Message-ID: <13014126.1075850403863.JavaMail.evans@thyme> Date: Fri, 22 Jun 2001 03:28:00 -0700 (PDT) From: angela.wilson@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, lamar.frazier@enron.com, ban.sharma@enron.com, pat.shortridge@enron.com, karen.moore@enron.com, kurt.lindahl@enron.com, marcus.dotson@enron.com, alan.comnes@enron.com, melinda.pharms@enron.com Subject: Energy Issues Cc: miyung.buster@enron.com Mime-Version: 1.0 Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: quoted-printable Bcc: miyung.buster@enron.com X-From: Angela Wilson X-To: Ann M Schmidt, Bryan Seyfried, Elizabeth Linnell, filuntz@aol.com, James D Steffes, Janet Butler, Jeannie Mandelker, Jeff Dasovich, Joe Hartsoe, John Neslage, John Sherriff, Joseph Alamo, Karen Denne, Lysa Akin, Mark Palmer, Mark Schroeder, Markus Fiala, Michael R Brown, Mona L Petrochko, Nicholas O'Day, Peggy Mahoney, Peter Styles, Richard Shapiro, Rob Bradley, Sandra McCubbin, Shelley Corman, Stella Chan, Steven J Kean, Susan J Mara, Mike Roan, Alex Parsons, Andrew Morrison, lipsen@cisco.com, Janel Guerrero, Shirley A Hudler, Kathleen Sullivan, Tom Briggs, Linda Robertson, Lora Sullivan, Jennifer Thome, 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, Robert Neustaedter, John Shelk, Chris Holmes, Evan Hughes, Roberta Staehlin, Lamar Frazier, Ban Sharma, Pat Shortridge, Karen Moore, Kurt Lindahl, Marcus Dotson, Alan Comnes, Melinda Pharms X-cc: Miyung Buster X-bcc: X-Folder: \Steven_Kean_Nov2001_3\Notes Folders\Caliornia - investigations X-Origin: KEAN-S X-FileName: skean.nsf Please see the following articles: Sac Bee, Fri, 6/22: Employees: Power supply held down Sac Bee, Fri, 6/22: Consumers cut down their own power in protest Sac Bee, Fri, 6/22: Davis consultants had contract with Edison: The=20 disclosures turn up the heat on the governor for hiring=20 ex-Clinton aides SD Union, Fri, 6/22: State deal may ease blackout threat Canada to supply energy as summer demand rises=20 SD Union, Fri, 6/22: Ex-worker: Duke manipulated market LA Times, Fri, 6/22: Estimates of power profits disputed LA Times, Fri, 6/22: Edison plans bond offer at 13% rate LA Times, Fri, 6/22: Energy company abandons plans for Baldwin Hills plant= =20 SF Chron, Fri, 6/22: Western states could feel pinch from California pricin= g=20 SF Chron, Fri, 6/22: Feds spurn Duke Energy in its bid to avoid refunds SF Chron, Fri, 6/22: News Analysis: Davis winning Washington PR battle=20 Price cap victory may rob Democrats of campaign issue SF Chron, Fri, 6/22: Suit filed over report on power lines, health=20 Deal on transmission grid could raise liability SF Chron, Fri, 6/22: Texas power firm's shares failing (Enron spotlighted) Power baron Enron finds fortunes fading Mercury News, Fri, 6/22: Power firm accused of price-fixing Mercury News, Fri, 6/22: Enron chief: Gov. Davis not to blame for energy=20 crisis (Jeff Skilling comments, Ken Lay and Enron mentioned) OC Register, Fri, 6/22: Three say company purposely cut power Ex-Duke workers say repairs were curbed in order to manipulate market OC Register, Fri, 6/22: FERC judge tackles task of generating a deal=20 OC Register, Fri, 6/22: Davis seeks $9 billion refund=20 OC Register, Fri, 6/22: Energy notebook: Blackouts are still a hot prospect= ,=20 officials warn OC Register, Fri, 6/22: In rolling blackouts, 'together' is all relative Employees: Power supply held down By Kevin Yamamura and Emily Bazar Bee Capitol Bureau (Published June 22, 2001)=20 Three former San Diego Gas & Electric Co. employees who worked at a Duke=20 Energy plant said Thursday that the generator destroyed working parts,=20 withheld power supply or otherwise took actions that they believe drove up= =20 the price of electricity.=20 State officials said the whistle-blowers' comments at a state Senate hearin= g=20 today could provide the most damaging illustration yet that power generator= s=20 held down production to inflate prices on the spot market. Gov. Gray Davis= =20 has long alleged that power companies have overcharged the state and=20 utilities.=20 Jimmy Olkjer, a former assistant control room operator at Duke's South Bay= =20 plant in San Diego, said in a phone interview that during the state's power= =20 shortages, Duke cut supply. Although Duke, a Charlotte, N.C.-based company,= =20 owned the plant, and it contracted with SDG&E to operate the unit, he said.= =20 "Rather than creating more power, they were creating less," Olkjer said. "I= =20 think there was manipulation of the market."=20 The California Public Utilities Commission and several state legislative=20 committees continue to investigate price manipulation allegations, and=20 Attorney General Bill Lockyer has said he will take witnesses to a grand ju= ry=20 next month.=20 The generators have denied they manipulated the market.=20 "We stand behind our maintenance practices and have done a good job keeping= =20 the power flowing," Duke spokesman Tom Williams told the CBS television=20 network.=20 But former mechanic Glenn Johnson said he saw generation units taken "down= =20 for economics."=20 Ed Edwards, also a mechanic, said he was ordered to destroy 23 pallets of= =20 working parts.=20 "We were asked, myself and other employees, to disperse of perfectly good= =20 parts that were used to make repairs of systems and components," Edwards=20 said.=20 State Sen. Joe Dunn, D-Santa Ana, chairman of the market-manipulation=20 committee, said his staff has been looking for employees or others with=20 intimate knowledge of power plant operation to come forward, and he promise= d=20 that others will testify at future hearings.=20 "It's the first time that we've had evidence from directly within power=20 plants in California that the ramping up and ramping down of power generati= on=20 was a response to price and not to demand," Dunn said.=20 He said he would reach no conclusions until Duke and other generators testi= fy=20 next month, but he added that the former employees' testimony raises=20 suspicions "at first blush."=20 The Bee's Kevin Yamamura can be reached at (916) 326-5542 or=20 kyamamura@sacbee.com. Consumers cut their own power in protest=20 By Silvina Mart?nez Bee Staff Writer=20 (Published June 22, 2001) When the temperature hit 100 degrees at 7 p.m. Thursday, Larry Lynch turned= =20 off the air conditioner, unplugged the refrigerator, pulled out the TV cord= s=20 and shut down all other appliances in the house.=20 Lynch, a 61-year-old newsletter publisher in Sacramento, responded to the= =20 "Roll Your Own Blackout" Thursday and joined thousands throughout the state= =20 to protest energy policies and promote conservation by stopping the use of= =20 energy from 7-10 p.m.=20 But the data coming off the grid at the California Independent System=20 Operator didn't show the effort.=20 During the first hour of the voluntary shut-off, the demand for energy by= =20 PG&E customers in Northern California was almost the same as at the same ti= me=20 Wednesday, ISO officials said.=20 Protesters didn't expect significant changes on the grid.=20 "I feel it will at least send a message that we don't have to depend on it= =20 (energy)," said Jackie Bell, 37, a consultant at the Capitol joining the=20 conservation drive from her apartment on Fulton Avenue.=20 "It's just a symbolic act," said Peter Lopez of Sacramento, who decided to= =20 use the evening to meditate. "Maybe I'll just go outside, stare at the star= s=20 and try to spot a few constellations in the night."=20 It was the longest day of the year, and one of the hottest. But those=20 determined to advocate conservation didn't mind the sacrifice.=20 "People are getting focused on the fact that we have power at our end," sai= d=20 Joan Blades, a spokeswoman for MoveOn, a grass-roots organization in the Ba= y=20 Area and one of hundreds of online groups passing along the call for the=20 voluntary blackout.=20 An electrical engineer in Oakland started the "Roll Your Own Blackout" idea= =20 when he posted a note in a political chat room in April. Then an artist in= =20 Los Angeles forwarded the e-mail to a number of friends and from there it= =20 quickly spanned the globe.=20 By Thursday afternoon, more than 12,000 people had signed up at the MoveOn= =20 Web site to join the protest, Blades said.=20 Many threw blackout parties. In San Francisco, the nonprofit group Global= =20 Exchange gathered hundreds around a big bonfire at Ocean Beach.=20 At his home in east Sacramento, Lynch did fine without electricity for thre= e=20 hours. He ate tuna salad for dinner, watered the lawn and when it got dark,= =20 he opened the windows and let some air in.=20 "We should show that people are willing to shut the power off if the prices= =20 go too high," he said.=20 ISO has not declared a power emergency since May 31.=20 "We have seen a consistent conservation on a day-to-day basis, and it's=20 making the difference between blackouts and no blackouts," ISO spokeswoman= =20 Stephanie McCorkle said.=20 McCorkle encouraged initiatives like "Roll Your Own Blackout."=20 "People are conserving," she said. "And we can only support this whole=20 effort."=20 The Bee's Silvina Mart?nez can be reached at (916) 321-1159 or=20 smartinez@sacbee.com. Davis consultants had contract with Edison: The disclosures turn up the hea= t=20 on the governor for hiring the ex-Clinton aides. By Emily Bazar Bee Capitol Bureau (Published June 22, 2001)=20 Two consultants hired to advise Gov. Gray Davis on energy policy officially= =20 disclosed their contract with Southern California Edison on Thursday, but= =20 Davis aides insisted it is not a conflict because "Edison and the Governor'= s=20 Office have the same goal."=20 Communications consultants Chris Lehane and Mark Fabiani have drawn intense= =20 criticism since they were hired last month to shape the Democratic governor= 's=20 public response to the state energy crisis.=20 The former Clinton administration communication aides -- nicknamed the=20 "Masters of Disaster" for their spin on the Whitewater, travel office and= =20 1996 fund-raising controversies at the Clinton White House -- have come und= er=20 fire for receiving a six-month, $30,000-a-month contract, more than the=20 governor or anyone on his staff makes.=20 Secretary of State Bill Jones, a Republican who is running for governor nex= t=20 year, has called for an investigation into potential conflicts. State=20 Controller Kathleen Connell, a Democrat, has said she will not issue=20 paychecks to the pair pending her own investigation.=20 The criticism mounted after the duo's economic interest disclosure forms we= re=20 released late Thursday, showing that each has received at least $10,000 und= er=20 contract from Edison in the past year.=20 But Davis spokeswoman Hilary McLean defended their credibility, saying=20 there's no conflict of interest because Lehane and Fabiani both disclosed= =20 that they had worked for Edison before they signed their contracts with the= =20 state.=20 Besides, she added, Edison and the governor are working toward the same goa= l:=20 Both want the Legislature to adopt a memorandum of understanding, a propose= d=20 agreement, that would prevent Edison from going bankrupt by financing a sta= te=20 purchase of the utility's transmission lines.=20 "It's not a conflict because there's been full disclosure," McLean said.=20 "Edison and the Governor's Office have the same goal, passing the MOU. We'r= e=20 working together at this point with Edison."=20 But open-government groups and Republican lawmakers bristled at the notion= =20 that disclosure negates any potential conflict.=20 Derek Cressman of the California Public Interest Research Group pointed to = a=20 section of state law that prohibits public officials from influencing=20 decisions if it would have "a material financial effect" on a business enti= ty=20 that provided them $500 or more within the last year.=20 "You have two individuals on the government payroll who had previously been= =20 on the Edison payroll and it's not clear to whom their loyalties are," he= =20 said. "Just because they've revealed it doesn't mean there's not a conflict= =20 there, and that they're not serving two masters."=20 On Thursday, Jones said he is awaiting the results of the Fair Political=20 Practices Commission investigation and agrees with Connell's decision this= =20 week to withhold payment from the consultants.=20 "This further calls into question the ethics of how these individuals were= =20 hired and contracts were let," Jones said.=20 Senate Republican leader Jim Brulte believes there's no question that Lehan= e=20 and Fabiani are violating conflict-of-interest laws and suggested that the= =20 two should be paid out of Davis' campaign funds, which had reached $26=20 million by Jan. 1.=20 Brulte, of Rancho Cucamonga, added that he would not vote for a state budge= t=20 as long as Lehane and Fabiani remain on the state payroll.=20 "The state of California does not need to be paying political wordsmiths=20 $30,000 a month," he said. "I just wish (Davis) were as frugal with the=20 taxpayers' money as he is with his campaign money."=20 The Bee's Emily Bazar can be reached at (916) 326-5540 or ebazar@sacbee.com= . State deal may ease blackout threat=20 Canada to supply energy as summer demand rises By Ed Mendel=20 UNION-TRIBUNE STAFF WRITER=20 June 22, 2001=20 SACRAMENTO -- California may be able to avoid some of the blackouts predict= ed=20 for this summer, thanks to a little-known power-swapping agreement with a= =20 Canadian utility.=20 The arrangement is expected to give California electricity in July and Augu= st=20 from the hydroelectric generators of BC Hydro in British Columbia, despite = a=20 serious drought in the Northwest.=20 California has sold surplus power in recent months to the government-owned= =20 utility, which is expected to return power to the state as heat drives up t= he=20 demand for electricity.=20 State deal may ease blackout threat=20 Continuing coverage: California's Power Crisis=20 ?=20 Despite the energy crunch, the state often finds itself with surplus power= =20 that can be sold or swapped. For instance, advance power purchases that=20 provide energy at a better price may deliver more power than needed at any= =20 given time, particularly during off-peak hours.=20 BC Hydro's reservoirs and hydroelectric generators are a little like an=20 electricity storage battery. By importing California power, BC Hydro has be= en=20 able to conserve water that can be released this summer to produce power fo= r=20 California.=20 As a result of the agreement and other factors, state power buyers say they= =20 are in a stronger position going into the hot summer months than they had= =20 expected. So far this week, the state has managed to get through a heat wav= e=20 without so much as a Stage 1 power alert.=20 "We are in much better shape at this point than I imagined we would have be= en=20 as little as a month ago," said Ray Hart, head of the power purchasing unit= =20 in the state Department of Water Resources.=20 The North American Electric Reliability Council, which last month predicted= =20 260 hours of rolling blackouts for California this summer, has noticed a=20 change in recent weeks.=20 "We don't seem to have the crisis we were all expecting," said Ellen Vancko= ,=20 a council spokeswoman. "But whether that is a short-term or a long-term eve= nt=20 we don't think anyone knows yet."=20 Much of the credit for avoiding blackouts is given to unexpectedly high=20 conservation by Californians and an increased supply of power. Many=20 generators that had been shut down for maintenance or lack of payment are n= ow=20 back on line.=20 But the hydroelectric power agreement had gone unnoticed until now.=20 Hart mentioned it during a Senate Energy Committee hearing this week. But h= e=20 declined to reveal the amount of power banked with BC Hydro, saying it coul= d=20 hurt the state's competitive position in the market.=20 "If I start talking specifics," said Hart, "then I have to give out what I = am=20 doing every single day, and I have no market position."=20 In the past, California routinely sent power to a number of utilities in th= e=20 Pacific Northwest during the winter when residents there needed heat.=20 Northwest utilities returned power to California in the summer when air=20 conditioning drove up demand.=20 Little was expected from the reciprocal arrangement this year because=20 California was short of power last winter as electricity prices soared, and= =20 drought has sharply lowered reservoirs in the Northwest. But the agreement= =20 with BC Hydro will provide at least some power this summer.=20 The state was forced to begin buying power in January after its two largest= =20 utilities, Southern California Edison and Pacific Gas and Electric, were=20 unable to borrow because of a $13 billion debt. The rates that the utilitie= s=20 could charge their customers were frozen under a failed deregulation plan a= s=20 the cost of power on the wholesale market skyrocketed.=20 Hart said it took time to convince BC Hydro, which has demanded cash for so= me=20 electricity, that it could safely do business with California despite big= =20 debts owed to generators for power they supplied to the utilities.=20 "We have only been able to do it for the last couple of months," said Hart.= =20 "It took a long time to get them to do it because of credit issues."=20 A spokesman for BC Hydro said the utility engages in power swaps but does n= ot=20 release the name of the other parties or the terms of the agreements.=20 "Our first priority is taking care of our own," said Warren Cousins of BC= =20 Hydro. "We are still looking for opportunities to help out other entities= =20 when we can."=20 Hart said the state has another arrangement with the federal Bonneville Pow= er=20 Authority, but again refused to provide details. He said the state has sold= =20 surplus power to several buyers, including the Los Angeles Department of=20 Water and Power.=20 Information about state power purchases had been closely guarded until=20 recently. Gov. Gray Davis, pressured by lawsuits and a court ruling, releas= ed=20 edited versions last week of 38 long-term power contracts worth $43 billion= .=20 The Davis administration said it agreed to release contract information=20 because power prices have dropped, easing competitive pressures.=20 ?=20 Ex-worker: Duke manipulated market=20 By Bill Ainsworth=20 UNION-TRIBUNE STAFF WRITER=20 June 22, 2001=20 SACRAMENTO -- A former operator at Duke Energy's Chula Vista plant said he= =20 was told frequently by company officials during the past year to alter the= =20 plant's output in a way that may have boosted electricity prices.=20 The operator, Jimmy Olkjer, said he was even ordered to cut power generatio= n=20 during energy emergencies, when the state faced rolling blackouts because o= f=20 a scarce supply of electricity.=20 He said he believes reducing the electricity generation helped the company= =20 charge higher prices. "It looks like that's what they were doing," Olkjer= =20 said in an interview.=20 He and another former plant employee said that during the past year the=20 company regularly operated its least-efficient turbine, possibly to justify= =20 higher prices.=20 The allegations, which they plan to repeat today at a state Senate hearing= =20 investigating power generators, provide the first insider evidence that Duk= e=20 Energy may have manipulated output at its South Bay plant to drive up price= s.=20 Duke, based in North Carolina, leases the South Bay plant from the San Dieg= o=20 Unified Port District.=20 A March report by the Independent System Operator, which manages California= 's=20 electricity grid, alleged that by withholding power Duke and four other=20 owners of generating plants have contributed to billions of dollars in=20 overcharges to California consumers.=20 Tom Williams, spokesman for Duke Energy North America, said that varying th= e=20 output of the generating units at the Chula Vista plant had nothing to do= =20 with trying to achieve higher prices.=20 He said the changes in output helped balance the state's grid by "dancing i= n=20 the market" -- providing flexibility for grid managers by allowing the plan= t=20 to add or reduce power quickly.=20 Williams added that the aging South Bay plant produced as many megawatts la= st=20 year as it did in 1994.=20 Olkjer served as a plant operator for 18 years, mostly when the plant was= =20 owned by San Diego Gas & Electric Co. After Duke took over the plant, worke= rs=20 were guaranteed their jobs for two years. In April, when that period ended,= =20 Duke laid off Olkjer and other workers. Now he is retired.=20 During the two years Duke has managed the plant, Olkjer said, operators=20 frequently got calls from officials with Duke Energy Trading and Marketing = in=20 Salt Lake City telling them to adjust their production schedule.=20 Some employees at the plant monitored the hourly price of electricity poste= d=20 by the Independent System Operator and recognized a correlation, he said.= =20 "We noticed that a lot of times when the price was down (our) megawatts wou= ld=20 go down," he said. "If the price was up, often the megawatts would go up."= =20 Olkjer said he was never told why he was being ordered to turn the plant's= =20 output up and down. When he asked, he said, company officials told him it w= as=20 none of his business.=20 Still, he was puzzled, particularly when he was told to throttle down the= =20 plant during electricity emergency alerts -- as he says he did Jan. 16 when= =20 the state declared a Stage 3 alert, with the possibility of rolling=20 blackouts.=20 "It doesn't make sense to cycle up and down when there's a Stage 3 alert," = he=20 said.=20 Duke spokesman Williams said the company may turn down units at the orders = of=20 the ISO during a Stage 3 alert because the grid manager can find cheaper=20 power somewhere else.=20 Lisa Szot, spokeswoman at the ISO, said she couldn't determine whether the= =20 ISO had ordered Duke to power down its Chula Vista plant Jan. 16.=20 Olkjer said the frequent adjustments of power production, which sometimes= =20 occurred every half-hour, wear out the plant's equipment.=20 "It's harder on the machinery," he said. "It's like driving down the street= =20 putting your (foot) on the gas and then slamming on the brake."=20 Before deregulation, Olkjer said, the four units at Chula Vista, which have= =20 the capacity to produce 706 megawatts, had been operated steadily during mu= ch=20 of their history.=20 S. David Freeman, formerly general manager of Los Angeles' Department of=20 Water and Power and now chief energy adviser to Gov. Gray Davis, said rapid= =20 cycling had become more common under deregulation and is hard on equipment.= =20 "We had almost 15,000 megawatts of generating capacity down for repair last= =20 winter," said Freeman, referring to what industry experts agreed was an=20 extraordinary level of plant outages over several months.=20 SDG&E, which built the Chula Vista plant in the 1960s, sold it to the Port= =20 District for $110 million. In 1998 the port leased the plant to Duke Energy= =20 for 101/2 years in what critics are now calling a sweetheart deal.=20 The company pays minimal rent, but has made large profits. In the first=20 quarter of this year, Duke, which owns three other plants in California, sa= id=20 profits rose 208 percent to $428 million from energy sales and trading.=20 Duke may hold the record for charging the highest price for electricity. It= =20 asked $3,880 per megawatt-hour this year. By comparison, before the energy= =20 crisis began, electricity sold for around $35 per megawatt-hour, an amount= =20 which powers about 750 homes.=20 Federal regulators have ordered the company to refund $20 million to the=20 state for charging excessive prices unless the company can justify them.=20 In May, the company offered to pay the state to settle any price gouging=20 investigations, but Gov. Gray Davis declined.=20 Olkjer and Ed Edwards Jr., who worked at the plant for 20 years before bein= g=20 laid off in April, said they couldn't understand why Duke ran the=20 inefficient, high-cost turbine unit during the past year while other=20 generators sat idle.=20 They said they believed it may have been an attempt to fetch a higher price= =20 for electricity because the company got extra fees when it ran.=20 Williams, the Duke spokesman, said the opposite was true. He said Duke ran= =20 the small turbine more frequently because it was less expensive. It ran on= =20 jet fuel, which was cheaper than the natural gas powering the other units.= =20 Edwards said the smaller unit was run so hard that it was destroyed.=20 "It ran so frequently and so hard, it needed extensive repairs," he said.= =20 Edwards told CBS News last night that plant outages at Chula Vista were=20 prolonged because one supervisor ordered him to dump spare parts.=20 The former power plant employees said they felt compelled to come forward= =20 because they saw the impact the power crisis was having on their community.= =20 "It kind of irritated me because you know there's people on a fixed income= =20 that can't afford a big utility bill," said Olkjer.=20 Staff writer Craig D. Rose contributed to this story.=20 ?=20 Estimates of Power Profits Disputed=20 Electricity: A study of overcharges by suppliers may be flawed, state=20 officials say. Davis quoted the figures to Congress.=20 By DOUG SMITH, ROBERT J. LOPEZ and RICH CONNELL, Times Staff Writers=20 ?????Gov. Gray Davis' contention that California has been nicked for billio= ns=20 of dollars in inflated electricity costs is based on a study that state=20 officials concede may have significant flaws, according to interviews and= =20 confidential government documents. ?????Those costs--estimated by the state to be as high as $9 billion--were= =20 central to Davis' testimony this week before a U.S. Senate committee, where= =20 he again denounced power wholesalers and urged federal regulators to "give = us=20 back the money that was wrongly taken from us." ?????The governor's impassioned demand, however, was based on shaky=20 calculations. The formulas are being reworked, said Charles Robinson, vice= =20 president of California's grid operator, which prepared the study. ?????Robinson said he "had no idea" how much the amount allegedly overcharg= ed=20 by the generators might change. For now, he said, the agency stands by the= =20 numbers. ?????But internal documents from the California Independent System Operator= =20 warn that some of the financial assumptions used to quantify the alleged=20 excess profits could be well off the mark. ?????What's more, the documents caution against relying on the agency's stu= dy=20 as a basis for allegations of overcharging--as Davis did during his testimo= ny=20 Wednesday. That warning was particularly important because the documents=20 provide for the first time a detailed accounting of how much each energy=20 supplier prospered from the state's power troubles between last summer and= =20 February. ?????The largest amounts were charged by four out-of-state power companies,= =20 according to the confidential Cal-ISO report. Okalhoma-based Williams Cos.= =20 led the group with $860 million, followed by Duke Energy with $805 million,= =20 Southern Company Energy Marketing (now Mirant) with $754 million and Relian= t=20 Energy Services with $750 million. ?????When told of the alleged profiteering attributed to them, executives o= f=20 the companies insisted the numbers were grossly overstated because of=20 Cal-ISO's poor methodology. ?????Duke spokesman Tom Williams said his company's entire energy earnings= =20 for North America were less than the amount it was accused of reaping=20 unfairly in California. ?????"It doesn't add up. It doesn't come close to adding up," Williams said= .=20 "What [Cal-ISO] has done is highly irresponsible math." ?????Paula Hall-Collins, a Williams Cos. spokeswoman, said the firm would= =20 need to study the ISO report further. But generally, she said, such reports= =20 fail to fully account for electricity production costs. ?????"We maintain that we have not overcharged, and that we have operated= =20 legally." ?????Reliant spokesman Richard Wheatley also questioned the figures, saying= ,=20 "There's a lot of misinformation out of there." ?????A Mirant spokesman said: "We haven 't overcharged. We haven't=20 manipulated. We haven't withheld."=20 ?????Even some firms alleged to have overcharged to a much lesser degree we= re=20 outraged. ?????Joe Ronan, vice president for government and regulatory relations at= =20 Calpine, said the $236 million attributed to his company "doesn't bear any= =20 relation to reality." ?????"Anybody can throw out any number," he said. "It's like McCarthyism. .= .=20 . Where is the evidence?" ?????A spokeswoman for Davis conceded that his refund figure was an estimat= e=20 but defended it as reasonable. ?????"It's no surprise that the people that are gouging us want to dispute = an=20 estimate of how much they're gouging us," senior advisor Nancy McFadden sai= d. ?????Despite the cautions expressed in the Cal-ISO documents, officials=20 Thursday insisted they were not troubled that the governor referred to the= =20 agency's figures as potential overcharges.=20 ?????"The way it should be characterized is the amount paid above a=20 competitive benchmark," said Robinson, who is also Cal-ISO's general counse= l. ?????The first version of the now-disputed Cal-ISO study was made public in= =20 March. It estimated that power sellers earned $6.3 billion in excess profit= s=20 between May 2000 and last February. The report, later revised upward to $6.= 7=20 billion, became a crucial element of the Davis Administration's campaign=20 against alleged electricity price gougers. ?????This week, just before Davis' appearance in Congress, the study was=20 updated again, adding another $2.2 billions in alleged excess profits throu= gh=20 May. ?????The orginal study, which did not include actual pricing data, was most= ly=20 intended to prod federal regulators into seeking information from generator= s=20 that the state had been denied, Robinson said. ?????Thus far, the Federal Energy Regulatory Commission has ordered refunds= =20 of only $125 million. Next week FERC is convening an unusual settlement=20 conference aimed at addressing the outstanding claims by the state, as well= =20 as those of sellers who claim they are owed hundreds of millions of dollars= =20 by California utilities. ?????One encouraging signal for state officials came this week when FERC=20 reiterated an earlier order that Duke Energy pay millions in refunds. The= =20 order stemmed from the company's sale of electricity at $3,880 a megawatt= =20 hour--for thousands of hours. ?????FERC's order said Duke's pricing had resulted in $11 million in=20 billings. A fair price for that power would have been $273 per megawatt hou= r,=20 the agency said. ?????Tom Williams, a Duke spokesman, said the firm is willing to accept the= =20 lower price. He said he company has yet to collect a dime.=20 ---=20 ?????Times staff writers Elizabeth Shogren and Dan Morain contributed to th= is=20 story. Edison Plans Bond Offer at 13% Rate=20 Debt: Yield is about double what a credit-worthy company would pay, analyst= s=20 say. But will investors bite?=20 By JERRY HIRSCH, Times Staff Writer=20 ?????Edison International is offering investors what analysts are calling a= n=20 unprecedented 13% interest rate for $1.2 billion in notes to refinance debt= .=20 Even so, it's far from certain that the Rosemead-based power company will= =20 find enough buyers to complete the deal. ?????A failure by Edison to refinance $618 million in bank debt that comes= =20 due June 30 and an additional $250 million in notes due in July could put t= he=20 company precariously close to bankruptcy and cast a shadow on California's= =20 plan to sell $12.5 billion in bonds to pay for power purchases, said Dan=20 Scotto, a bond analyst at PNB Paribas in New York. ?????"Even though it would at first appear to be a company setback, it woul= d=20 really be a major setback for the state," said Scotto, who added that=20 Edison's credit troubles could translate into higher prices for California'= s=20 proposed bond offering. ?????Edison, however, said Thursday that the deal is moving forward. ?????"We believe our deal is going well, and we are comfortable with it,"= =20 said Jo Ann Goddard, vice president for investor relations. She declined to= =20 discuss other details of the offering. ?????Goldman Sachs Group, Edison's investment bank, expects to formally pri= ce=20 the offering Monday. Edison officials would not comment on the proposed pri= ce=20 of the note offering, but Wall Street sources said the power company was=20 shopping the issue at the 13% rate. ?????Edison floated the plan earlier this month as a way to tap the borrowi= ng=20 power of a profitable subsidiary to trim debt that comes due this year and = to=20 insulate itself from a possible bankruptcy of its ailing utility unit. The= =20 utility, Southern California Edison, has lost billions of dollars on=20 electricity sales over the last year. ?????The high interest rate on Edison's proposed sale of seven-year notes i= s=20 about double what a credit-worthy company would pay for a similar bond or= =20 note issue and would add a premium amounting to tens of millions of dollars= =20 in annual interest costs to the company's already strapped financial=20 condition, analysts said. It's a full two percentage points higher than the= =20 average rate for other junk, or speculative, bonds. And corporate bonds wit= h=20 similar ratings are going out at 9% to 10%. ?????Edison originally started marketing the issue at 12%, a full two=20 percentage points higher than what analysts initially expected, but then=20 raised the rate to 13% in recent days because it was finding few takers on= =20 Wall Street. ?????"The word is that they couldn't get people interested and that they=20 might not be able to get it done," said Kurt Stabel, a money manager at=20 Street Asset Management in Newport Beach. ?????The higher rate, however, might be pulling investors out of the woodwo= rk=20 and has increased the chance that Edison will pull off the deal, Scotto sai= d. ?????"This never promised to be a day at the beach," Scotto said. "I think = it=20 is really a question of find the right price, the price at which people fee= l=20 comfortable with the risk." ?????Both Stabel and Scotto said that Edison's note offering is unusually= =20 complicated and requires far more explaining or "selling" than typical=20 corporate offerings. ?????Mission Energy Holding Co., a company created by Edison for the sole= =20 purpose of issuing these bonds, will offer the notes. The assets of Edison= =20 Mission Energy, a subsidiary that owns a network of power plants across the= =20 United States and in Asia, Australia and New Zealand, will secure the debt. ?????Mission Energy Holding plans to issue the proceeds to Edison in the fo= rm=20 of dividends, giving the parent company funds to pay off a substantial=20 portion of its debt. ?????The notes will have a credit rating of BB-minus and come due in 2008,= =20 according to bond rating agency Standard & Poor's. That's slightly higher= =20 than the near-default CC rating now carried by Edison. ?????If the offering failed, Edison would face a series of difficult choice= s=20 that range from depleting its cash cushion to going back to its bankers and= =20 begging for continued forbearance.=20 ?????Its SCE subsidiary already has defaulted on $931 million in bonds and= =20 notes. That triggered a default in bank lines of credit at Edison=20 International and SCE, which has since operated under extensions from its= =20 lenders. ?????Edison has about $3 billion in cash, including $2 billion held by SCE,= =20 according to regulatory documents. ?????"This could all still unravel, but I have been impressed with [Edison'= s]=20 effort to inch along so far," said Ellen Lapson, an analyst at Fitch Inc., = a=20 corporate credit rating service. "Who would have thought that they could ha= ve=20 lasted so many months after their first default in January and still not be= =20 in bankruptcy?" ?????Positive developments for Edison, including a deal to hold small=20 generators at bay with partial payments from SCE and progress at crafting a= =20 rescue plan in both the state Legislature and the Public Utilities Commissi= on=20 have sparked a small rally in the company's stock.=20 ?????Edison shares have risen 8% this month. They gained 21 cents Thursday = to=20 close at $11.90 on the New York Stock Exchange. Energy Company Abandons Plans for Baldwin Hills Plant=20 Power: Homeowners and environmentalists rejoice at decision. The site is=20 proposed as a 1,200-acre state park.=20 By JOE MOZINGO, Times Staff Writer=20 ?????In a victory for environmentalists and nearby homeowners, an energy=20 company announced Thursday that it was abandoning its plan to build a power= =20 plant on the site of a proposed state park in the Baldwin Hills.=20 ?????La Jolla Energy Development Inc., in a letter to the state Energy=20 Commission, said it was withdrawing its application for fast-track approval= =20 of the 53-megawatt plant and "will not pursue the Baldwin facility in the= =20 future." ?????"We listened to the community," La Jolla President Steve Wilburn said = in=20 an interview Thursday. "We need to find another place for this equipment." ?????The project was to be a joint venture between La Jolla and Stocker=20 Resources, an oil company that leases the land where the trailer-sized=20 natural-gas plant would sit. ?????Stocker officials said they will decide in the next few days whether= =20 they will pursue the project. "At this point it's just La Jolla pulling out= ,"=20 Stocker spokesman Steve Rusch said. ?????But most observers said it would be difficult to move forward on the= =20 fast-track schedule the state has implemented to relieve the energy crisis. ?????The state commission was scheduled to decide whether to approve the=20 project today in Sacramento, but the hearing has been canceled. ?????The news sparked elation among environmentalists and nearby homeowners= =20 who had fought the proposal on grounds that it would pollute neighborhoods= =20 and threaten an ambitious plan to piece together 1,200 acres of public open= =20 space in the hills. ?????"We're getting ready to have the biggest party," said Tony Nicholas,= =20 president of the hills' United Homeowners Assn. "This shows how a community= =20 can come together for a common goal and mobilize the people in a matter of= =20 days." ?????About 76% of the residents in the hills are African American and many= =20 saw the issue as a matter of environmental justice.=20 ?????In addition, Stocker and La Jolla were seeking approval for the plant= =20 within 21 days of filing their application, under the governor's emergency= =20 power orders. By following this fast-tracked procedure, they would have bee= n=20 able to avoid the normal, time-consuming environmental review process. ?????That angered opponents even further, and nearly 1,000 people showed up= =20 at a public hearing Monday to fight the project. ?????But what officials said turned the tide against the project--at a time= =20 when the energy commission is approving such plants as fast as possible--wa= s=20 testimony from a South Coast Air Quality Management official who said his= =20 agency would not be able to approve the plant quickly. ?????Executive Director Barry Wallerstein said his agency would have to=20 conduct hearings that would take up to 60 days, pushing construction well= =20 beyond a Sept. 30 deadline set by the governor for fast-track projects. He= =20 also said it was unlikely Stocker could get needed exemptions from federal= =20 clean air laws. ?????In a letter to the Energy Commission this week, Wallerstein wrote: "It= =20 appears that the Baldwin Energy Facility could not begin operation until so= me=20 time in the first part of 2002 at the earliest." By Wednesday night, the=20 energy commissioner who presided over the public hearings issued a statemen= t=20 recommending that the rest of the commission deny the application for a=20 plant, citing Wallerstein's concerns. ?????Conservationists embraced the outcome as a sign that the movement to= =20 create a park was gaining steam. The Baldwin Hills Conservancy was created= =20 last year with the idea of creating green space for the densely populated= =20 neighborhoods of south Los Angeles. With support from the governor and loca= l=20 politicians, the state recently bought a 68-acre parcel in the area for an= =20 unprecedented $41 million. ?????"This is a great day for the Baldwin Hills and all the people who have= =20 worked so hard to bring this world-class vision to reality," said Esther=20 Feldman, president of Community Conservancy International and the main=20 organizer to build the park. ?????Also applauding La Jolla's decision were state Sen. Kevin Murray=20 (D-Culver City) and Assemblyman Herb Wesson (D-Culver City), who had come o= ut=20 strongly against the project. They and others questioned whether the small= =20 amount of power provided by the facility--coming online after the dog days = of=20 summer--would do much to relieve the energy crisis. ?????"I'm ecstatic" Wesson said. "At this point the environment has won." ?????The plant would have sat on what is a working oil field about 650 feet= =20 from the Kenneth Hahn State Recreation Area. And according to park=20 proponents, it would lie in the middle of the grander state conservancy, on= =20 what would be a half-mile bridge of land arching over La Cienega Boulevard. ?????Rusch, the spokesman for Stocker, said much of the information=20 circulating about the trailer-sized plant is false. ?????The plan did not call for "a stack with billowing smoke," he said. "If= =20 the issue is air quality, we've cleaned air quality up." In the last decade= ,=20 Rusch said, the company's existing 400 oil pumps on the property have reduc= ed=20 nitrogen oxide emissions from 374 tons to 3 tons a year. The power=20 plant--with two 70-foot stacks--would ultimately add about 18 tons a year. ?????He said the company was trying to cut its energy bills by providing it= s=20 own power to pump oil, while also contributing an extra 39 megawatts to the= =20 state grid during the energy crisis. ?????Residents say there are more desolate places for the state to relieve= =20 the energy problem. Said Mary Ann Green, president of the Blair Hills=20 Homeowners Assn.: "We just hope that Stocker would be responsive to the=20 outcry from the community." Western states could feel pinch from California pricing=20 KAREN GAUDETTE, Associated Press Writer Friday, June 22, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/06/22/n= ation al0545EDT0489.DTL&type=3Dnews=20 (06-22) 02:45 PDT SAN FRANCISCO (AP) --=20 When power supplies stretch thin across the West this summer, who will deci= de=20 whether Silicon Valley computers, Washington apple orchards or Las Vegas=20 casinos get first dibs on what's left?=20 It's a key question raised by the decision of federal energy regulators thi= s=20 week to cap electricity prices throughout the West, using a formula based o= n=20 California's power costs.=20 Economists, energy industry executives and officials in all 11 states are= =20 beginning to analyze the fit of this new piece in the energy puzzle.=20 Though most call the order a good step that could prevent price gouging,=20 others worry the pricing system could lead to electricity shortages for=20 California's neighbors, or prompt utilities to stock up on power contracts = to=20 fend off shortages. That could diminish any leverage power buyers might hav= e=20 as they compete for the remaining megawatts available each day.=20 Tying the highest possible power price to California could cause a problem= =20 come winter, when power demand drops in the Golden State, said Gary Ackerma= n,=20 director of the Western Power Trading Forum, which represents most sellers = of=20 energy.=20 States where consumers need electricity to heat furnaces through the winter= =20 would be unable to outbid each other above the price cap, which is usually= =20 determined by a formula based on the highest bid for last-minute power duri= ng=20 the most recent energy supply emergency in California.=20 That may leave power wholesalers, and not a free market, to decide who gets= =20 the energy.=20 "Certainly, California has a tremendous pull on our prices and has for=20 probably the last year," said Claudia Rapkoch, spokeswoman for Montana Powe= r=20 Co., which supplies natural gas and electricity to two-thirds of the Big Sk= y=20 state. "What it means for this winter, we're just going to have to wait and= =20 see."=20 California utilities had much more control over power supplies before=20 deregulation in 1996 obligated them to sell off their power plants to=20 encourage competition. This brought lower prices for a time, but gave contr= ol=20 over power supplies to wholesalers that aren't obligated by state law to=20 serve the serve the best interests of local customers.=20 Rather than appointing one power grid manager to decide how to divide power= =20 in the West, Ackerman predicts utilities in non-deregulated states will=20 simply sell their power within their borders. That would hurt California,= =20 which this week imported about 10 percent of its electricity and its=20 remaining supply from local plants owned by out-of-state power companies.= =20 Price cap or not, utilities in the region will watch out for each other as= =20 best they can, because they might need the favor returned, said Charles=20 Reinhold, executive consultant for Electric Resources Strategies in Ariz.= =20 Saddled with rising bills that threatened to exhaust the state's budget,=20 California recently began to sign long-term contracts with generators. Gov.= =20 Gray Davis credits the change for helping to drastically reduce prices on t= he=20 spot market, which earlier this month fell below $50 per megawatt hour for= =20 the first time in a year.=20 The long-term contracts, though, weren't cheap. California will pay an=20 average of $70 per megawatt hour during the next decade under 38 different= =20 contracts signed so far.=20 On the Net:=20 Western Power Trading Forum: www.wptf.org=20 RTO West: www.rtowest.org=20 ,2001 Associated Press ?=20 Feds spurn Duke Energy in its bid to avoid refunds=20 Christian Berthelsen, Chronicle Staff Writer Friday, June 22, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/06= /22/M N95159.DTL&type=3Dnews=20 Federal regulators have rejected attempts by Duke Energy Inc. to avoid=20 refunding millions of dollars to California for charging exorbitant=20 electricity prices in January and February.=20 The Federal Energy Regulatory Commission first ordered the refunds on March= =20 9, and Duke responded by filing a challenge. But the commission on Monday= =20 rejected the company's appeal and reiterated its earlier order, claiming Du= ke=20 had abused its power in the California energy market when it sold power for= =20 $3, 880 per megawatt hour.=20 "We will not tolerate abuse of market power or anticompetitive bidding or= =20 behavior," the commission said.=20 Duke acknowledged this month that it had charged $3,880 per megawatt for=20 about 5,500 megawatt hours sold to the state's major utilities in January a= nd=20 February, netting it more than $19 million in receivables.=20 The commission did not specify how much money Duke should refund, but it=20 directed the company to readjust its January billings for those hours to a= =20 price of $273. From a FERC document, it appears that about 2,835 hours=20 occurred in January, which would result in a total refund for that month of= =20 $10.2 million.=20 Duke is one of the companies that have been identified by both the Californ= ia=20 Independent System Operator, the manager of the state's electricity grid, a= nd=20 the FERC as having exercised market power and overcharged Californians for= =20 electricity.=20 Meanwhile, employees at the South Bay power plant in San Diego run by Duke= =20 are expected to testify in a state Senate committee hearing today that the= =20 company ramped production up and down. That allegedly was aimed at lowering= =20 power production during shortages and attempting to drive up electricity=20 prices on the spot market.=20 The workers were employed by San Diego Gas & Electric Co. but were working= =20 under contract to Duke.=20 E-mail Christian Berthelsen at cberthelsen@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 4 NEWS ANALYSIS=20 Davis winning Washington PR battle=20 Price cap victory may rob Democrats of campaign issue=20 Marc Sandalow, Washington Bureau Chief Friday, June 22, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/06= /22/M N167044.DTL&type=3Dnews=20 Washington -- There was a reason Gov. Gray Davis donned a dark blue jacket= =20 and endured beastly humid 90-degree heat this week in an area behind the=20 Capitol known as the "House swamp."=20 The nation was watching. And after months of political free fall, his messa= ge=20 seemed to be taking hold.=20 "California has been bilked out of $9 billion while the Federal Energy=20 Regulatory Commission was asleep at the switch," Davis declared, repeating= =20 testimony he had delivered hours earlier in the air-conditioned confines of= a=20 Senate hearing room.=20 Wiping a bead of sweat from his brow as 10 television cameras and two dozen= =20 reporters recorded the scene, the California governor apparently couldn't= =20 resist taking another shot: "For nearly a year I've been pounding on this= =20 commission to enforce the law."=20 The state's energy crisis, with its volatile spot markets, out-of-state=20 generators and dearth of alternative energy providers, is a dizzyingly=20 complex policy puzzle. The politics are much simpler.=20 Democrats present themselves as consumer crusaders, defending helpless=20 utility customers from greedy energy conglomerates and misguided regulators= .=20 Republicans portray themselves as stewards of the free market and long-term= =20 solutions, rejecting price caps and refunds as heavy-handed overreactions= =20 with Soviet-style results.=20 The Democratic populism seems to be winning the battle. Though the debate i= s=20 far from settled, the consumer-oriented approach to California's energy woe= s=20 has raised their hopes of winning back the House of Representatives in 2002= =20 and the White House in 2004.=20 "Republicans are scared out of their minds about this," said one gleeful=20 Democrat on Capitol Hill, who suggested that the White House's lackadaisica= l=20 response to California's problems would rile consumers from coast to coast.= =20 "This could rival Pete Wilson's alienation of Latinos," said the Democrat,= =20 referring to the former Republican governor's strident stand against illega= l=20 immigrants, which many blame for the party's weak standing in California.= =20 A sign of the GOP's concern surfaced this week with television ads, finance= d=20 by anonymous sources but produced by Republican Party strategists, that bla= me=20 the Democratic governor for California's energy problems.=20 Democrats, who long have worried that the crisis could cost Davis a second= =20 term, now take credit for having pressured the White House and federal=20 regulators to take a more active role.=20 The Federal Energy Regulatory Commission, which had previously resisted suc= h=20 efforts, took steps toward controlling wholesale electricity prices Monday.= =20 Later in the week, two commissioners appointed by President Bush testified= =20 that they might be open to further price restrictions and support huge=20 refunds to California. And just yesterday, Vice President Dick Cheney, who= =20 has been among California's most vocal critics, told Senate Democrats behin= d=20 closed doors that he could support refunds to California if federal=20 regulators agreed, according to those in the meeting.=20 "There is no doubt in my mind that action (taken by federal regulators) was= =20 the direct result of pressure for price relief led primarily by the=20 California delegation," Davis said.=20 The pressure did not come only from Democrats. Republican lawmakers, some o= f=20 whom fear the crisis could cost them seats in 2002, wrote FERC last week,= =20 requesting commissioners to "take further actions" to help the state.=20 The Democrats' public relations success follows an effort by the party to= =20 raise the profile of its consumer crusade. Hardly a day has passed in the= =20 past several weeks without a group of Democrats holding a news conference t= o=20 attack the White House, the Republican controlled House or FERC for inactio= n.=20 But it may have just as much to do with a White House that has been far mor= e=20 focused on long-term energy production than the immediate concerns of=20 Californians. Even as it engaged in a legitimate policy dispute over how to= =20 solve the power mess, the Bush administration appeared indifferent to the= =20 plight of residents experiencing skyrocketing energy bills and rolling=20 blackouts.=20 Bush tried to correct that impression with a trip to the state last month.= =20 But the damage appears to have extended beyond California.=20 A CBS News/New York Times poll released this week of 1,050 adults from acro= ss=20 the country showed that only one in three voters approved of the job Bush w= as=20 doing on energy. More than half the respondents said that protecting the=20 environment was a higher priority than producing energy, yet barely one in = 10=20 said that Bush shared that priority.=20 Some Republicans say that Bush was in a no-win position, contending that=20 anything he did would have been attacked by California's opportunistic=20 governor.=20 "Politics is (Davis') main objective, and I don't see the Bush administrati= on=20 being that way," said Rep. George Radanovich, R-Fresno.=20 The question for some analysts is whether Democrats might have been too=20 successful. By pressuring the federal government to take a more active role= ,=20 Democrats may lose their ability to point the finger at a convenient=20 scapegoat.=20 "Davis has always needed rate caps much less than he needed a scapegoat. No= w=20 that FERC has given him what he wants, or close enough to it, it's a lot=20 harder for him to lay blame back on Washington when the blackouts kick in,"= =20 said Dan Schnur, a GOP analyst based in San Francisco.=20 E-mail Marc Sandalow at msandalow@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 4=20 Suit filed over report on power lines, health=20 Deal on transmission grid could raise liability=20 Matthew Yi, Chronicle Staff Writer Friday, June 22, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/06= /22/M N114037.DTL&type=3Dnews=20 As state legislators consider Gov. Gray Davis' deal to buy part of the powe= r=20 grid in California, a public records advocacy group filed a lawsuit yesterd= ay=20 demanding that the state release a report on potential health hazards of=20 living near high-voltage transmission lines.=20 The document could be vital to how legislators vote on the $2.76 billion de= al=20 to buy Southern California Edison's power lines, said Terry Francke, genera= l=20 counsel for the California First Amendment Coalition, which filed the lawsu= it=20 in Alameda County Superior Court. The power line deal was brokered by the= =20 governor to help the cash-strapped utility.=20 Legislators must approve the power grid purchase by Aug. 15 or the utility= =20 can back out. Davis also has a $1 billion agreement to purchase San Diego G= as=20 and Electric's power grid, which also would require the Legislature's=20 approval.=20 Pacific Gas and Electric has not agreed to sell its transmission lines.=20 The power lines report was completed in April by California Electric and=20 Magnetic Fields Program, an agency set up by the state Department of Health= =20 Services to study the issue, Francke said. Both state agencies and their=20 directors are named in the lawsuit.=20 Efforts to keep the report secret are suspect, Francke said.=20 "If it's known there's some danger . . . do you want the state owning that= =20 liability?" he asked.=20 The study began in 1993 after the state Public Utilities Commission committ= ed=20 $7.2 million for research and education on the subject, Francke said.=20 The state document deals with scientific findings on how magnetic and=20 electric fields from transmission lines affect humans and possible policies= =20 based on those findings, he said.=20 The report was scheduled to be released to the public on May 7, but "at the= =20 last minute, the Public Utilities Commission apparently instructed the staf= f=20 of the EMF Program to keep the reports secret," the lawsuit said.=20 State health services spokeswoman Lea Brooks said that the report was only = a=20 draft and that her department was following orders from the PUC.=20 "The PUC wanted to see the draft before (it is released)," she said. "We=20 prepared (the report) for them. We are following their request."=20 Brooks refused comment on the lawsuit, saying her office hadn't seen it. PU= C=20 officials were not available for comment.=20 Studies on the effects of magnetic fields have resulted in no clear consens= us=20 on their effects, Francke said. That's what makes the state study important= =20 for legislators to consider before voting on the governor's deal to buy=20 transmission lines, he said.=20 Opponents of the power grid deals say the report may add to objections to= =20 Davis' agreements with the utilities. Some legislators would rather the sta= te=20 help build more power generators in California.=20 "They are extra nails in the coffin," said James Fisfis, spokesman for stat= e=20 Assembly minority leader Dave Cox, R-Fair Oaks. "We have fundamental issues= =20 with the transmission lines, but when you start stacking these items up,=20 you have an undigestible deal."=20 Davis' spokesman Roger Salazar said he believed the governor hadn't seen th= e=20 health hazard report.=20 "Obviously, if something pops up and is an issue, you'll take a look at it,= =20 but I don't think we're at that point yet," he said.=20 An Alameda County Superior Court judge will hear the lawsuit on July 23,=20 Francke said.=20 E-mail Matthew Yi at myi@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 4=20 Texas power firm's shares falling=20 Power baron Enron finds fortunes fading=20 Christian Berthelsen, Chronicle Staff Writer Friday, June 22, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/06= /22/B U178338.DTL&type=3Dnews=20 There's trouble in Texas.=20 Enron Corp., the Houston power firm that's profited mightily during=20 California's energy crisis, is suffering a surprising lack of popularity on= =20 Wall Street.=20 While all eyes have been on Enron's enormous profits here and its enormous= =20 pull in Washington, D.C., the reputed titan of the newly incarnated, free-= =20 wheeling power industry has lost half its market capitalization -- more tha= n=20 $30 billion -- since its peak in August.=20 Forgive Californians for savoring a bit of schadenfreude over the Houston= =20 boys' reversal of fortunes. But what gives? Isn't this the company that was= =20 fattening up on the backs of the state's beleaguered utilities, residents a= nd=20 state budget? Isn't this the company with such close ties to the Bush=20 administration that Kenneth Lay, Enron's chairman, was reported to have=20 interviewed a candidate for a job on the commission that regulates his=20 company?=20 Yup. That Enron.=20 On Monday, Enron shares hit a 52-week low of $43.07, after the Federal Ener= gy=20 Regulatory Commission decided to apply the same price controls to power=20 marketers such as Enron that had applied to power-generating companies for= =20 months. That's a far cry from August, when the company's shares peaked at= =20 $90.=20 "There's a whole kaleidoscope of issues that Enron is being challenged with= =20 in the marketplace right now, none of which on the surface is a major deal,= "=20 said Donato J. Eassey, an analyst with Merrill Lynch Global Securities in= =20 Houston. "But when you combine them all . . . I think what's happening here= =20 is you have a crescendo with this FERC announcement. You have people saying= ,=20 'OK, the growth rate is now in question.' "=20 That growth rate was an eye-popping 88.82 percent in revenues for the Unite= d=20 States on a two-year average, and nearly 98 percent in the rest of the worl= d.=20 Enron officials did not respond to a request for interviews, but as the sto= ck=20 continued to drop Tuesday morning, chief executive Jeff Skilling issued a= =20 statement to the markets in which he reiterated "strong confidence" in its= =20 earnings guidance. The stock rebounded slightly throughout the week, closin= g=20 at $44.05 yesterday.=20 In a speech at the Commonwealth Club last night, Skilling blamed regulatory= =20 interference with the "free market" for investor flight from his company.= =20 "Our stock prices have gotten hammered," he said. "They're half what they= =20 were a year ago."=20 Tumbling stock prices weren't the only bad news for Skilling last night. A= =20 protester pelted the executive with a berry pie just before he began=20 speaking. As Skilling used paper towels to wipe the pie from his face, a=20 woman was arrested on battery and malicious mischief charges.=20 Enron isn't the only company with stock prices that soared in tandem with= =20 California's power crisis and are now suddenly headed south. Shares of=20 Reliant Energy Inc., AES Inc. and Williams Companies Inc., which generate a= nd=20 sell electricity in California, and El Paso Energy Corp., which sells natur= al=20 gas here, are all trading near 52-week lows.=20 The main culprit appears to be the suddenly serious talk in Washington abou= t=20 power price controls, re-regulation and now, the possibility of big refunds= =20 being ordered for California. Even Calpine Corp. of San Jose, which has=20 developed a reputation as an industry good guy because it has not played th= e=20 spot market and has not been accused of manipulative tactics, dropped nearl= y=20 7 percent yesterday, to $37.10. But none of the companies has been hit as= =20 hard as Enron.=20 Such a drastic drop in market capitalization poses serious problems for any= =20 company. It leaves it less money to invest in its own growth, and because= =20 executive compensation is so closely tied to stock price, a sharp decline= =20 makes it more difficult to retain talented leaders.=20 While Enron's power wholesaling division seems to be doing fine, the firm h= as=20 been buffeted by disappointments in other lines of business and other regio= ns=20 in recent months. In the financial press, the continuing knock on Enron is= =20 that its business lines are so new and complex, and the company is so=20 secretive about its operations, that analysts and fund managers don't feel= =20 confident in their understanding of what it does.=20 A look at the firm's recent troubles exemplifies its diversity.=20 For instance, Enron has engaged in repeated battles with the state governme= nt=20 of Maharashtra in India over a 2,184-megawatt power plant there. The Dahbol= =20 Power Co., which is 65 percent controlled by Enron, stopped construction on= a=20 second phase of the project on Sunday, claiming it is owed $48 million by t= he=20 Maharashtra State Electricity Board. The state has accused Enron of chargin= g=20 too much and not generating enough, and stopped buying power from the plant= =20 last month.=20 Closer to home, Enron has struggled with its investments in fiber-optic=20 bandwidth. The company buys and sells unused, high-speed bandwidth space,= =20 treating it like a commodity as it does electricity, coal or natural gas. B= ut=20 the fiber-optic sector has imploded in recent weeks as it has become clear= =20 that for all the long-distance cable laid in the ground, there have not bee= n=20 enough "last mile" connections set up for users to actually take advantage = of=20 it. Earlier this year, Enron scuttled plans for a joint venture with=20 Blockbuster to offer what it called "video on demand," in which customers a= t=20 home would be able to select a video of their choice for a fee and have it= =20 transmitted via fiber-optic cables.=20 Then there was the FERC ruling. For months, the agency had resisted=20 aggressive price controls in the West, preferring to let the market run its= =20 course. But as control of the U.S. Senate was handed to Democrats this mont= h=20 and President Bush appointed a tough Texan regulator named Patrick Wood III= =20 to the commission, the agency changed its tune. It expanded price controls = to=20 all hours of the day, spread the controls throughout the Western region and= =20 brought previously excluded power marketers under the tent.=20 So under current calculations, that means Enron could sell power for no mor= e=20 than $108 per megawatt in a shortage and about $90 during normal hours -- f= ar=20 short of the hundreds of dollars that companies were regularly charging=20 during the past year.=20 In part, the company's gyrating stock price reflects the volatile nature of= =20 the businesses Enron has decided to pursue. And the hard-charging company h= as=20 a reputation for going aggressively into entirely new markets. But sometime= s=20 that approach gets it in trouble, as was the case last year, when Enron had= =20 to take a $400 million charge for its failed investment in Azurix, a global= =20 water company that set out to make a commodity out of water supply the same= =20 way it had done for electricity service, as governments privatized their=20 water systems. The opportunities never materialized.=20 Add it all together and Enron has a tough time supporting a price-earnings= =20 ratio of nearly 39, considerably above the liberal standard of health, whic= h=20 is 25. The company had less than $1 billion in profits on more than $100=20 billion in revenues last year. Still, a survey by Thomson Financial/First= =20 Call found that analysts expect Enron to deliver earnings of 42 cents per= =20 share in the second quarter (up from 34 cents last year), and $1.79 per sha= re=20 on the year. Most maintain a strong "buy" rating on the stock.=20 But investors with big positions in Enron have taken a hit. Hardest-put of= =20 them will be the Janus funds, which, as Enron's largest mutual fund investo= r,=20 held nearly $3.33 billion of its stock as of the end of April.=20 In a semiannual report to investors, John Schreiber, a portfolio manager,= =20 said the stock price of the "new-age energy merchant" was a victim of=20 negative psychology resulting from the California energy crisis. Janus=20 declined to make fund managers available for interviews.=20 "There are tremendous rewards for being first into new markets," said Raymo= nd=20 Niles, an energy analyst with Salomon Smith Barney in New York. "When you'r= e=20 an aggressive first-mover, from time to time you're going to make mistakes.= =20 But I don't think any of the mistakes Enron has made hit the core of the=20 company."=20 E-mail Christian Berthelsen at cberthelsen@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?B - 1=20 Power firm accused of price-fixing Former employees say Duke Energy slowed production of electricity to create= =20 an artificial shortage, boost profits=20 BY DION NISSENBAUM Mercury News Sacramento Bureau=20 SACRAMENTO -- One of the largest companies producing power in California=20 ordered workers to throw out spare parts and shut down equipment in an effo= rt=20 to drive up the price of electricity, former power plant workers said=20 Thursday.=20 Speaking out on the eve of appearances at a state Senate hearing, the three= =20 men offered the strongest evidence yet that at least one power producer --= =20 Duke Energy -- sought to make more money by creating an artificial shortage= =20 that may have created huge electricity price spikes.=20 ``Their intent, in my opinion, was to boost the price up,'' said Glenn=20 Johnson, a mechanic who worked for two decades at the Chula Vista power pla= nt=20 now run by Duke. ``If I've got the only box of penicillin in town and you'r= e=20 sick, I can charge a million dollars a box,'' he said. ``If you want to liv= e,=20 you're going to have to pay.''=20 Officials at Duke angrily challenged the accusations, calling them=20 irresponsible charges by disgruntled workers who were let go in April.=20 ``Their allegations are just comical, just highly erroneous,'' said Tom=20 Williams, a spokesman for Duke, which runs four plants in California that= =20 produce enough energy for nearly 2.6 million homes.=20 The charges come as the state heads into negotiations next week with=20 generators over the $8.9 billion the state claims its consumers have been= =20 overcharged. Duke, based in Charlotte, N.C., came under considerable=20 criticism when it disclosed that it charged the state a record $3,880 a=20 megawatt-hour for power in January. Federal officials have called the charg= e=20 unreasonable and ordered Duke to refund California the money.=20 The employees, who first made their allegations public on ``CBS Evening=20 News'' Thursday night, will be the only witnesses today at an energy crisis= =20 hearing headed by lawmakers who suspect that power companies have been=20 illegally gouging California.=20 State Sen. Joe Dunn, D-Garden Grove, chairman of a committee investigating= =20 price gouging, said the allegations raise serious concerns. ``While we stil= l=20 need to hear the other side of the story from Duke, if there's any truth to= =20 the information, I believe it would be devastating to the generators,'' he= =20 said.=20 `Perfectly good parts'=20 In interviews with the Mercury News Thursday night, the three former plant= =20 workers said that they were directed to scale back energy production and=20 throw out good spare parts that kept the plant from getting up to full powe= r=20 for weeks.=20 Ed Edwards, who worked in the Southern California plant, said that he was= =20 told to get rid of many boxes of good spare parts. Edwards said he tossed= =20 more than 23 pallets of parts into a dumpster.=20 ``I don't know why they were throwing away perfectly good parts,'' he said.= =20 ``It didn't make sense.''=20 Johnson said the lack of on-site parts prevented workers from quickly fixin= g=20 problems that reduced the amount of power the plant could produce. Sometime= s,=20 he said, it took weeks to get parts.=20 Johnson's suspicions of gouging were echoed by Jimmey Olkjer, who spent 18= =20 years in the plant and worked as an assistant control operator.=20 Even at times when California regulators were warning residents the state= =20 might not be able to find enough energy to prevent imminent blackouts, Olkj= er=20 said, he was directed to scale back the amount of electricity the plant was= =20 producing.=20 ``In hindsight, it looks to me like they were manipulating the power,''=20 Olkjer said.=20 Duke called the allegations ``baseless'' and said the workers didn't=20 understand the reasons for the actions. ``Continued accusations, repetitive= =20 investigations and inflammatory rhetoric concerning the company's operation= s=20 in the state are distracting attention from the true issue of solving=20 California's energy crisis,'' Duke said in a statement.=20 Williams did not directly dispute the worker's allegations. But he said the= y=20 did not understand the reasons behind the decisions.=20 State directives=20 Duke cut back on the amount of power it was producing in response to=20 directives from state regulators at the Independent System Operator, which= =20 runs the power grid, Williams said.=20 ``They did not know that the ISO was instructing them to go up and down to= =20 meet supply and demand,'' he said.=20 An ISO spokeswoman said that the grid manager sometimes asks generators to= =20 produce more or less power to adjust traffic on the transmission system or= =20 respond to the state's electricity needs.=20 Some companies ``bid'' power into the reserve market, which means these=20 plants run only when the extra energy is tapped. ISO officials say they are= =20 prohibited from discussing individual bids.=20 As for the spare parts, Williams said they were eliminated as unnecessary= =20 after Duke bought the plants from San Diego Gas & Electric.=20 Williams said Duke has one of the best performance records in the state, wi= th=20 its power plants off-line for unscheduled maintenance only about 1.1 percen= t=20 of the time.=20 All three workers were given severance packages and let go in April.=20 But Edwards disputed any contention that they were trying to get back at=20 Duke.=20 ``I'm not a disgruntled employee,'' he said. ``I'm just telling the truth o= f=20 what I saw the last two years I worked there.''=20 No matter what the reasons were for the decisions, Duke has made huge profi= ts=20 during the California energy crisis. And those profits apparently created= =20 good cheer among Duke executives.=20 At one party, Johnson said, executives gleefully celebrated their good=20 fortune.=20 ``We're making more money than we ever thought possible,'' Johnson quoted t= he=20 plant's manager as saying.=20 Mercury News staff writer John Woolfolk contributed to this report.=20 Contact Dion Nissenbaum at dnissenbaum@sjmercury.com or (916) 441-4603.=20 Enron chief: Gov. Davis not to blame for energy crisis BY KAREN GAUDETTE Associated Press Writer SAN FRANCISCO (AP) -- California Gov. Gray Davis isn't to blame for=20 California's power crisis, and neither are electricity wholesalers, a Texas= =20 energy executive told a crowd at the Commonwealth Club of California.=20 Jeffrey Skilling, CEO and president of Houston-based Enron Corp., wiped awa= y=20 the remnants of a pie hurled by a protester Thursday and placed the blame= =20 squarely on California's energy regulators.=20 The state Public Utilities Commission in the early 1990s put together a=20 broken market by preventing utilities to pass along the full cost of power= =20 and discouraging power contracts that would have lowered dependence on buyi= ng=20 last-minute power, Skilling said.=20 ``Because of these rules, the power consumers of the state of California we= re=20 thrown totally to the mercy of the spot market,'' Skilling said.=20 PUC president Loretta Lynch defended the regulators' actions last week,=20 saying utilities have been free to enter into long-term contracts. Utilitie= s=20 countered that the PUC never made clear what contracts it would accept, whi= ch=20 left open the possibility they would later be overruled.=20 ``I think consumers in California are angry and they should be,'' Skilling= =20 said. ``Prices in California shouldn't be as high as they are.''=20 Skilling also:=20 --Congratulated Davis for California's ``unprecedented'' conservation=20 --Denied accusations that Enron chairman Kenneth Lay personally interviewed= =20 candidates for the Federal Energy Regulatory Commission, which oversees=20 interstate energy markets=20 --Told the audience to expect a report that would show California municipal= =20 utilities have profited the most selling power to the state=20 --Said price caps ordered by FERC earlier this week would likely damage the= =20 markets and would only exacerbate the problem=20 --Acknowledged that municipal utilities in the state have managed to provid= e=20 cheaper power to their customers and even profit from the power crisis by= =20 selling off extra power despite public control=20 Enron has come under fire after accusations from Davis and state officials= =20 that it and other energy companies forced electricity prices skyward by=20 holding back supply.=20 Enron denies such claims, and joins other power producers in arguing that t= he=20 state and utilities still owe them billions in unpaid bills. Davis=20 acknowledges that Pacific Gas & Electric Co., which has declared bankruptcy= ,=20 and Southern California Edison together still owe generators such as Enron,= =20 Duke Energy, Mirant and Reliant Energy about $2.5 billion for past=20 electricity sales.=20 ``Our success is linked to efficient markets, not higher prices in Californ= ia=20 or anywhere else,'' Skilling said.=20 Protesters gathered outside the building wearing pig masks and carrying=20 hand-made signs, one of which read ``Greed is the only power crisis.''=20 ``It's basically Enron and the other companies raising prices,'' said Berna= rd=20 Greening, a Santa Clara computer programmer who said he's unhappy with the= =20 record prices for electricity and natural gas.=20 Pete Snoek of Tiburon said he believed what Skilling had to say.=20 ``I believe the energy situation has been politicized so badly,'' Snoek sai= d,=20 saying he was one of several in the audience to shush protesters during the= =20 meeting. ``I hear the same people out there, as if it's a sin to make any= =20 money in this country.''=20 State officials counter that wholesalers charged as much as $9 billion in= =20 illegal overcharges dating back to May 2000.=20 Companies have said California's claims are wildly exaggerated.=20 The Federal Energy Regulatory Commission has already estimated that=20 wholesalers owe California $124 million in overcharges for the first four= =20 months of the year. Davis and others say that's a mere drop in the bucket.= =20 Enron has also been tied to President Bush's hands-off approach to the ener= gy=20 crisis. Company chairman Kenneth Lay is a friend and one of the largest=20 campaign contributors to Bush and the GOP. Several prominent members of the= =20 Bush administration hold stock in the company.=20 Enron is one of several major GOP donors accused of meeting secretly with= =20 Vice President Dick Cheney as he drafted the Bush administration's energy= =20 plan.=20 Enron is one of the world's leading electricity, natural gas and=20 communications companies, with $101 billion in revenues in 2000. It owns=20 30,000 miles of pipeline, has 20,000 employees and is active in 40 countrie= s.=20 During the first quarter of this year, Enron's revenues increased 281 perce= nt=20 to $50.1 billion.=20 Three say company purposely cut power=20 Ex-Duke workers say repairs were curbed in order to manipulate output.=20 June 22, 2001=20 By KIMBERLY KINDY The Orange County Register=20 FORMER DUKE ENERGY employees Ed Edwards, left, Glenn Johnson, center, and= =20 Jimmy Olkjer are to appear before a state Senate committee today. Photo: Dave Yoder / The Register ? Three former Duke Energy workers say they were ordered to tamper with=20 equipment at a San Diego County power plant - causing mechanical problems= =20 that helped drive up electricity prices during the state's energy crisis.= =20 The workers say they will offer eyewitness testimony to a state Senate=20 committee today - the first public accounts from power plant employees of h= ow=20 energy production may have been manipulated.=20 Duke officials deny most of the allegations. The whistle-blowers - mechanic= s=20 Ed Edwards and Glenn Johnson and control room operator Jimmy Olkjer - lost= =20 their jobs four months ago.=20 State Sen. Joe Dunn, the Santa Ana Democrat who is chairing the investigati= ve=20 committee on price-fixing, said his staff will attempt to verify the accoun= ts=20 from the whistle-blowers. But their mere presence in a Capitol hearing room= =20 is expected to set off a media circus. And if the accusations are true, it= =20 could have wide-ranging effects on the North Carolina company's operations = in=20 California. Duke officials were working late into the night to prepare for= =20 the hearing and have scheduled a news conference later today.=20 "They were doing all kinds of things that didn't make sense," Johnson said = in=20 an interview. "But if you asked them why, to explain, they told you to shut= =20 up and do your job."=20 The testimony comes on the heels of a Federal Energy Regulatory Commission= =20 ruling Thursday ordering Duke to refund $10 million in overcharges for=20 January 2001.=20 "This information lends credence to the concern that there was a deliberate= =20 strategy for outages for the sole purpose of impacting price," Dunn said.= =20 "What they are saying is disturbing."=20 Duke Energy spokesman Tom Williams said the fact that the former workers lo= st=20 their jobs may be shaping their testimony.=20 "The proof is in the pudding. Production is up and we've had fewer forced= =20 outages since we've taken over,'' said Williams.=20 But control-room logs obtained by The Orange County Register show Duke's=20 trading arm ordered its South Bay power plant in Chula Vista to reduce=20 production minutes after Stage Three alerts were issued. The logs are for= =20 January 2001 - the same month that Duke was accused of overcharging in=20 California.=20 The three former Duke workers each worked at the Chula Vista plant for more= =20 than two decades when it was owned by San Diego Gas & Electric. They lost= =20 their jobs when Duke assembled a new team to run the plant.=20 The three whistle-blowers outlined their accusations in interviews with the= =20 Register. The accusations include:=20 The company ordered workers to throw unopened boxes of bolts, steam seals,= =20 valves and other parts into Dumpsters. The parts were needed to perform=20 routine maintenance but were no longer available when repairs were required= .=20 Duke officials acknowledge that new parts were discarded, but say the high= =20 inventory tax made it more efficient to order parts as needed because they= =20 could be delivered within 24 hours.=20 Edwards and Johnson say they were ordered to dismantle critical equipment= =20 necessary for the generating units to run at full capacity. Because parts= =20 were thrown away, they couldn't make repairs and generators ran at diminish= ed=20 capacity for days or weeks. Energy experts say this allegation, if true,=20 would allow Duke to withhold energy from the marketplace, which could drive= =20 up the price. Duke officials counter that production has increased at its= =20 power plants and forced outages have decreased since they took over. But in= =20 late 2000, there was a spike in outages at the Chula Vista plant, according= =20 to records kept by the state's power-grid operator. The plant reported 3,00= 0=20 hours of outages from October through December. There were relatively few= =20 outages before that.=20 The mechanics say the inability to perform repairs forced them to use a=20 small, expensive generator that was rarely powered up before Duke took over= =20 the plant. Experts say that could have been used to exploit federal rules= =20 allowing generators to justify prices based on the costliest units online.= =20 Olkjer says he received orders from Duke's trading arm to reduce production= .=20 Then, when energy prices jumped, he would get new instructions to power up= =20 again. Duke officials did not respond to Olkjer's claim.=20 Stanford professor Frank Wolak, an expert in California's energy market, sa= id=20 that if their testimony can be proven, the state could be refunded millions= =20 of dollars and future energy prices could be dramatically reduced.=20 "What they are saying is amazing. This is a classic plot. I've always=20 wondered how they kept the generators out for so long,'' said Wolak, who=20 heads an electricity market surveillance for the California agency that=20 oversees the buying and selling of power. "They were very happy to have the= m=20 off-line because it allowed them to make more money.=20 Wolak said the testimony seems to back up research conducted by the state= =20 Independent System Operator, which runs most of the state's power grid and= =20 oversees the buying and selling of electricity in California.=20 In a report to federal regulators, ISO said that from May to November 2000,= =20 Duke withheld electricity from the state's power grid 80 percent of the tim= e.=20 The report accused more than a dozen power plant companies of powering down= =20 generators to create scarcity in the marketplace that would in turn drive u= p=20 prices.=20 In a separate report, the state power grid operator accused Duke of=20 overcharging California again in January of this year, resulting in the $10= =20 million refund order. Duke officials say charging $3,880 a megawatt-hour wa= s=20 justified during a short period of time. Federal regulators disagreed and= =20 said the power merchant should have charged no more than $273 per=20 megawatt-hour.=20 Williams, Duke's spokesman, said that the company has been an ethical=20 operator.=20 "All but 1.1 percent of the time, we were operating. That's very good,'' sa= id=20 Williams, adding that when SDG&E owned the plant forced outages took place= =20 1.8 percent of the time.=20 But Dunn said that if the testimony from the whistle-blowers is true, and= =20 Duke had the ability to manipulate prices, federal regulators would be=20 required under the Federal Power Act to move them out of the competitive=20 marketplace.=20 This would mean they would be moved back into a "cost-based" market structu= re=20 and would only be allowed to recover costs at a fair rate of return.=20 "This would bring the prices down dramatically in California,'' Dunn said.= =20 "What generators fear most is being returned to cost-based rate regulation.= "=20 Allegations=20 of market manipulation Nearly a dozen investigations are under way to determine if=20 energy producers=20 illegally manipulated California's dysfunctional electricity market. Here a= re=20 the main allegations: Was power=20 deliberately withheld to boost prices?=20 Several investigators, including the Public Utilities Commission, the=20 California attorney general and the Federal Energy Regulatory Commission, a= re=20 trying to determine if the largest generators and power marketers - includi= ng=20 Duke, Reliant, Mirant and Dynegy - shut down power plants at key times.=20 Federal=20 Environmental Protection Agency records showed times in December when=20 Tulsa-based Williams throttled back at midday, letting=20 Williams boost profits at other plants it=20 controlled, including a=20 Huntington Beach plant owned by AES Corp.=20 Were financial=20 incentives offered to plant operators who shut down?=20 Federal regulators have settled a case for $8.million with Williams. Among= =20 the allegations: Williams offered ffinancial incentives to AES if it would= =20 keep its plants offline. Williams has denied any wrongdoing. Did companies=20 collude?=20 Traders and producers were able to share=20 information on Web sites that helped them determine when to get the highest= =20 prices for electricity. Attorney General Bill Lockyer is investigating othe= r=20 allegations of collusion.=20 Were workers ordered to fake outages?=20 Three former Duke=20 employees will testify today that they were ordered to create=20 malfunctions at a San Diego County power plant, allowing the=20 company to command higher prices at other Duke-owned power plants. Duke=20 denies this. RELATED STORIES=20 =01=07 FERC judge tackles task of generating a deal =01=07 California's blackout forecasts rolled back=20 FERC judge tackles task of generating a deal=20 He's described as a down-to-earth gentleman, but one who 'can slice you up'= =20 if you cross him.=20 June 22, 2001=20 By DENA BUNIS The Orange County Register=20 WASHINGTON - He's a plain-talking, folksy Southern gentleman. But if the=20 nation's chief energy judge, Curtis Lee Wagner Jr., believes the players in= =20 Monday's megaconference aren't dealing straight with each other, watch out.= =20 "He's kind of like (President) Reagan -- a big-picture guy," says Patrick= =20 Wood, the newest federal energy commissioner who's known Wagner for years.= =20 "He can tell a story that always fits the situation." But cross him, and "h= e=20 can slice you up like a Veg-O-Matic."=20 The 72-year-old Tennessee lawyer has been the Federal Energy Regulatory=20 Commission's chief judge for 22 years. His 47 years of government service= =20 includes being a lawyer with the military and Justice Department.=20 And beginning Monday, he'll have California's electricity crisis in his=20 hands. All the players -- from the state to utilities to power generators -= -=20 will be in one room trying to settle who owes whom money and how much.=20 The state wants $9 billion in refunds from generators they say charged too= =20 much for electricity. The generators want billions from the utilities and t= he=20 state that they say didn't pay the bill for other power they bought. And=20 California's ratepayers just want to keep the lights on.=20 "I don't think there's $9 billion," Wagner said Thursday from his office at= =20 FERC headquarters. "I think there may be a billion or so."=20 He spent much of the day fielding calls from some of the several hundred=20 people who could show up in his hearing room Monday.=20 "Let's see, I've talked to Reliant, to Dynergy once, Mirant. I'm going to= =20 talk to Dynergy again this afternoon. And I've talked to the governor's=20 office, and I've talked to some FERC folks, to someone from Oregon and some= =20 municipalities in California. Oh, and I've talked to the fellow who is goin= g=20 to represent the city of Los Angeles."=20 Wagner likes to know what he's getting into ahead of time. He makes a habit= =20 of talking to everyone individually.=20 Monday's is the kind of deal Wagner likes best. Rather than a formal trial= =20 where he wears the robe, pounds the gavel and renders a decision after both= =20 sides make their cases, settlement conferences give him a chance to wheel a= nd=20 deal.=20 "First thing, I'll make an opening statement of some kind, give 'em a pep= =20 talk," Wagner said. "And if we have any big wheels there I'll let them say = a=20 thing or two."=20 After the introductions, he'll start to work through the issues. He'll take= =20 one guy aside, he said, then maybe two. Then maybe a group. And little by= =20 little he hopes to bring them together.=20 By all accounts this case could be more difficult than any he has handled.= =20 "This has got more dollars,'' Wagner said.=20 Thursday, Wagner asked California's Independent System Operator and the pow= er=20 sellers for information that can help him sort out the complicated issues. = He=20 wants the ISO to calculate what wholesale electricity prices wold have been= =20 had the price caps FERC ordered Monday been in effect in the fall of 2000.= =20 And he wants the power companies to tell him how much power they have to se= ll=20 - short and long term.=20 And as if his task wasn't difficult enough, FERC has asked Wagner to make= =20 this deal in 15 days.=20 "It's pretty tight," he said, "but it can be done."=20 Stephen Angle, a Washington lawyer who represents power producers and=20 utilities, ran FERC's trial section for 14 years. The California case is on= e=20 of the most difficult he's seen. But he's not counting Wagner out.=20 "I have learned that it's unwise to assume he won't be successful," Angle= =20 said. The odds that Wagner will get a deal? "Fifty-fifty."=20 This is not the only high-profile case that's taking up the chief's time=20 these days. He's presiding over a FERC inquiry into whether El Paso Energy= =20 Corp., a large natural gas pipeline owner, is overcharging California.=20 Wagner has a history of taking impossible cases.=20 Angle says he recently worked with the judge on a dispute in the Midwest.= =20 "That was a case where few people thought would be successful," Angle said.= =20 It had been on FERC's docket for years. Wagner got the people talking and= =20 emerged with a settlement.=20 And Monday won't be Wagner's first effort at solving California's energy=20 crisis.=20 Last December, he got the parties together to try to break the logjam over= =20 the long-term contracting issue. But just as he was getting a head of steam= =20 on that, says Wood, the Clinton administration yanked the deal away from=20 Wagner and tried to broker it themselves.=20 "I know he's too much of a gentleman to say it. But that was a missed=20 opportunity."=20 Now he'll be reuniting some of the same parties that were together six mont= hs=20 ago.=20 Because of Wagner's longevity on the bench, almost every lawyer or energy= =20 executive who is likely to be in the hearing Monday will have had some=20 dealings with him.=20 "He'll be very clear. He will not mince words," said former FERC Chairman= =20 James Hoecker. "He will make his impatience with any dawdling very, very=20 obvious to everyone.''=20 Davis seeks $9 billion refund=20 The governor tells a Senate panel that power operators 'bilked our state.'= =20 June 21, 2001=20 By DENA BUNIS and KATE BERRY The Orange County Register=20 WASHINGTON - Gov. Gray Davis told anyone here who would listen Wednesday th= at=20 overcharges from what he calls greedy power generators have now risen to $9= =20 billion - $2 billion more than earlier reported.=20 And he wants that money back.=20 The governor said if the meetings federal regulators have ordered next week= =20 to try and hammer out the differences between power companies, utilities an= d=20 the state do not end with that kind of money in California's pocket, he'll = be=20 back.=20 "They must be required to give us back our money,'' Davis told the Senate= =20 Government Affairs Committee during two hours of testimony and questioning.= =20 It was the first time California's chief executive has testified on the=20 state's crisis. "It is unconscionable that FERC looked the other way while= =20 energy companies bilked our state for up to $9 billion."=20 The $9 billion is the amount California's Independent System Operator says= =20 generators overcharged utilities and the state from May 2000 to May of this= =20 year. It had initially calculated that between May 2000 and February 2001= =20 there were $6.7 billion in overcharges, Davis said. Those figures are a far= =20 cry from the $124 million that the Federal Energy Regulatory Commission say= s=20 were overcharges. That's because FERC only looked at three months of rates= =20 and only when the state was in an energy alert.=20 The governor faced tough, pointed questioning from Republican members and= =20 glowing praise and sympathy for his state's plight from Democratic=20 colleagues.=20 Everything from refunds to long-term contracts will be on the table at next= =20 week's settlement meeting. FERC has given the parties until July 9 to make = a=20 deal.=20 If they can't, the administrative judge overseeing the talks will make a=20 recommendation to FERC, which can order the paybacks. Sen. Barbara Boxer=20 introduced a bill Wednesday to require refunds if FERC doesn't act.=20 Not surprisingly, generators don't see the refund issue the governor's way.= =20 "It's just crazy," said Tom Williams, a spokesman at Duke Energy. "I don't= =20 know how they're coming up with these numbers."=20 And there's skepticism about next week's talks.=20 "The negotiations are going to be like the SALT Treaty," said Gary Ackerman= ,=20 president of the Western Power Trading Forum, which represents power=20 suppliers. "I question whether it can happen and work out."=20 Also at issue is money generators say they are owed by the utilities. Davis= =20 said that's about $2.5 billion. But power companies say it's more like $5.5= =20 billion to $6.5 billion.=20 Whatever the figure, Davis said, "we want to see their money in our pockets= =20 before we talk about working anything out on their end."=20 The settlement conference was part of FERC's order instituting=20 around-the-clock price caps for California and its 10 Western neighbors.=20 Those price caps were made possible, experts agree, because California=20 lawmakers from both sides of the aisle riled up the public enough over the= =20 issue that the Bush administration felt the heat.=20 The question is whether that can work with refunds.=20 "Pressure could come from a number of places," said Charles Cook, a=20 nonpartisan political analyst who has followed California's crisis. "It cou= ld=20 come from Republican members from the state, from party donors in Californi= a=20 who (President George W.) Bush is going to have to go back to, and then may= be=20 from his economic advisers who say that California can't be allowed to go= =20 belly up."=20 Davis and Sen. Dianne Feinstein, D-Calif., said new FERC Commissioner Patri= ck=20 Wood, a confidant of Bush, has been receptive to their refund pleas. That w= as=20 the case Wednesday when Wood - expected to be named FERC chairman sometime= =20 this year - told members of the Senate panel that refunds "may be an=20 important tool in the regulatory toolbox. If we're to be a vigilant market= =20 cop, we need to make sure that our bite matches our bark."=20 Wood and the other new commissioner, Nora Mead Brownell, will meet with Dav= is=20 in Sacramento on Monday.=20 RELATED STORY=20 =01=07 Energy notebook Energy notebook=20 Blackouts are still a hot prospect, officials warn=20 June 21, 2001=20 By the Associated Press=20 BERKELEY - Experts at the University of California Energy Institute say=20 residents statewide should not be comforted by the fact that widespread=20 blackouts have been avoided recently.=20 "I would say this is not a great sign that we're going to skate by later th= is=20 summer," said Severen Borenstein, a UC Berkeley economist who heads the=20 institute. "It doesn't look like the system right now can handle a blazing,= =20 hot day. If it's real hot in Northern and Southern California, we're going = to=20 have blackouts."=20 Greg Fishman, a spokesman for the California Independent System Operator,= =20 which controls the state's electricity grid, said ISO preferred to look on= =20 the bright side.=20 "Does the fact that we're meeting electricity demand today mean we're out o= f=20 the woods? No, but is the fact that we're meeting demand today good? Sure i= t=20 is," Fishman said.=20 Air conditioners are the single biggest factor in summer electricity demand= .=20 "If thermostats on air conditioners were turned to 78 degrees across the=20 state, this problem would pretty much go away," Borenstein said.=20 Davis' plan to buy SDG&E grid has fans and critics=20 SAN DIEGO - Gov. Gray Davis' plan for the state to buy San Diego Gas &=20 Electric Co.'s transmission system, owned by parent company Sempra Energy, = is=20 getting mixed reaction.=20 Under the plan unveiled Monday, the state would buy the system for $1=20 billion, and a $747 million debt owed to the utility by its customers would= =20 be forgiven.=20 "It would seem that anything that in the short term lets the ratepayers off= =20 the hook, particularly small businesses that can ill afford drastic balloon= =20 payments, is a good thing," said Suzanne Strassburger of Escondido's Downto= wn=20 Business Association.=20 Douglas Heller, a consumer advocate with the Foundation for Taxpayer and=20 Consumer Rights, called the deal "a cruel joke on the part of Gov. Davis to= =20 say that he's burst the balloon payment, because we're going to be paying f= or=20 it. We're applying that much to buy out Sempra's transmission lines."=20 GE tries to enter state's transmission-lines business=20 SACRAMENTO - Through an alliance with a little-known start-up company,=20 General Electric Co. is trying to enter California's transmission- lines=20 business.=20 Although Trans-Elect, a 2-year-old company based in Washington, has no=20 experience in the transmission business, it has the financial support of GE= 's=20 $66 billion financial arm, GE Capital. Trans-Elect's latest offer comes as= =20 Gov. Gray Davis seeks legislative approval for his plan to buy the=20 transmission lines of both San Diego Gas & Electric and Southern California= =20 Edison.=20 Any involvement by GE in the state's transmission grid could be a conflict = of=20 interest, said a lawmaker involved in the efforts to end California's power= =20 crisis.=20 "You've got someone with generation and transmission systems, how do they= =20 keep them separate and do they?" said Assemblyman Fred Keeley, D-Boulder=20 Creek. "That's a concern for me. Would they have the ability to restrict=20 competitors' access to transmissions?"=20 Bob Mitchell, Trans-Elect's vice president, said the company made its offer= =20 believing that the Legislature won't approve the deals to buy the two=20 utilities' lines.=20 GE joined forces with Trans-Elect on March 14, when GE Capital Services=20 Structured Finances Group Inc. announced it had bought a minority stake in= =20 the company. Neither company would reveal the size of the investment.=20 In other news:=20 A state board unanimously voted to reclaim its role in setting property tax= es=20 for electricity generators. Supporters say the Board of Equalization's=20 decision could mean millions of dollars in higher taxes for electricity=20 companies. The EOB will resume setting the assessed value of plants that=20 produce at least 50 megawatts of power and are owned by generating companie= s=20 whose rates are not controlled by the state.=20 Despite hot temperatures in much of the state, blackouts were averted=20 Wednesday as power reserves remained above 7 percent. Track the state's=20 blackout warnings on the Web at www.caiso.com/SystemStatus.html.=20 In rolling blackouts, 'together' is all relative=20 June 21, 2001=20 I have a confession to make: I'm an N001. And as an N001 I can't help feeli= ng=20 a little guilty.=20 I feel guilty that I won't be called upon to share the pain of all those=20 A001s in=20 Irvine and Laguna Woods, or the M003s in Costa Mesa and Cypress. While the= =20 M011s in Fountain=20 Valley suffer and sweat through rolling blackouts, I'll be sitting pretty.= =20 Because I'm an N001. And the dirty little secret about rolling power=20 blackouts is how many of us are out there.=20 Allow me to explain.=20 As you may have heard, Southern California Edison has been required to set = up=20 a public notification system for rolling blackouts. If you hear on the news= =20 that the power guys are expecting rolling blackouts, you can go to a Web si= te=20 (www.sce.com) or call a toll-free phone number (800-611-1911) to see if you= r=20 "rotating outage group" is on the list for going temporarily dark.=20 How do you know which group you're in? On your Edison power bill, next to= =20 your account number, there's a code that starts with A or M - A001, A002,= =20 M001, M002 and so on. That's your outage group number.=20 But wait. There's another category of outage group. If your power bill has= =20 the code number N001 on it, it means that you're exempt from rolling=20 blackouts.=20 You see, under Public Utilities Commission rules, electric power customers= =20 who provide "essential public health, safety and security services" - such = as=20 fire and police stations, hospitals, jails and so on - are automatically=20 exempt from rolling blackouts, even if they have emergency generators on=20 site. And because of the way electric power service is set up, anybody who'= s=20 on the same circuit with an essential service provider is also exempt from= =20 rolling blackouts.=20 For example, my house shares a circuit with a fire station. So I'm an exemp= t=20 N001, as are the other power customers on the same circuit.=20 But here's the kicker: According to an Edison spokesman, 50 percent of all= =20 Edison customers are N001s - that is, they share circuits with essential=20 service providers, and thus are currently exempt from rolling blackouts.=20 Let me repeat that: Half of all Edison customers are exempt from rolling=20 blackouts. (For San Diego Gas & Electric customers it's 40 percent.)=20 Mind you, this isn't something Edison likes to publicize. When I asked abou= t=20 it for a column three months ago, Edison said it didn't know how many power= =20 customers are automatically exempt. And when the company unveiled its=20 blackout warning plan this week, neither the Edison press release nor news= =20 reports mentioned the 50 percent exemption figure.=20 True, even exempt power customers can be affected by rolling blackouts - at= =20 work, at the store, at a traffic light.=20 Still, the next time you hear some power company or government official say= ,=20 "We're all in this together," don't believe it. When it comes to rolling=20 blackouts, the truth is that only half of us are really all in this togethe= r.=20 And even an N001 can see that isn't fair.=20