The rise also propelled 
electricity costs skyward, because three out of every five electricity plants 
in California run on natural gas. 
The firms that own those plants then jacked up electricity prices to the 
utilities, like PG&E, which had shed many of their own plants as part of 
deregulation. 
The problem for PG&E and other utilities is that they couldn't pass those 
higher electricity costs on to their customers, because electricity rates 
were still regulated. 
So the red ink started to gush, in the hundreds of millions of dollars. And, 
with gas prices still higher here than anywhere else, it is still gushing. 
But not for El Paso. -- -- -- 
El Paso Energy rose from its financial emergency in 1996 to become not just a 
survivor, but a $50 billion behemoth involved in virtually every aspect of 
the energy industry in California and much of the rest of the United States. 
The company, renamed El Paso Corp. this February, is now practically printing 
money. The company's revenue shot from $1 billion in 1995 to $22 billion last 
year; its profit last year alone was $652 million, its highest ever. Wise's 
compensation package reportedly totaled $20 million. 
And it's not just with gas that El Paso is making its money. Among its 
holdings are 19 small power plants serving PG&E and Southern California 
Edison. 
Under El Paso's contracts, the price of that electricity automatically rises 
when the price of gas rises. That's true even at the power plants that don't 
use any natural gas. 
All told, in just a bit more than one year alone, consultants for Edison say 
El Paso earned an extra $85 million thanks to electricity produced by those 
plants. 
And all this is blossoming for El Paso while PG&E wallows in bankruptcy 
court, billions of dollars in debt with no relief in sight. 
The one cloud on El Paso's horizon: A host of California legislators, 
industry experts and state regulators suspect that El Paso's sunny profit 
picture owes a lot to what happened with that huge block of space on El 
Paso's natural gas pipeline that PG&E had been so happy to surrender. 
The hearing before federal regulators is looming tomorrow, and just last 
month the state Assembly Subcommittee on Energy Oversight dragged three top 
El Paso executives -- but not Wise -- to Sacramento to testify on the matter. 
It was the first time the company has ever felt such heat in this state. And 
though the executives grimly waved off reporters' questions as they strode 
from the room, company spokeswoman Norma Dunn stayed behind to insist that 
the accusations will blow over, "because there's nothing to them. 
"The thing to remember is that we have been in this state for more than 50 
years, and we want to continue being here," Dunn said. "We take this matter 
very seriously. . . . We want to be cooperative." 
Accusations that El Paso caused price spikes by maneuvering to hold pipeline 
space hostage amount to "nothing but conspiracy theories," she said. 
The Assembly panel, however, concluded that both El Paso and Dynegy had 
manipulated the market at an enormous cost to California consumers. 
"The numbers tell the truth," the subcommittee said in a report obtained by 
The Chronicle. "The exorbitant prices cannot be defined away by regulators 
and bureaucrats, or explained away by corporate lawyers' wordplay." The 
report was produced by three Assembly Democrats and two Republicans. 
Wise, when he addresses the accusations, says he is mystified why state 
lawmakers are mad. He points to company plans to expand pipelines heading 
here and to even build a power plant at San Francisco International Airport. 
When it comes to California, "El Paso has always tried to be a part of the 
solution, not the problem," he told a gas industry newsletter in December. 
State lawmakers' attempts to pry extensive hard numbers from El Paso have 
been met with resistance from the company, which calls them proprietary 
information. And judging by Morris' experience, chasing El Paso to the ground 
may take the Legislature quite a while, if that's what it decides it wants to 
do. 
Morris found that as he filed complaint after complaint against the company, 
the Federal Energy Regulatory Commission would either rule against the PUC or 
put the filings off so long that they were moot when they came up. 
The Assembly subcommittee's report was scathing in regard to the commission, 
saying its approval of El Paso pipeline contracts "raises serious questions 
about whether it met its statutory duty under the federal Natural Gas Act to 
protect consumers from unjust and unreasonable rates." 
The commission did not send anyone to the Assembly hearings and has refused 
to comment on its rulings. 
By the time the El Paso Merchant Energy contract expires May 31, opening the 
crucial block of pipeline capacity to what critics say is true competition 
for the first time in more than three years, it will be far too late, Morris 
said. 
"The damage was done long ago," Morris said. The state and its utilities are 
on the hook for billions in debt, money for last winter's bills has already 
left consumers' pockets -- and regulators fear prices are unlikely to come 
down soon. 
"The market got set, and now we're in trouble," Morris said. -- -- -- 
PG&E, for its part, sees the whole mess through the eyes of a victim. 
The utility had paid $560 million to hold its excess El Paso capacity from 
1993 to 1997, and the PUC had forbidden the company to recover $167 million 
of that through customer rates. And in 1996, the PUC and ratepayers were 
clamoring for lower power bills, and there was a huge amount of pipeline 
space in the state that wasn't being used. 
So when you're trying to cut costs, what better to cut than something you 
don't need? said Dan Thomas, PG&E's director of gas transmission. 
"I still think it was the right decision to relinquish the capacity," he 
said. 
Still, there's no denying the numbers. At latest count, PG&E owed El Paso 
more than $150 million for gas and electricity. 
As Morris sees it, El Paso is "this big, 800-pound gorilla at the border and 
can limit supplies as they wish. It's outrageous, and there wasn't a thing 
anybody could do to stop them." 
El Paso officials, of course, put it differently. 
"All we did was good business, smart business, and people keep dishing dirt 
about us, but we just don't see ourselves in it," company spokesman Mel Scott 
said. 
"It's pretty obvious to the analysts and to us that California set up this 
faulty deregulation system, and if (PG&E and Southern California utilities) 
had been in their right minds and signed up for long-term natural gas 
contracts back in 1996 and 1997, they wouldn't be in this trouble." 
Nobody official at El Paso is publicly gloating, but pleasure over the turn 
of events is never far from the surface. Those who can speak more freely 
don't mind putting the boot in a bit. 
"Everything bad that's happening right now (in the pipeline fight) could have 
been prevented if PG&E just hadn't gotten rid of that contract back then, " 
Wu said. "But I have yet to hear anyone in this state say that. 
"In fact, I have yet to hear anyone even at PG&E say that, and that's sad." 
What it all comes down to is this: El Paso figured out how to play 
California's energy game better than California. 
"Those laws your boys passed there in California -- well, they just left you 
wide open to anyone who wanted to make an enormous profit," said Tom "Smitty" 
Smith, director of the Austin headquarters of Public Citizen, a consumer 
rights group. 
"You can't fault the horse for eating hay when you lead it to the barn and 
put the bale right in front of its face, now can you?" 
California's 'energy island' 
There are just four points at the border where natural gas comes into 
energy-starved California. The main one, owned by El Paso, is at the Colorado 
River. The pipelines originate in the Southwest. They wind 1,000 miles 
through several states to pop up right where Route 66 used to cut over the 
Colorado River on its famous arched steel bridge. Today two of El Paso's 
pipelines are all that use the old bridge. 
E-mail Kevin Fagan at kfagan@sfchronicle.com and Bernadette Tansey at 
btansey@sfchronicle.com. 
,2001 San Francisco Chronicle ? Page?A - 1 







Big companies raising the roof as state considers raising their rates 
Posted at 9:23 p.m. PDT Sunday, May 13, 2001 
BY DION NISSENBAUM 

Mercury News Sacramento Bureau 


SACRAMENTO -- California businesses have launched an aggressive campaign to 
head off a major shift in state energy policy that could force the biggest 
companies to pay much more for power. 
But their complaints that the proposed rates, under consideration today by 
state regulators, unfairly single them out ignore a simple reality. 
California's biggest companies pay less now for power than they did 20 years 
ago. And they pay much less for electricity than average Californians and 
small businesses, groups being asked by state leaders to ``share in the 
pain'' by paying higher energy bills. 
Since 1985, electricity rates for California's biggest companies -- high-tech 
giants, biotech firms and manufacturing plants -- have dropped about 17 
percent, while rates for millions of homeowners and renters have risen more 
than 39 percent. 
Now that state regulators are trying to reverse course and force big business 
to pay more, the companies are waging the same kind of political war that 
helped them force rate cuts over the last two decades. 
If approved by the Public Utilities Commission today, average rates for the 
state's biggest companies could double. The heaviest residential users would 
see hikes of up to 50 percent, but many residential customers would see no 
rate increases. 
Outcry from businesses 
``This is the ringing of the death knell for California manufacturing,'' said 
Jack Stewart, president of the California Manufacturers & Technology 
Association. ``It is the difference between making a sound economic decision 
to keep the California economy strong, or having rolling blackouts roll jobs 
right out of California.'' 
Stewart and other business leaders have launched a high-profile public 
relations campaign in an effort to gain support. 
Those warnings are being greeted with unsympathetic responses from consumer 
groups, some economists and regulators who contend that big business has 
gotten a break for far too long. 
Jim Lazar, a private energy economist who works for the city of Burbank and 
Washington state, called current rates ``a massive politically driven cost 
shift to protect industrial customers from higher energy costs that loaded 
those costs on residential and commercial customers.'' 
The disparity was created by 20 years of arcane regulatory battles waged as 
pro-business Republicans gradually took control of the state utilities 
commission. 
It also reflected a dramatic shift in economic philosophy. 
Until 1982, rates for all Californians were about the same. The following 
year, Republican George Deukmejian replaced Democrat Jerry Brown as governor 
and slowly began to replace liberal utilities commission members with his own 
conservative appointees. 
That gave businesses their best chance in decades to redirect policy. 
``There was a very clear agenda among the Republican commissioners to do good 
by big business,'' said Mike Florio, a board member of the state agency that 
runs the electricity grid and an attorney for the pro-consumer Utility Reform 
Network. 
Just as they are doing now, big businesses warned during the economic 
downturns in the 1980s and early 1990s that they would be forced to lay off 
thousands of workers or even flee California if they didn't get a break. 
Companies urged state regulators to throw out their system based on energy 
use and replace it with one founded on projected use. 
Ignoring the technical jargon, the shift, approved by the GOP-dominated 
commission, meant one thing: a rate cut for big business and an increase for 
everyone else. 
``Industrial users have a lot of political clout,'' said Eugene Coyle, an 
economic consultant from Vallejo who took part in some of the earliest rate 
battles in the country. 
In defense of rates 
Big businesses offer no apologies for the discrepancies. 
``The reality was that small customers were paying too little and big 
customers were paying too much in the early '80s,'' said Barbara Barkovich, 
an energy consultant who has helped businesses shape California electricity 
rates for years. 
Barkovich and other business leaders offer a simple rationale for the system: 
You use more, you pay less. 
``When you go to Costco and buy in bulk, the price per unit is less,'' said 
Stewart, the manufacturing association president who has also helped put 
together a new business coalition to battle the rate increases. ``When you go 
to a specialty store and buy one at a time, it costs much more.'' 
But the utilities commission wants to raise rates, in part, to compel 
consumers, including businesses, to cut back on their energy use. Some major 
industrial power users equipped with special meters could see their rates 
nearly triple during periods of peak demand. 
Still, companies contend that their bottom line already encourages them to 
cut energy use, and that homeowners don't have the same incentives. 
Despite their concerns, big businesses have said they are willing to accept 
higher energy prices -- just not as high as those the utilities commission 
has proposed. Early on in the energy crisis, business leaders such as Carl 
Guardino, president of the Silicon Valley Manufacturing Group, said companies 
were willing to pay more to avert blackouts. And the business community 
recently offered to accept a 30 percent rate hike. 
Because businesses use more electricity, often draw a steady flow and are 
cheaper to serve, companies argue -- and regulators have agreed -- they 
should be able to lock in cheap prices. 
Consumers' dispute 
Consumer advocates and economists don't dispute that big companies are 
cheaper to serve. But they don't think that should have led to the kinds of 
price cuts they have seen over the last 20 years. 
``It's absolutely true, but it in no way justified the discrepancy,'' said 
Coyle, the Vallejo-based energy economist. 
Stanford University economist Frank Wolak said he sees no valid argument for 
the disparity in rates and, like others, views the differences as the result 
of a successful political campaign. 
Energy bills for most companies take up only a small percent of their overall 
budget, Wolak said. 
``If we increase the price of electricity by 50 percent is that going to mean 
the difference between you being in business or out of business?'' he said. 
``I don't think so.'' 
That kind of talk rankles Stewart, who cites some manufacturing plants that 
spend 20 to 30 percent of their budget on electricity. 
``If it isn't such a big cost, why don't they accept a little bit more of 
it?'' he said. ``Tell that to an employer who is trying to keep people on the 
job.'' 


Contact Dion Nissenbaum at dnissenbaum@sjmercury.com or (916) 441-4603. 








Regulators' rate increase is too much, Davis says 
Posted at 10:01 p.m. PDT Sunday, May 13, 2001 
BY JOHN WOOLFOLK 

Mercury News 


Gov. Gray Davis on Sunday said his appointed regulators are raising 
electricity rates too high even though there is no limit in sight to what 
energy companies will charge California this summer. 
The California Public Utilities Commission today plans to approve a larger 
rate increase than Davis had wanted to cover soaring wholesale power costs, 
which are draining the state's budget and bankrupting its biggest utility. 
``My plan raises sufficient revenues to deal with the problem without putting 
undue burden on California consumers and businesses that might hurt our 
economy,'' Davis said in a prepared statement Sunday. ``I believe the plan I 
proposed is preferable to the ones before the PUC.'' 
Loretta Lynch, whom Davis appointed to head the utilities commission, 
disagreed. 
``I respect the governor's perspective,'' said Lynch, who spent the weekend 
polishing her own rate plan. ``Based on the record and materials provided by 
the utilities, I believe a bit larger rate increase is needed.'' 
State regulators are weighing two rate plans, one by Lynch and another by an 
administrative law judge. Both assume an average increase of 3 cents per 
kilowatt-hour. Davis' plan assumes a slightly lower increase averaging 2.6 
cents a kilowatt-hour. 
Lynch said she based her plan on a May 4 Davis administration statement that 
power will cost the state government $9.2 billion through June 2002, and did 
not rule out the possibility of additional increases. The state plans to 
issue $13.4 billion in bonds to cover power costs that already have reached 
$6.7 billion. 
Davis spokesman Steve Maviglio said the governor believes a lower rate 
increase could cover any conceivable price run-up this summer. 
But both Davis and Lynch agreed that without federal help, California is at 
the mercy of energy companies this summer, when supplies will be critically 
short. 
Appearing on ABC's ``This Week,'' Davis ratcheted up criticism of the Bush 
administration for refusing to cap prices charged by energy companies, many 
based in the president's home state of Texas. 
``President Bush could solve this problem in five minutes'' by asking federal 
regulators to cap prices, Davis said. 
``One issue we have no authority over is to hold down these outrageous prices 
charged by these Texas companies,'' Davis said. ``I don't think we can get 
through it without a price cap.'' 
Davis told interviewer George Stephanopoulos that energy companies were 
unmoved by his appeals for mercy this week. 
``They acted like sphinxes,'' Davis said. 
Critics say the state should pass wholesale rates directly on to consumers 
and use tax cuts to soften the hit, but Davis rejected that idea. 
Davis told ABC a tax cut ``would be a pittance compared to what the average 
Californian would have to pay for electricity.'' 
``People's bills would be up 450 percent,'' Davis said. ``There would be 
riots in the streets.'' 


Contact John Woolfolk at jwoolfolk@sjmercury.com or (408) 278-3410. 







California power regulators to decide how to allocate rate hikes 
Posted at 6:09 a.m. PDT Monday, May 14, 2001 
BY KAREN GAUDETTE 

Associated Press Writer 



SAN FRANCISCO (AP) -- California ratepayers will hear just how deep they'll 
be expected to dig into their pockets to pay their electric bills following 
an expected vote Monday by the state Public Utilities Commission. 
The vote will map out how the commission plans to allocate record electric 
rate hikes among customers of the state's two largest utilities. 
With rates rising anywhere from 7 percent to 61 percent -- depending on 
everything from whether the customer manufacturers sweat shirts, heats a 
swimming pool or processes tomatoes -- nearly everyone will feel some pain. 
Since it unanimously approved rate hikes March 27, the commission has 
struggled to fashion rates that will simultaneously recoup the $5.2 billion 
the state has spent buying power, return the state's largest utilities to 
solvency and trigger enough conservation to help fend off some of this 
summer's rolling blackouts. 
Last week, commission President Loretta Lynch and PUC Administrative Law 
Judge Christine Walwyn introduced proposals some say will unfairly charge 
certain customers, including commercial users who could pay up to 50 percent 
more. 
``If someone wanted a primer on how to cause a recession in California, it 
would be hard to find a better (example),'' Keith McCrea of the California 
Manufacturers and Technology Association told the PUC Friday, as lawyers for 
each customer class pleaded for a break. 
Under Lynch's plan, as many as half of Pacific Gas and Electric Co. and 
Southern California Edison Co.'s 9 million customers would not see their 
bills rise at all. She would bill residential customers at several different 
levels based on how much power they use. 
And while state law shields average residential customers from rate hikes on 
much of their power use, businesses would have to pay more for every kilowatt 
of electricity. 
Gov. Gray Davis issued a statement Sunday saying he prefers his own plan for 
allocating rate increases. His plan would distribute rate hikes more evenly 
among all customers and would also include customers of a third ailing 
utility, San Diego Gas and Electric Co. 
Federal officials and energy experts have repeatedly said charging 
substantially more for power is the only way to cut demand and help avert 
some of this summer's predicted rolling blackouts.









Bush energy plan offers no short-term fixes 
Posted at 11:22 p.m. PDT Sunday, May 13, 2001 
BY H. JOSEF HEBERT 

Associated Press Writer 



WASHINGTON (AP) -- President Bush, preparing a plan to address the country's 
energy needs, sees no short-term fixes for consumers facing big electric 
bills and $2-a-gallon gasoline. 
Instead, Bush views long-term energy development as the answer, and he is 
certain to face a battle in Congress over his plan, which is to be released 
later this week. 
The administration hoped to garner support Monday from labor leaders whose 
union members would benefit from energy development and power-plant 
construction. Among those meeting with Vice President Dick Cheney was 
Teamsters president James Hoffa. 
If this summer's high fuel prices turn into soaring home heating costs next 
winter, Bush's focus on long-term solutions could become a political problem 
not only for the White House, but also for congressional Republicans facing 
reelection in 2002, say some political analysts. 
On Sunday, California Gov. Gray Davis accused the White House of ignoring 
``the greed of ... Texas energy companies'' by refusing to call for temporary 
price caps on soaring electricity costs in California and elsewhere across 
the West. 
Davis, a Democrat, said on ABC's ``This Week'' that the administration ``was 
dropping the ball'' by refusing to address the West's power crisis. 
Bush, who like Cheney is a former energy company executive, says that 
interfering in the free market would deter investment in power plants and 
worsen electricity supply problems. 
Environmentalists and congressional Democrats say his plan will be too 
heavily tilted toward production of conventional fuels and not conservation 
or development of renewable energy sources such as wind and solar energy. 
Bush sought to blunt that criticism in his weekly radio address, promising a 
``comprehensive energy plan to help bring new supplies of energy to the 
markets.'' His proposals will encourage Americans ``to use more wisely the 
energy supplies that exist today,'' he said. 
The proposed conservation measures released by the White House were modest: 
tax credits for hybrid gas-electric cars now only nudging into the market; an 
expansion of a federal educational and advisory program on energy efficiency; 
and tax and regulatory relief to promote energy efficient co-generation power 
plants that provide both electricity and heat. 
The White House energy task force that Cheney leads will focus heavily on 
removing barriers to developing traditional energy sources -- oil, natural 
gas, coal and nuclear power. 
While details remain sketchy, task force members have said the 100-page 
policy document will attempt to set a new ``tone'' on energy policy that 
supports free market approaches, less regulation and the need for a balance 
among various energy sources. 
Although the task force will not recommend specific legislation, it will 
urge: 
--Broad support for nuclear power and recommend streamlining the regulatory 
process for building new reactors and extending the life of existing ones. It 
also will propose renewal of a law that limits liability on industry for 
nuclear accidents. 
--Continued reliance on coal, which provides half the nation's electricity, 
and urge Congress to give tax breaks for technology that reduces pollution 
from coal burning. 
--Easing of regulatory barriers for new power plants with a prediction the 
country will need to build 1,300 to 1,900 mid-size power plants over the next 
20 years to meet electricity demands. 
--Streamlining of the approval of power lines and natural gas pipelines to 
get electricity and gas to markets where it is needed. 
--Providing refiners more flexibility under clean air rules to produce 
electricity and make it easier to expand or build refineries to meet growing 
demand. 
--Opening new federal lands, including now off-limits areas of the Rocky 
Mountains and the Arctic National Wildlife Refuge in Alaska to oil and gas 
development. 
Congressional Democrats say the administration is proposing little to 
encourage research into energy efficiency and instead seeking to cut spending 
on conservation and renewable energy research. 
``There needs to be a lot more coming (on conservation) if we're going to get 
out of our energy problems,'' said David Nemtzow, executive director of the 
Alliance to Save Energy, an advocacy group funded by both industry and 
environmentalists.












Power crunch at top of worry list 
May 14, 2001 
By JAN NORMAN
The Orange County Register 
California's energy problems grabbed most of the attention at the recent 
California Chamber Business Legislative Conference in Sacramento. 
A poll of the 700 participants, mostly business owners and managers, found 
that 35 percent of them think energy costs are the most important issue 
facing the state's businesses, and 32 percent think energy reliability is the 
top issue. 
Third place went to costs of doing business. 
Gov. Gray Davis told the annual gathering that conservation was vital until 
new power plants are constructed. He said Californians must cut electricity 
usage at least 10 percent this summer. 
In answer to other poll questions, 84 percent said they had experienced 
substantial increased costs for health insurance, workers' compensation 
insurance, rent, wages and energy. 
Of those, 60 percent said they could not pass those hikes on to customers. 
Of those hit by rising workers' compensation costs, 36 percent pay 1 percent 
to 10 percent more; 42 percent pay 11 percent to 20 percent more; 16 percent 
pay 21 percent to 49 percent; and 6 percent pay 50 percent or more than they 
did a year ago. 
The search for talent continues to plague California businesses, with 78 
percent calling it a major problem. They can't find enough workers who meet 
their standards. 
The deficiencies in job applicants include inadequate work ethic (named by 20 
percent of respondents) lack of basic education and skills (13 percent), lack 
of technical training (13 percent), no college degree (5 percent) and all of 
the above (49 percent). 
CSUF's emerging-markets center opens Santa Ana office 
The Center for the Study of Emerging Markets at California State University, 
Fullerton, has opened an office in the new International Business Center in 
downtown Santa Ana. The center promotes the free flow of global information 
and trade to small and midsize businesses through a network of 
university-based trade centers, according to director Joseph F. Greco. 
"Benefits to small and medium-size enterprises will include database access 
to foreign companies that share similar interests, trade management services 
and membership in CSEM's network of current Internet portals," Greco said. 
Corporate Development International in Irvine has agreed to provide center 
clients with business services such as purchase-order financing and licensing 
agreements. 
For more information about strategic partnerships, corporate sponsorships and 
service providers, call the center at (714) 278-2375. 
Tell us what your business is doing to conserve 
What specific steps has your company taken to reduce electricity use? 
Have you turned off the coffee pot? Bought fluorescent light bulbs? Changed 
work shifts? Bought a generator for emergency use on hot summer days? 
Tell us how your company is conserving energy. 
Send information to Jan Norman, The Orange County Register, P.O. Box 11626, 
Santa Ana, CA 92711. You can also fax to (714) 796-3685 or send an e-mail to 
jnorman@ocregister.com.









By Kathleen McFall
kmcfall@ftenergy.com
Most analysts cite the dramatic jump in gas-fired electricity generation in 
recent years as the major factor causing current supply constraints. 
Information analyzed from Boulder, Colo.-based RDI's POWERdat series 
indicates this growth trend is starting to level out. 

In contrast, 2000 saw a slight increase of both coal and oil for electric 
power generation, suggesting that fuel switching and consequent natural gas 
demand destruction may play a growing role in power markets. 

"The demand side of the story appears to be a bit confused, but one thing 
that's clear from this past winter is that more fuel switching to liquids 
occurred than most of us thought possible in such a short period of time," 
said EOG Resources CEO Mark Papa during a recent conference call with 
investors. 

Despite the disproportionately low natural gas supply response relative to 
rig count increases, RDI data, along with bullish underground natural gas 
storage levels, may be early indications that the gas market is inching 
toward equilibrium. 

Natural gas burn slows
The U.S. consumed about 6,555 trillion British thermal units (Btus) of 
natural gas for electricity generation in 2000, an increase of about 616 
trillion Btus over 1999 levels. This is in sharp contrast to the previous 
year's extraordinary jump of 2,631 trillion Btus. 

In 2000, the 487 TWh of power generated from natural gas accounted for about 
14% of the nation's total. This was not far above 1999's 455 TWh. The lack of 
change is a stark shift from just a year prior; in 1998, only 260 TWh of 
power were generated using natural gas. 

Texas (ERCOT) topped the list in terms of the greatest use of natural gas for 
electric power generation, where 1,643 trillion Btus were burned. Although 
this is an increase of about 148 trillion Btus from 1999 levels, it is a 
relatively small increase in comparison to the near 454 trillion Btu increase 
this gas-rich region experienced from 1998 to 1999. 

During 2000, the one anomaly in terms of gas growth was*not surprisingly*the 
North American Electric Reliability Council's (NERC) Western Systems 
Coordinating Council (WSCC) region that covers 11 states, including 
California. Here, gas consumption rose by 431 trillion Btus during 2000, an 
amount that comes close to the 524 trillion Btu increase from 1998 to 1999. 



Coal dominates
RDI's POWERdat database shows coal was responsible for about 1,956 TWh of 
power generation through the end of 2000. While that figure is up about 2.5% 
from the close of 1999, coal's nationwide share has declined from about 56.4% 
in 1998 to the current level of 54%. 

Despite this relative decline, however, coal continues to dominate the power 
generation market, and its consumption grew slightly in all NERC regions 
during 2000, continuing the upward trend visible since 1998. The most 
significant growth was experienced in southern states (excluding Florida). 
The second-largest growth in coal use was in the mid-central eastern states 
(East Central Area Reliability Council or ECAR). 



Balanced portfolios? 
California's problems have vividly illustrated the value of a balanced 
fuel-use portfolio for electric power generation. As of the close of 2000, 
nationwide, coal dominates at 54%, followed by uranium at a distant second at 
21%. Natural gas is gaining ground with 14% of the nation's total fuel use 
for electricity generation. 


Regionally, the distribution is much more variable. For example, about 37% of 
the fossil fuel consumed in the WSCC region for power generation was natural 
gas in 2000 compared to 29% in 1999. In absolute terms, several other regions 
consume similar amounts of costly natural gas for power production. The NPPC 
region*New England including New York*relied on natural gas for about 40% of 
its power generation in 2000 followed by SPP (primarily Oklahoma) with about 
33%.



The distribution of fuel use is, in most cases, linked to available 
resources. Given its proximity to natural gas reserves, for example, Texas 
relied on this fuel for a full 60% of its power generation in 2000, up from 
55% in 1999. While less at risk for supply disruptions, a heavy dependence on 
natural gas presents more exposure to its price volatility. On average, total 
production costs for natural gas-fired generation topped $50 per MWh in 2000, 
making it second to the total production costs for solar power. 



There have been reports of potential coal shortages this summer, which could 
impact areas highly dependent on these sources, such as southern states, and 
the mid-continent areas where power generation relies almost exclusively on 
coal. However, total production costs for coal generation, at under $20 per 
MWh, remain substantially below all other fuel sources, except hydro. 









National Desk; Section A 
Blackout Plans of Little Help In California's Energy Crisis 
By JAMES STERNGOLD 
? 
05/14/2001 
The New York Times 
Page 1, Column 1 
c. 2001 New York Times Company 
IRVINE, Calif., May 13 -- This spotless city of 148,000 people an hour's 
drive south of Los Angeles is the largest planned community in the country, 
with a web of freeways feeding autos into neat patterns of eight-lane 
boulevards that, on normal days, are almost a balletic composition in traffic 
management. 
But last week the picture was a little different. Irvine's broad avenues had 
been transformed into a knot of eight-lane parking lots by a rolling power 
blackout, just the first of what experts predict will be dozens this summer 
because of California's power shortages. The hundreds of computer-operated 
traffic lights here were blank witnesses to the morass, as were the city's 
police officers, who arrived at some major intersections only to watch 
helplessly until the electricity was switched back on an hour later. 
Charles Brobeck, the chief of police, explained the one-sided arithmetic he 
was up against. Irvine has 279 signal intersections and only 160 officers on 
the police force, with only a portion of them on duty at one time. As a 
result, he said, ''we're too badly outnumbered to do much,'' in spite of 
hundreds of hours spent planning for the blackouts. 
''When we get notice that these things are coming it's like being told that 
in 10 minutes there's an asteroid that's going to hit us,'' Chief Brobeck 
said. ''We know it's five million miles from earth, and it's going to hit, 
but we're not quite sure when or exactly where.'' 
Last week gave just a hint of the improvisational tap dances local 
governments are going to have to do all summer to cope with the rolling 
blackouts. Municipalities across the state, the principal lines of defense 
against chaos, have spent the last several months meticulously planning what 
they can plan. That has meant crash energy conservation programs and steps to 
ensure that critical services like the police and fire departments and 
computer centers remain in operation at all times. 
But local officials said there was precious little their governments could do 
beyond that during the predictably unpredictable but brief blackouts, usually 
an hour long. 
Southern California's experience with earthquakes and wildfires has helped 
instill a sense of preparedness, but only to a degree. Because the 
patchworklike blackouts are short-lived and require pinpoint actions rather 
than wide-scale mobilization, officials said, they are fundamentally more 
challenging. 
The incidents last week offered two perfect examples, said Ronald Mohr, an 
energy analyst with the Los Angeles County government. 
On Tuesday, he had just minutes' notice that blocks of the county's power 
system were about to be blacked out by the local utility, Southern California 
Edison, except he was not sure which blocks, or for precisely how long, or 
exactly when it would happen. 
He had seconds to notify the most important of the county government's 87,000 
employees, but without using telephones, because that would take too long, as 
he had discovered on previous blackouts, and without sending too many e-mail 
messages at once, because that would cause the system to crash. 
And then there was Wednesday. Again, Mr. Mohr received notice of imminent 
blackouts from Southern California Edison, bringing another round of frantic 
measures, except this time it turned out to be a false alarm. 
''My entire life has been turned upside down,'' Mr. Mohr said. He explained 
that taking part in energy policy had been such a ponderously slow process in 
the past that it could take him four days to prepare a short letter. 
''We've been working 14-, 16-hour days.'' he said. ''My boss just missed his 
anniversary. The main thing is that before, with emergency procedures, you 
knew the rules. Everything was stable. You took a manual off a shelf. There 
is no manual for a one-hour blackout.'' 
Traffic may be the worst problem in the blackouts. For instance, in Ventura, 
just north of here, the streets immediately came close to gridlock on 
Tuesday, and officials could only counsel patience. 
''We just leave the intersections dark,'' said Ronald Calkins, director of 
the city's Department of Public Works. ''The motorists just have to know that 
they are supposed to treat it as a four-way stop. We thought about using 
portable stop signs, but it takes too long. By the time you get the stuff out 
the lights are back on.'' 
In Irvine, there were three fender benders during Tuesday's blackout; in 
Santa Monica, one car was rammed so hard at an intersection that it flipped 
over. 
Eileen Salmon, Irvine's emergency coordinator, said the best that could be 
done, once care is taken to make sure essential services keep running, was to 
communicate, but even doing that can be problematic. Ms. Salmon said that 
last Tuesday she received several false alarms before the blackouts, making 
her responses something of a guessing game. 
She said most city operations were just told to wait out the blackouts. 
Schools, she said, do nothing special; and city employees just take a break 
for the most part. 
Allison Hart, the Irvine city manager, said the lack of specific advance 
information from Southern California Edison was another problem. 
The utilities have said that they do not identify which areas will lose power 
in advance because of concerns that criminals might take advantage of the 
situation by looting or breaking into buildings. 
''If you think the possibility of looting or something is worse than the 
devastating economic uncertainty of being hit by unpredictable rolling 
blackouts in the sixth-largest economy in the world, I just think you're 
wrong,'' Ms. Hart said, adding that business groups have said they would 
prefer more notice as well. 
The municipalities usually have backup diesel generators at critical sites, 
but even using those can pose difficulties. Many city officials said that as 
they get warnings that power is running short, they are inclined to fire up 
their generators early so that important facilities will never lose 
electricity. 
But state air quality rules restrict how long the cities can operate the 
generators, usually to 200 hours a year. If the generators are left running 
an hour or two every time there is a warning, as happened on Wednesday, the 
officials fear they will waste precious operating time. 
Mr. Mohr said that perhaps the greatest trial would be keeping municipal 
employees alert in a summer when emergency warnings would be the norm. 
Already, he said, officials are struggling against complacency. 
''Please don't let a lazy or indifferent attitude develop due to the false 
predictions,'' Mr. Mohr pleaded in a mass e-mail message sent after 
Wednesday's near miss. 
Then he added, ''This will be the last message tonight, unless conditions 
deteriorate.'' 

Photo: Daniel Valenzuela and Carmen Kilsgaard waiting for power to be 
restored to Mario's Mexican Restaurant in Huntington Beach, Calif. (Leonard 
Ortiz/The Orange County Register)(pg. A10)