Message-ID: <31848366.1075848230713.JavaMail.evans@thyme> Date: Wed, 6 Jun 2001 06:13:00 -0700 (PDT) From: miyung.buster@enron.com To: ann.schmidt@enron.com, bryan.seyfried@enron.com, elizabeth.linnell@enron.com, filuntz@aol.com, james.steffes@enron.com, janet.butler@enron.com, jeannie.mandelker@enron.com, jeff.dasovich@enron.com, joe.hartsoe@enron.com, john.neslage@enron.com, john.sherriff@enron.com, joseph.alamo@enron.com, karen.denne@enron.com, lysa.akin@enron.com, mark.palmer@enron.com, mark.schroeder@enron.com, markus.fiala@enron.com, michael.brown@enron.com, mona.petrochko@enron.com, nicholas.o'day@enron.com, peggy.mahoney@enron.com, peter.styles@enron.com, richard.shapiro@enron.com, rob.bradley@enron.com, sandra.mccubbin@enron.com, shelley.corman@enron.com, stella.chan@enron.com, steven.kean@enron.com, susan.mara@enron.com, mike.roan@enron.com, alex.parsons@enron.com, andrew.morrison@enron.com, lipsen@cisco.com, janel.guerrero@enron.com, shirley.hudler@enron.com, kathleen.sullivan@enron.com, tom.briggs@enron.com, linda.robertson@enron.com, lora.sullivan@enron.com, jennifer.thome@enron.com, jkradin@marathon-com.com, rlichtenstein@marathon-com.com, syamane@marathon-com.com, ken@kdscommunications.com, hgovenar@govadv.com, sgovenar@govadv.com, bhansen@lhom.com, carin.nersesian@enron.com, robert.neustaedter@enron.com, john.shelk@enron.com, chris.holmes@enron.com, evan.hughes@enron.com, roberta.staehlin@enron.com, lamar.frazier@enron.com, ban.sharma@enron.com, pat.shortridge@enron.com, karen.moore@enron.com, kurt.lindahl@enron.com, marcus.dotson@enron.com Subject: Energy Issues Mime-Version: 1.0 Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: quoted-printable X-From: Miyung Buster 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 X-cc: X-bcc: X-Folder: \Steven_Kean_June2001_5\Notes Folders\Notes inbox X-Origin: KEAN-S X-FileName: skean.nsf Please see the following articles: Sac Bee, Wed, 6/6: Businesses vie for blackout exemptions:=20 The PUC must decide who should be spared, and the applicant list is very lo= ng Sac Bee, Wed, 6/6: PG&E, ISO agree to court order on power bills Sac Bee, Wed, 6/6: Peter Schrag: Turning up the heat in Houston and=20 Washington (Editorial) SD Union, Wed, 6/6: Is trading an insider's game? SD Union, Wed, 6/6: Daily energy costs for state fall in past weeks=20 SD Union, Wed, 6/6: Five tiers sought in proposed rate boost SD Union, Wed, 6/6: Port budget large, but power bills loom SD Union, Wed, 6/6: Continuous use urged for planned power plant=20 SD Union, Wed, 6/6: Rising energy prices threaten Poway troupe=20 SD Union, Wed, 6/6: Fair to use generators for midway attractions LA Times, Wed, 6/6: 'Hi, My Name Isn't Justice, Honey,' and Shame on Lockye= r =20 (Editorial) LA Times, Wed, 6/6: U.S. Probes Alleged Pact Not to Build New Plants Power:= =20 Justice officials focus on Southland operations of two firms, which deny=20 wrongdoing LA Times, Wed, 6/6: Natural Gas, Power Prices Drop Sharply Energy:=20 More conservation, mild weather are among factors keeping costs down, exper= ts=20 say LA Times, Wed, 6/6: The State Utility Averts $1 Billion in Costs Courts:=20 PG&E and Cal-ISO agree to recognize Department of Water Resources as=20 purchaser of the power SF Chron, Wed, 6/6: Dramatic drop in cost of electricity=20 LOWER BILLS: Cheaper fuel, milder weather credited SF Chron, Wed, 6/6: San Jose council gives green light to generating plant= =20 VOTE REVERSAL: Officials pressured to OK project SF Chron, Wed, 6/6: Developments in California's energy crisis SF Chron, Wed, 6/6: California conserves SF Chron, Wed, 6/6: L.A. power customers awash in cheap energy SF Chron, Wed, 6/6: PG&E doesn't want to pay for energy to avert blackouts Mercury News, Wed, 6/6: Metcalf plant gets preliminary approval=20 OC Register, Wed, 6/6: Feds probe AES, Williams Individual.com (PRnewswire), Wed, 6/6: Calpine Begins Construction of=20 Peaking Energy Center in Gilroy, Calif.=20 Individual.com (PRnewsire), Wed, 6/6: Reliant Urges FERC to Drop or Amend= =20 California Price Caps to Avoid Additional Shortages and More Blackouts Energy Insight, Wed, 6/6: Farm-fresh biopower ---------------------------------------------------------------------------= --- --------------------------------------- Businesses vie for blackout exemptions: The PUC must decide who should be= =20 spared, and the applicant list is very long. By Carrie Peyton and Dale Kasler Bee Staff Writers (Published June 6, 2001)=20 Mixes for milkshakes and frozen coffees could spoil at ice cream parlors,= =20 sickening customers.=20 Seniors getting their hair done would have to leave their dryers and go hom= e=20 with wet heads, risking a chill.=20 Mall escalators could come to a sudden halt, endangering shoppers who lose= =20 their footing.=20 Those are among the health and safety risks cited by more than 10,000=20 businesses and government bodies asking state regulators to exempt them fro= m=20 rolling blackouts.=20 It is a list that mixes nursing homes and grocery stores, outpatient surgic= al=20 clinics and beauty salons, dialysis centers and country clubs.=20 "A lot of people are treating this like a lottery," said Subodh Medhekar of= =20 Exponent Inc., the consulting firm sorting through exemption requests for t= he=20 state Public Utilities Commission.=20 For many, Medhekar said, the rationale seems to be " 'I'm pretty sure I won= 't=20 get exempted, but what's the down side? Let's put in an application.' "=20 Amid predictions that Californians could face dozens of rolling blackouts= =20 this summer, state regulators are trying to update a decades-old list of wh= o=20 should be spared if the lights go out.=20 The Alta Sierra County Club in Grass Valley should be among those whose pow= er=20 stays on, Sean O'Brien, the club's golf course superintendent, told=20 regulators in a nine-page application.=20 The country club telephones could go out, making it harder to phone for hel= p=20 if someone has a medical problem while golfing, he said in an interview.=20 And if the golf course's irrigation pumps shut down, it would lose the=20 ability to quell small blazes -- leaving it to rely on a fire station O'Bri= en=20 said is about one-quarter mile away.=20 Placerville Dialysis wants an exemption, too. As many as a dozen people the= re=20 can be having their blood pumped through an artificial kidney that cleans i= t=20 when their own kidneys no longer function properly.=20 "When the power goes out, everything just stops," said manager Shirley=20 Carpenter. "There is a way to manually return the blood by hand before it= =20 clots in the line. ... It would just be hectic."=20 It takes about five minutes of manual pumping to fully disconnect someone= =20 from a dialysis machine, Carpenter said. And some patients can help by=20 operating their own pumps.=20 But, she said, "I'm sure it would be kind of frightening to have your blood= =20 out in the line and the power off, and they're pretty much tied to the=20 machine."=20 Pam Chin, a hairdresser at the Loomis Beauty Salon, said the owner sought a= n=20 exemption because people could get overheated if the air conditioning went= =20 out, and older customers getting their hair set could be chilled if the=20 dryers shut off.=20 With about half the state already exempt from rolling blackouts, the questi= on=20 of who else should stay connected has become a delicate one for utilities,= =20 regulators and legislators.=20 Carl Wood, the PUC commissioner who has taken the lead on blackout issues,= =20 estimates that fewer than 1,000 more utility customers can be exempted befo= re=20 they overload the rolling outage system designed to take stress off the=20 electric grid.=20 While about 6,000 customers are classified as "essential" by the state's tw= o=20 largest utilities, keeping them out of the blackout rotation also spares=20 about 5 million other customers who are served by the same circuits.=20 That multiplier effect will have to be weighed by the consulting firm, by= =20 utilities and eventually by PUC commissioners, who are scheduled to vote in= =20 early August on who should be added to existing standards.=20 The rules will apply to the state's investor-owned utilities, Pacific Gas a= nd=20 Electric Co., Southern California Edison and San Diego Gas & Electric Co.,= =20 but not to municipal utilities.=20 The Sacramento Municipal Utility District already rejected pleas for specia= l=20 exemptions from a medical lab, a veterinary hospital, nursing homes, medica= l=20 facilities, businesses and residents. SMUD believes they can weather=20 blackouts because they are not critical to public safety.=20 People have counted on having dependable electricity for so long that some= =20 have widely varying ideas of who can do without it safely, Medhekar said.= =20 Of the more than 500 Baskin Robbins ice cream parlors that dot California,= =20 only five are listed on the PUC Web site as applicants for exemptions.=20 The site cautions that its list of 9,239 electronic applicants hasn't been= =20 checked for duplicates -- or fiction. It includes hundreds of outlets of th= e=20 same drug store and supermarket chains, dozens of related nursing homes and= =20 more than 400 dentists. Another 1,200 commercial power users have applied b= y=20 fax.=20 Among those who have confirmed they want out of outages are the grocery=20 chains operated by West Sacramento-based Raley's, which said it took the=20 action as part of united effort with all California grocers, who are worrie= d=20 about food spoilage.=20 Others in the mix are Fairfield's Westfield Shoppingtown Solano, formerly t= he=20 Solano Mall, where officials sought the exemptions out of fear that shopper= s=20 would get injured if escalators came to a sudden halt.=20 The Yolo County Housing Authority asked for an exemption on behalf of its 7= 00=20 dwellings in the belief that the utilities offer exemptions for low-income= =20 Californians, Executive Director David Serena said.=20 Serena added that many of the authority's occupants are older or disabled a= nd=20 could be endangered by a blackout.=20 Chevron Corp. acknowledged it couldn't show that a blackout at its refineri= es=20 would present "imminent danger to public health or safety," but it asked Go= v.=20 Gray Davis to support legislation exempting makers and transporters for=20 "critical fuels," saying a refinery shutdown would cut into the state's=20 gasoline supply.=20 Some businesses acknowledged that their applications are a long shot.=20 "It's probably a stretch," said Amanda Leveroni, who owns Bacio Catering Co= .=20 of Chico, about her request to the PUC. "The public wouldn't be in danger.= =20 "But we're a catering company -- somebody has planned for a year-plus for a= =20 wedding or some big event," she added. "I would be in such a huge situation= .=20 I'd have to send out for pizza."=20 The Bee's Carrie Peyton can be reached at (916) 321-1086 or=20 cpeyton@sacbee.com. PG&E, ISO agree to court order on power bills By Claire Cooper Bee Staff Writers (Published June 6, 2001)=20 SAN FRANCISCO -- Pacific Gas and Electric Co. and the operator of=20 California's power grid agreed Tuesday to a preliminary court order providi= ng=20 that the utility will continue to receive -- but not pay -- generators' bil= ls=20 for the state's purchases of the most expensive wholesale electricity.=20 The tab has been running at about $300 million a month.=20 The order, which U.S. Bankruptcy Judge Dennis Montali said he'll sign, will= =20 specify that the Independent System Operator will not procure power except= =20 for a "creditworthy buyer who has agreed to pay the generator."=20 In California, the only such potential buyer is the state Department of Wat= er=20 Resources. However, the department, which has avoided PG&E Co.'s bankruptcy= =20 proceedings by claiming sovereign immunity, will not be controlled by the= =20 agreement. Montali pointed out that the department still could demand=20 reimbursement from PG&E.=20 Under the agreement, the ISO will not press any claims against PG&E on beha= lf=20 of generators if they are not paid.=20 The proposed preliminary injunction was based on an April order by the=20 Federal Energy Regulatory Commission, which forbade the ISO from purchasing= =20 power on behalf of any non-creditworthy buyer, such as PG&E.=20 The ISO is appealing the FERC order. If the appeal succeeds, the injunction= =20 will end.=20 Peter Schrag: Turning up the heat in Houston and Washington (Published June 6, 2001)=20 Behind all the palaver about the predictable standoff at last week's energy= =20 "summit" between President Bush and Gov. Gray Davis, one major political=20 development was missed.=20 Put simply, in the past month the focus of the California energy crisis, an= d=20 maybe the onus as well, has moved east: from the state's (and Davis')=20 handling of the mess to the generating companies, energy marketers and gas= =20 pipeline companies that have richly profited from it, and thus to FERC, the= =20 do-next-to-nothing Federal Energy Regulatory Commission, and the Bush=20 administration.=20 That wasn't all Davis' doing -- far from it -- though it's been at the hear= t=20 of his message about energy industry "pirates" and "profiteers." Bush's=20 misbegotten energy plan and the administration's political clumsiness also= =20 contributed mightily, not least by inadvertently giving Davis the chance to= =20 get media exposure he could only have dreamed about.=20 More important, there's the defection of Sen. James Jeffords from the=20 Republican Party and the resulting shift of control in the U.S. Senate, whe= re=20 the next chair of the Energy Committee will be Sen. Jeff Bingaman of New=20 Mexico, a co-sponsor of Sen. Dianne Feinstein's bill capping wholesale=20 electric rates for the next two years. And chairing the Committee on=20 Governmental Affairs will be Sen. Joseph Lieberman of Connecticut, who's=20 already asked for an audit of energy prices.=20 Those changes will draw a lot more attention to recent studies showing that= a=20 handful of big generators -- Duke Power, Reliant, Mirant, Dynegy and the hu= ge=20 energy-marketing firm Enron -- have gamed the market to drive wholesale=20 prices to levels that, in the year 2000, sometimes reached 40 times the=20 prices of the year before.=20 The findings come not merely from economists at the California Independent= =20 System Operator, the agency that manages the state's grid, who estimate=20 overcharges resulting from market power at $6.2 billion for last year alone= .=20 They come also from Severin Borenstein and his colleagues at the University= =20 of California Energy Institute, who "conservatively" calculate the=20 overcharges at $4.5 billion; from Paul Joskow, a widely respected energy=20 economist at MIT; and from Edward Kahn, an economic analyst in San Francisc= o.=20 In a recent paper published by the National Bureau of Economic Research,=20 Joskow and Kahn conclude that there's "considerable evidence that the high= =20 prices experienced in the summer of 2000 reflect the withholding of supplie= s=20 from the market by suppliers [generators or marketers] exercising market=20 power." That those high prices occurred not merely during peak usage but al= so=20 at off-hours, when no one had ever seen a price spike before, makes those= =20 spikes even more curious.=20 There is, in addition, the powerful suspicion that the huge increase in=20 natural gas prices that a subsidiary of El Paso Energy Co., now the largest= =20 gas company on Earth, was charging on the California side of the=20 California-Arizona border wasn't merely the result of an innocent imbalance= =20 between supply and demand.=20 None of that may be illegal. If there's no collusion, there are no violatio= ns=20 of antitrust laws. But it adds plenty of steam to the political argument. I= n=20 the 2000 election cycle alone, energy companies kicked in some $64 million = in=20 political contributions, 75 percent of it to Republicans. At a time when=20 those companies, many of them located in the same Houston neighborhood, are= =20 racking up astronomical profits and when their collective coziness with Bus= h=20 and the Republican Party is a lot more than rhetoric, their vulnerability t= o=20 a vigorous Senate investigation ought to be obvious.=20 The clincher is "Blackout," a "Frontline" program that both symbolizes the= =20 shifting emphasis and reinforces it. (The program is scheduled to be aired = at=20 8 p.m. Friday on Sacramento cable Channel 7.) It isn't another recital of= =20 Californians worrying about their electric bills, or about the stupidity of= =20 the state's deregulation scheme or how Davis dithered in addressing the=20 crisis. It is about those generators and marketers in Houston and North=20 Carolina, men (and a few women) who regard themselves as the heroes of the= =20 new energy markets.=20 The piece is reported by Lowell Bergman, who in working for both "Frontline= "=20 and the New York Times has already broken major print stories about Duke=20 Power's secret approach to Davis offering unspecified energy refunds in=20 return for an end to state investigations and lawsuits. Bergman also report= ed=20 private conversations between Enron chairman Kenneth Lay, a major Bush=20 supporter, and FERC chairman Curt Hebert regarding the influence that Lay= =20 could exercise with Bush to allow Hebert to keep his chairmanship if Hebert= 's=20 supported certain decisions Enron badly wants.=20 None of these recent events is likely to end Davis' political woes, and the= y=20 may not produce the wholesale rate caps Feinstein wants and that most=20 economists think necessary -- or maybe any significant reduction in the=20 industry's predatory pricing. But they will surely help turn up the heat,= =20 both in Houston and Washington. Six months ago FERC found wholesale prices= =20 were not "fair and reasonable" as federal law requires, but did little abou= t=20 them. It will now have a lot more questions to answer.=20 Peter Schrag can be reached at Box 15779, Sacramento, CA 95852-0779, or at= =20 pschrag@sacbee.com. Is trading an insider's game?=20 Buying, selling of electricity is a growth business, but some say deck is= =20 stacked against consumers By Craig D. Rose=20 UNION-TRIBUNE STAFF WRITER=20 June 6, 2001=20 While Californians decry deregulation's failure to deliver a competitive=20 market, electricity wholesalers have quietly developed a vast and rapidly= =20 growing business of buying and selling power among themselves.=20 The deals take place on high-tech trading floors in Houston and elsewhere= =20 around the country, as well as on Internet-based trading systems.=20 Some experts say this electricity trading is a key mechanism for raising=20 consumer power prices, yet it's largely unregulated.=20 "Electricity trading is like buying stock -- when you have ability to chang= e=20 the stock price," said Frank Wolak, a Stanford University economics profess= or=20 and member of the state grid operator's market surveillance group.=20 Energy companies say the buying and selling of contracts to deliver power= =20 provides risk management, allowing plant owners to presell their electricit= y,=20 lock in prices and avoid fluctuations. The rough and tumble of the free=20 market, they add, is the most efficient means of allocating a resource like= =20 electricity.=20 But industry critics say trading is far from a competitive market paradigm.= =20 In their view, it's a means of communication -- a way for energy insiders t= o=20 collude and raise prices under the guise of competition.=20 To be sure, the trading arms of major energy companies have emerged as star= s=20 in an industry where profit surges of 300 percent or 400 percent are not=20 uncommon.=20 The transactions, shrouded in secrecy, can leave ownership of a critical=20 commodity in unknown hands. Consider the case of power generated by AES=20 Corp.'s California plants.=20 In 1998, AES made a bold move. Immediately after purchasing power plants th= at=20 gave it control of 10 percent of the state's electric generating capacity,= =20 the company sold the output from its plants for the next 20 years to Willia= ms=20 Cos.=20 Williams did not sit on this treasure trove of electrons. The Tulsa, Okla.,= =20 company soon sold 80 percent of what it bought.=20 It is difficult to say who owns that power now. Some might be owned by Semp= ra=20 Trading, a sister company of SDG&E. Or some could be owned by Enron Corp.,= =20 the nation's biggest electricity trader.=20 A spokeswoman for Williams conceded that Williams itself may have repurchas= ed=20 some of the electricity it sold earlier. But trading companies closely guar= d=20 their positions.=20 This much can be said with certainty: Electricity that AES sold for less th= an=20 5 cents per kilowatt-hour to Williams changed hands perhaps 10 times in the= =20 wholesale market and emerged at times in recent months with a price tag for= =20 consumers that was 300 percent higher.=20 Williams' trading profits increased by 523 percent in the first quarter thi= s=20 year. Advance sales All this buying and selling creates curious confluences.=20 In their attempt to deflect criticism over high prices, generating companie= s=20 such as Duke Energy -- operator of the South Bay Power Plant in Chula and= =20 others in the state -- frequently note that they sell most of their=20 electricity far in advance. But they acknowledge less often that their=20 trading units may also be buying power, which could boost the company's=20 electricity inventory.=20 Duke was the fourth biggest electricity trader last year and cited its=20 trading activity as a prime contributor to its wholesale business profits,= =20 which soared 324 percent in the first quarter to $348 million.=20 It is a company's power traders who frequently direct plant operators to=20 increase or decrease the generation of power in response to market=20 conditions.=20 Energy companies have little option but to turn to trading for profits. One= =20 of the better kept secrets of electrical deregulation and its promise of=20 competition is that there is remarkably little competition in the productio= n=20 side of the business.=20 For one thing, electricity is a commodity; power from one company is=20 indistinguishable from that generated by others.=20 More important, nearly all modern plants generate power from turbines built= =20 by a handful of manufacturers. The result? Modern plants owned by different= =20 companies produce power at nearly identical cost.=20 "The cost of power produced by modern plants is all within a mil=20 (one-thousandth of a dollar)," said Michael Peevey, an adviser to Gov. Gray= =20 Davis and former president of Southern California Edison.=20 So the extraction of profit in the electricity business relies much more on= =20 trading. Traders' profits rise when prices are volatile -- plunging, or eve= n=20 better, rising sharply. Little regulation But despite the obvious temptation to manipulate the market, the burgeoning= =20 electricity trading business has remained largely unregulated.=20 The Federal Energy Regulatory Commission does require quarterly filings fro= m=20 energy traders, but these often provide incomplete information, or at least= =20 little that has been of concern to FERC.=20 In fact, although the trading of electricity grew more than a hundredfold= =20 from 1996 to 2000, FERC has taken no major enforcement action against a=20 trader. After the onset of the California crisis last year, FERC has acted= =20 once. That was against Williams, which agreed to pay $8 million without=20 admitting guilt to resolve an allegation that it withheld supply to pump up= =20 prices.=20 FERC's record of enforcement in the area of power trading stands in contras= t=20 to a long list of enforcement actions within other markets taken by the=20 Securities Exchange Commission and the Commodity Futures Trading Commission= .=20 FERC has recently added staff to its market oversight operations. But Willi= am=20 Massey, a FERC commissioner, says the agency's effort is still inadequate.= =20 "Electricity can be flipped, stripped and chopped up," Massey said. "It's a= n=20 extraordinarily complicated market.=20 "The sophisticated marketers and traders have simply moved past us. We're= =20 kind of horse and buggy in our approach and they're out there in rocket shi= ps=20 flying around ... The problem is that sophisticated traders don't necessari= ly=20 produce reasonable prices. They produce profits."=20 Before deregulation, electricity trading was a low-key affair. Regulated=20 utilities dealt power back and forth on a reciprocal basis to fill=20 electricity shortfalls in their control areas. There was little trading for= =20 profit until the mid-1990s, after federal legislation and FERC rulings open= ed=20 the market.=20 Major traders include large energy companies, sister companies of=20 California's major utilities and Wall Street firms. Market volatility In many ways, the trading of power is similar to that of other commodities.= =20 But there are important differences. Because it cannot be stored and its us= e=20 is so fundamental, the price of electricity is the most volatile of all.=20 When supplies are tight, a single supplier can rapidly raise prices to=20 budget-busting levels, as evidenced by Duke Energy's recent admission that = it=20 charged California nearly $4,000 for a megawatt-hour of power, a quantity= =20 that probably sold hours earlier for one-tenth of that sum or less.=20 Wolak, the Stanford economist, and state Sen. Joseph Dunn, D-Garden Grove,= =20 who is investigating the state power market, say trading allows companies t= o=20 collude under the guise of competition. Instead of wringing out lowest cost= s,=20 the wholesale trading market serves to raise prices, they say.=20 "As I trade to you and you trade to me, we communicate to each other what= =20 price we would like to get," said Wolak. "It's not collusive. It's just=20 communicating price."=20 Mark Palmer, a spokesman for Enron, the nation's biggest power trader, said= =20 California's problem is not the result of trading.=20 "It's a result of shortages," Palmer said.=20 Underscoring its emphasis on trading, Enron's new headquarters tower in=20 downtown Houston rises from a six-story block of new trading floors,=20 including expanded space for electricity trading.=20 Enron also pioneered trading in cyberspace and its Enron Online site claims= =20 to be the most active computer-based trading market.=20 The Houston company argues that consumers won't fully benefit from power=20 trading and deregulation until they have greater choice in choosing their= =20 power supplier. And the company says FERC has not done enough to open acces= s=20 to transmission lines, which would allow traders to move power around the= =20 country. To that end, Enron has lobbied hard for President Bush's plan for = a=20 national electricity grid.=20 Palmer says the notion that the price of electricity rises each time it is= =20 traded is mistaken.=20 "The market is always looking for the real price of a commodity," Palmer=20 said.=20 Dunn, the California state senator, says his investigation found a differen= t=20 function for trading. At a time when supply barely meets or falls short of= =20 demand, he noted, companies with electricity to sell have to worry only abo= ut=20 how high to set their price.=20 "The trader is a pawn in the generator's game to drive up prices," said Dun= n.=20 "Trading develops a level of trust. You, my alleged competitor, will bid in= =20 the same patterns and I will respond not in a competitive pattern but in a= =20 complimentary pattern."=20 The state senator said his investigation found evidence that on several day= s,=20 energy companies appeared to test their ability to drive prices up, without= =20 being undercut by competitors.=20 This ability to drive up prices without competitive consequence is a key te= st=20 of market power, the technical term for manipulation or price fixing.=20 But Dunn also conceded that antitrust violations can be hard to prove in=20 court. He suggested that even if the trading behavior falls short of=20 antitrust violations, it remains anti-competitive and devastating for the= =20 California economy.=20 To Harry Trebing, a utility industry expert and professor emeritus at=20 Michigan State University, wholesale electricity trading is reminiscent of= =20 what took place in the 1920s and early '30s. Back then, utility companies= =20 created complex networks of holding companies that traded stock among=20 themselves, driving up prices in the process.=20 Undoing that scheme was a focus of President Franklin Roosevelt's=20 administration. Congress ended up barring national power companies and=20 tightening regulation of utilities, in an effort to counteract their tenden= cy=20 to create markets that work only for insiders.=20 "The broad goals of trading are the same," Trebing said.=20 "The goal is to maximize profits through raising prices."=20 Daily energy costs for state fall in past weeks=20 By Ed Mendel=20 UNION-TRIBUNE STAFF WRITER=20 June 6, 2001=20 SACRAMENTO -- In some of the first good news of the electricity crisis, the= =20 Davis administration said yesterday that the daily cost of power purchased = by=20 the state for utility customers has dropped in recent weeks.=20 The price-drop news comes after an announcement that Californians conserved= =20 more energy than expected last month, 11 percent, and amid Davis=20 administration optimism that the Legislature may finally begin to move on a= =20 plan to keep Southern California Edison out of bankruptcy.=20 The developments, if they turn out to be a trend and not temporary, could b= e=20 among the first signs that Gov. Gray Davis' plan to end the electricity=20 crisis is beginning to work. But the administration isn't saying that.=20 "We have had a few good days here lately," said S. David Freeman, a Davis= =20 power adviser. "I don't think that I want to project."=20 Some power-market watchers began to speculate last month that prices may ha= ve=20 peaked earlier this year. Platts, an energy information service, said=20 yesterday that spot prices for the natural gas used by power plants are=20 falling this month.=20 The governor's press secretary, Steve Maviglio, told reporters yesterday th= at=20 the daily amount spent on power is now "well below" $50 million, which was= =20 the average cost earlier this year.=20 A 12-day gap in the most recent notice to the Legislature that another $500= =20 million increment will be spent on power suggests that the daily average=20 during the last two weeks may have dropped down around $42 million.=20 Oscar Hidalgo, a spokesman for the state power purchasing agency, said that= =20 the average cost of power was under $40 million during the first four days = of=20 this month.=20 Maviglio attributed the lower cost to conservation, the phasing in of cheap= er=20 long-term power contracts, fewer power plants off-line for maintenance, and= =20 cooler weather.=20 However, he said, "The average cost is still way over what we paid last=20 year."=20 There was widespread skepticism in late April when the governor's consultan= ts=20 predicted that the $346 per megawatt-hour average paid by the state for=20 non-contracted power from April through June would drop to an average of $1= 95=20 from July through September.=20 "We are still very comfortable with the projection that Mr. Fichera and=20 company estimated," Maviglio said, referring to Joseph Fichera of Saber=20 Partners in New York.=20 During a briefing on May 21, Fichera told reporters that the amount of powe= r=20 that the state would obtain under long-term contracts for May was expected = to=20 be about 43 percent of the total required, the so-called net short.=20 Fichera said contracts already signed were expected to cover 66 percent of= =20 the net short in June, 48 percent in July, and 42 percent in August. He sai= d=20 contracts that had been agreed on in principle could increase those amounts= =20 to 73 percent in June, 67 percent in July, and 60 percent in August.=20 "We are still on target. There are risks," Fichera said yesterday, among th= em=20 extended hot weather and power plant outages. "No one is popping the=20 champagne corks until Sept. 30."=20 The governor's consultants based their forecast of power demand this summer= =20 on an estimate that Californians will reduce their electricity use by 7=20 percent.=20 The 11 percent reduction last month, as compared to May of last year, came= =20 before the sticker shock of rate hikes that begin this month for customers = of=20 Edison and Pacific Gas and Electric. And a $35 million ad campaign urging= =20 conservation has not hit full stride.=20 Maviglio said the administration plans to release some detailed information= =20 on Monday about the roughly $8 billion the state has spent buying power. Th= e=20 general fund will be repaid by a bond of up to $13.4 billion that ratepayer= s=20 will pay off over 15 years.=20 Legislative leaders have demanded detailed information about power purchase= s=20 before proceeding with the Edison plan. Assembly Democrats are working on a= =20 plan that de-emphasizes state purchase of the Edison transmission system an= d=20 would put most of the burden for paying off Edison's debt on businesses and= =20 large users, not residences. Five tiers sought in proposed rate boost=20 Conservation would be promoted, SDG&E says By Karen Kucher=20 UNION-TRIBUNE STAFF WRITER=20 June 6, 2001=20 A proposed rate increase for SDG&E customers to cover the high cost of=20 electricity should be imposed in five tiers to encourage conservation, the= =20 company is advising state utility regulators.=20 The more electricity a customer uses, the higher the rate would be.=20 SDG&E needs to raise its rates to bring in an additional $502 million=20 annually to pay the state for power purchases.=20 The state Public Utilities Commission is expected to rule on San Diego Gas = &=20 Electric's rate-increase proposal June 28.=20 The rate changes would remove a cap that has shielded most SDG&E customers= =20 from rising electricity prices for a year. The cap, enacted by state=20 lawmakers in September 2000 and retroactive to June 2000, set rates at 6.5= =20 cents per kilowatt-hour.=20 Higher rates would mean the average SDG&E residential and small-business=20 customer's electricity bills would go up by 18 percent. Large commercial=20 users' bills would average 29 percent more.=20 Public hearings on the issue will be held next Monday and Tuesday in San=20 Diego, El Cajon, Escondido and San Clemente. These sessions will focus on= =20 small-business and residential consumers. Hearings on large commercial user= s=20 were held last month.=20 Earlier this year, the PUC decided to allow the state's two largest=20 utilities, Pacific Gas and Electric and Southern California Edison, to char= ge=20 customers an extra $5.7 billion annually for electricity.=20 The state Department of Water Resources, which has been buying power for=20 SDG&E customers since February, asked SDG&E to generate a total of $915=20 million annually to cover the cost of electricity purchases.=20 With the proposed rate increases, SDG&E could do that.=20 Large commercial customers would pay about 30 percent of the overall increa= se=20 and residential and small-business customers would pay about 70 percent, sa= id=20 Ed Van Herik, a spokesman for the utility company.=20 If the increase can be tiered, as many as 60 percent of residential custome= rs=20 will see no rate increase if their electricity usage remains the same, Van= =20 Herik said.=20 But customers who use more than 130 percent of their baseline -- considered= =20 the minimum amount of electricity needed by a household -- will be billed a= t=20 increasingly higher rates.=20 Residential and small-business customers who use a lot of electricity could= =20 pay as much as 17.89 cents per kilowatt hour for some power they consume.= =20 Consumer advocate Michael Shames said he is concerned the utility's proposa= l=20 does not spread the increases evenly among different types of users. He als= o=20 called for more scrutiny of the state's request.=20 People should tell PUC officials "that this increase should not be a carte= =20 blanche or blank check approval," said Shames, the head of Utility Consumer= s'=20 Action Network. "The PUC needs to ensure that the rate increase requested b= y=20 the (state) is reasonable."=20 The public hearings are scheduled for:=20 ?Monday, 1 p.m., San Diego Concourse, Copper Room, 200 C St., San Diego.=20 ?Monday, 7 p.m., El Cajon Community Center, 195 E. Douglas Ave., El Cajon.= =20 ?Tuesday, 1 p.m., Country Inn Hotel, 35 Via Pico Plaza, San Clemente.=20 ?Tuesday, 7 p.m., Center for the Arts, 340 N. Escondido Blvd., Escondido.= =20 Port budget large, but power bills loom=20 Slowing economy also cause for worry By Ronald W. Powell=20 UNION-TRIBUNE STAFF WRITER=20 June 6, 2001=20 The "rock" is rolling financially, but there are indications that the blues= =20 lurk on the horizon.=20 Officials of the San Diego Unified Port District -- headquartered in a=20 block-shaped building some employees call the rock -- are happy with a=20 projected 2001-2002 budget that is 5.1 percent larger than the current one.= =20 Total revenue is expected to reach $208.7 million, $10.2 million above what= =20 is expected in the fiscal year that ends June 30.=20 Port commissioners gave preliminary approval to the budget yesterday and ar= e=20 scheduled to take a final vote July 10.=20 But a slowing economy and surging electric bills are causes for concern.=20 Electricity costs are expected to rise from $5 million to $8.2 million in t= he=20 coming fiscal year.=20 "As far as trends, we see a continuation of the growth we've experienced ov= er=20 the past five years," said Bruce Hollingsworth, the port's treasurer. "But= =20 our percentage of growth will not rise as sharply."=20 Port revenues have grown steadily since the 1997-1998 fiscal year, when $16= 3=20 million was generated.=20 The proposed budget calls for adding 24 employees to the port's 730-member= =20 work force. New hires will include three Harbor Police officers, 10 employe= es=20 in the aviation division and four in maritime services.=20 The port operates Lindbergh Field and administers nonmilitary tidelands alo= ng=20 San Diego Bay. It is landlord to more than 600 waterfront businesses and=20 operates two marine cargo terminals and one cruise ship terminal.=20 The budget calls for growth in each of the port's primary revenue centers:= =20 aviation, real estate and maritime services.=20 Passenger and cargo activity at Lindbergh Field is expected to generate $90= .7=20 million, or $5 million more than expected in the current year. Most of that= =20 increase is expected to come from parking-rate increases at the airport and= =20 at the port's long-term parking lot on Pacific Highway.=20 Rent from hotels and other businesses that are port tenants are expected to= =20 total $63.1 million, up $1.8 million from the current budget.=20 Increases in cargo and cruise ship traffic are expected to boost maritime= =20 income by $2.7 million, to a total of $18.4 million.=20 The port expects to spend $157 million on construction projects. They inclu= de=20 $8.5 million to relocate the General Services Department from Eighth Avenue= =20 and Harbor Drive in San Diego to National City and more than $5 million for= =20 paving and improvements at the 10th Avenue Marine Terminal.=20 Rent revenue could grow substantially in future years. Four hotel projects = on=20 port property have won approval or are seeking it.=20 Jim Bailey, president of Manchester Resorts, told commissioners yesterday= =20 that he expects to break ground on a second Hyatt tower of 750 rooms by Jun= e=20 26. Port officials said revenue from that hotel would bring in an additiona= l=20 $3.7 million a year. It is scheduled to open in the summer of 2003.=20 Hollingsworth, the treasurer, said that if all four hotels are built the po= rt=20 could receive as much as $15 million a year in new revenue.=20 Continuous use urged for planned power plant=20 Escondido facility originally proposed for peak demand By Jonathan Heller=20 UNION-TRIBUNE STAFF WRITER=20 June 6, 2001=20 ESCONDIDO -- A proposed power plant in southwest Escondido that initially w= as=20 expected to run only during times of peak electricity demand probably will = be=20 allowed to run full time.=20 A state energy official who recommended approval of the plant yesterday has= =20 said the plant could operate as often as the state deems necessary.=20 The California Energy Commission was scheduled to vote on the project today= .=20 CalPeak Power of San Diego has asked the commission to approve a 49-megawat= t=20 plant on Enterprise Street near Vineyard Avenue. Referred to as a "peaker"= =20 plant, such facilities typically are designed to supply energy only during= =20 times of peak demand.=20 The state limits the number of hours some plants can operate to keep=20 pollution at a minimum. A 44-megawatt peaker plant being built on West=20 Mission Avenue in Escondido by Ramco Inc. will be allowed to operate no mor= e=20 than 16 hours per day.=20 That plant is permitted to emit up to 5 parts per million of nitrogen oxide= ,=20 although its actual emissions are expected to be slightly lower, said Dale= =20 Mesple, a Ramco consultant. Nitrogen oxide is a component of smog.=20 The CalPeak plant, if approved, would be restricted to 2 parts per million = of=20 nitrogen oxide.=20 It was generally assumed that the CalPeak plant would operate under similar= =20 time restrictions as the Ramco plant. The potential for air pollution was= =20 among the chief concerns of residents who spoke at the City Council hearing= s=20 on the Ramco project and at the energy commission hearings about the CalPea= k=20 plant.=20 But under the terms of approval recommended by Energy Commission Chairman= =20 William Keese, CalPeak's plant would be able to operate "up to 8,760 hours= =20 per year, typically when the demand for electricity is high." That number= =20 equals 24 hours a day.=20 The actual number of hours would depend on the requirements of the state's= =20 Independent System Operator, which manages the energy grid.=20 "We certainly want to have the flexibility to run whenever we're needed,"= =20 said Mark Lyons, CalPeak's development director. "Exactly how often we will= =20 run is anybody's guess."=20 Escondido Councilwoman June Rady said she was frustrated by the possibility= =20 of the plant running full time. In Ramco's case, the city and the county Ai= r=20 Pollution Control District made it clear how often the plant could operate.= =20 CalPeak chose to bypass the city's permitting process and went through the= =20 state Energy Commission, which offers an expedited 21-day approval put in= =20 place by Gov. Gray Davis as an emergency measure.=20 "I think Escondido has been absolutely ignored and there's a total lack of= =20 due process," Rady said. "It boils down to an issue of local control."=20 Although city officials objected to the commission pre-empting the city's= =20 land-use authority, the commission maintained that Davis' order gave it the= =20 final say on this type of project.=20 If the commission gives final approval today, the only remedy available to= =20 the city would be in court. At least three council members must vote to=20 initiate legal action.=20 Keese's recommended approval did take into account several city concerns=20 regarding landscaping. The CalPeak plant would be built near the entrance o= f=20 a planned high-tech business park, and city officials were worried the=20 plant's appearance might hinder the ability to attract high-quality tenants= =20 to the park.=20 Mayor Lori Holt Pfeiler said she was not surprised by the commission's=20 recommendation.=20 "I expected they would want to approve the project, and that's why it was= =20 important for the city to weigh in with conditions we have in this=20 community," Pfeiler said.=20 Rising energy prices threaten Poway troupe=20 By Brian E. Clark=20 UNION-TRIBUNE STAFF WRITER=20 June 6, 2001=20 POWAY -- Rising electricity rates may extinguish the stage lights this summ= er=20 for the Poway Performing Arts Company.=20 "I'm afraid that if SDG&E gets the price increase it's asking for -- from 6= .5=20 cents per kilowatt-hour to 8.9 cents -- that we'll go under," said Kathy=20 McCafferty, spokeswoman for the nonprofit theater.=20 The volunteer organization produces its plays in a building at a Poway Road= =20 shopping center. It held three fund-raising performances over the weekend,= =20 but officials were uncertain yesterday how much money was raised.=20 The group is not affiliated with the Poway Performing Arts Center and has= =20 been in business for 20 years.=20 McCafferty said the group built up a $2,000 surplus last summer before ener= gy=20 prices began to surge.=20 "That $2,000 was a big reserve for us," she said. "It seemed like a ton of= =20 money, but, boy, it went fast. And we're really energy-dependent. Our light= s=20 use a lot of power. And we're in Poway on the second floor of our building.= =20 It gets hot here, and we have to use air conditioning."=20 But McCafferty acknowledged that the cost of power isn't the group's only= =20 problem.=20 In a recent letter to backers, President Nan Katona said the organization= =20 also needs new blood to keep operating.=20 "The truth is that lack of funding is just a symptom of the deeper problem,= =20 which is lack of community support," she wrote. "Ironically, audiences and= =20 reviewers recognize the Poway Performing Arts Company as one of the premier= =20 community arts theaters in San Diego."=20 Katona said some new volunteers had stepped forward to take leadership role= s=20 in the theater company since she wrote her letter last month. But she said= =20 rising electricity prices could still bring the group down.=20 "If our energy bills double or triple, we could be in dire straits," she=20 said. "It could push us over the edge financially."=20 McCafferty said it would be difficult for the theater to cut costs.=20 "We can't run a much leaner operation," she said. "If our power prices go u= p=20 again, we may still be forced out of business."=20 The theater is at 13250 Poway Road, in the Lively Shopping Center. For more= =20 information, call (858) 679-8085.=20 Fair to use generators for midway attractions=20 By Michael Burge=20 UNION-TRIBUNE STAFF WRITER=20 June 6, 2001=20 DEL MAR -- The Del Mar Fair will generate its own electricity for thrill=20 rides on the midway this year instead of using energy from SDG&E.=20 "In case there are planned or unplanned outages, we still will be operating= ,"=20 fairgrounds General Manager Timothy J. Fennell said.=20 Fennell decided to put the midway on generators because he didn't want the= =20 fairgrounds pulling power from the grid while county residents are coping= =20 with rolling blackouts at home and at work, he said.=20 And the fair does not want to take a chance that a rolling blackout will=20 leave some people stranded in rides high above the grounds, forcing an=20 evacuation.=20 The fairgrounds has been told it is exempt from rolling blackouts, but rath= er=20 than take such a risk it will rent 13 diesel-fuel generators and produce=20 electricity on the midway. The rest of the fairgrounds will use power from= =20 San Diego Gas & Electric Co.=20 Fairgrounds operations manager Larry Baumann estimated it would cost the=20 fairgrounds $20,000 more to generate its own electricity than to buy it fro= m=20 SDG&E.=20 Midway manager Donna Ruhm said it will be worth it.=20 "Rides that require evacuation have to have backup power and they do," Ruhm= =20 said. "Now our service won't be interrupted."=20 It is not unusual for carnivals to generate their own power, and the=20 fairgrounds has done so in the past. Fair officials removed the generators = 10=20 to 15 years ago to reduce noise on the midway.=20 The fair opens June 15 and ends July 4.=20 While the rest of the fairgrounds is on the SDG&E grid, Baumann said backup= =20 generators can kick in during a typical 60-or 90-minute blackout, allowing= =20 the fair to operate without serious difficulty. Those generators are not=20 linked to the midway.=20 All the generators are licensed by the state and meet emission standards,= =20 fair officials said, so they do not expect the noise and odor to be=20 excessive.=20 The fairgrounds is taking the precaution of providing its own power despite= =20 the fact that it probably will not go dark during a rolling blackout.=20 "SDG&E has assured me that .?.?. the fairgrounds and the racetrack will not= =20 be on the curtailment (blackout) list during the fair and the races," said= =20 Del Mar Fire Chief Jack Gosney.=20 The Del Mar Thoroughbred racing season begins July 18 and ends Sept. 5.=20 Gosney said SDG&E told him earlier this year that the fairgrounds was not= =20 subject to a forced outage because it shared a circuit with the Del Mar Fir= e=20 Station, which is a 911 dispatch center and exempt from a blackout. But he= =20 said recent research showed that the fairgrounds is on a separate circuit.= =20 Nonetheless, Gosney said, SDG&E is exempting the fairgrounds and racetrack= =20 during the busy summer season.=20 The fairgrounds paid $137,152.95 for its electricity usage from March 12 to= =20 April 10. It paid $51,845.39 for electricity during the same period last ye= ar. ?=20 Wednesday, June 6, 2001=20 'Hi, My Name Isn't Justice, Honey,' and Shame on Lockyer=20 By TOM G. PALMER ?????Here's what California Atty. Gen. Bill Lockyer said at a press=20 conference about Enron Corp. Chairman Kenneth Lay: "I would love to=20 personally escort Lay to an 8-by-10 cell that he could share with a tattooe= d=20 dude who says, 'Hi, my name is Spike, honey."'=20 ?????Here's why Lockyer should be removed from his office of public trust:= =20 First, because as the chief law enforcement officer of the largest state in= =20 the nation, he not only has admitted that rape is a regular feature of the= =20 state's prison system, but also that he considers rape a part of the=20 punishment he can inflict on others.=20 ?????Second, because he has publicly stated that he would like to personall= y=20 arrange the rape of a Texas businessman who has not even been charged with= =20 any illegal behavior.=20 ?????Lockyer's remarks reveal him to be an authoritarian thug, someone whol= ly=20 unsuited to holding an office of public trust.=20 ?????But his remarks do have one positive merit: They tell us what criminal= =20 penalties really entail.=20 ?????Contrary to some depictions of prisons as country clubs, they are=20 violent and terrible places. More and more politicians propose criminal=20 sanctions for more and more alleged misdeeds, and as a result ever more kin= ds=20 of behavior are sanctioned by criminal penalties, perhaps now even selling= =20 electricity. Those found guilty of such crimes are put into cages, where th= ey=20 are deprived of their liberty and dignity and, as Lockyer so clearly=20 acknowledged, raped and brutalized. What's worse, Lockyer has indicated tha= t=20 he believes that rape is an appropriate part of the system of punishments h= e=20 administers.=20 ?????Should it matter that Lay is a businessman? Imagine the outcry if the= =20 head of Enron were female. What would Lockyer's fellow Democrats have said = to=20 that?=20 ?????Should it matter that Lay is chairman of an electricity generator? Doe= s=20 the nature of his business justify threats to escort him to his own rape?= =20 Lockyer told the Los Angeles Times that he had singled out Enron's chairman= =20 because the Houston-based company is the world's largest energy trader.=20 ?????So apparently singling out a man for a heinous threat is OK because he= 's=20 the chairman of the world's largest energy trading company. That's accordin= g=20 to the man who, as a state senator, sponsored California's 1984 hate-crimes= =20 law. Evidently the crusader against intimidation on the basis of race,=20 religion and sexual orientation feels no hesitation at all about intimidati= ng=20 someone and threatening him with the brutal use of physical force simply=20 because he heads the world's largest energy trading company.=20 ?????Lockyer and Gov. Gray Davis seem to think that the best way to keep th= e=20 lights on is to threaten electricity producers with brute force, rather tha= n=20 to offer to pay competitive rates in competitive markets. Are energy=20 producers to blame for California's energy problems? No. Bad policies,=20 including rigid controls on retail prices of electricity, are the cause of= =20 the problem, not the people who generate energy. Scapegoating producers and= =20 threatening them with violence is an old ploy of authoritarians. California= ns=20 should not stand for it.=20 ?????An Enron spokesman said that Lockyer's chilling stated desire to arran= ge=20 the rape of Lay does not merit a response. The spokesman is wrong. Lockyer'= s=20 remarks merit public disgrace and removal from office. After all, rape is n= ot=20 a form of legal justice in America--is it?=20 - - - Tom G. Palmer Is a Senior Fellow at the Cato Institute in Washington. E-mai= l:=20 Palmert@cato.org Copyright 2001 Los Angeles Times=20 California ; Metro Desk=20 U.S. Probes Alleged Pact Not to Build New Plants Power: Justice officials= =20 focus on Southland operations of two firms, which deny wrongdoing. MYRON LEVIN; NANCY RIVERA BROOKS ?=20 06/06/2001=20 Los Angeles Times=20 Home Edition=20 Page B-1=20 Copyright 2001 / The Times Mirror Company=20 The U.S. Department of Justice has launched an investigation into whether t= wo=20 companies that control a large swath of Southern California 's electricity= =20 supply agreed to limit power plant construction, potentially hindering=20 crucial energy production, according to federal records and interviews.=20 The civil antitrust probe of Williams Energy Services and AES Southland=20 represents the Justice Department's first foray into the activities of ener= gy=20 suppliers who have reaped huge profits in California 's price-shocked marke= t.=20 AES disclosed the investigation, which began last month, in a filing with t= he=20 Securities and Exchange Commission on Tuesday. In its papers, AES said the= =20 Justice Department is focusing on whether its agreement with Williams could= =20 constrain future power plant construction in Southern California .=20 The investigation comes at a time when the state is scrambling to get new= =20 generators built and running to avoid blackouts and economic problems.=20 The government alleges that AES and Williams agreed to limit the expansion = or=20 construction of new power plants near three facilities purchased by AES in= =20 1998 from Southern California Edison under the state's new deregulation pla= n.=20 The plants--in Long Beach, Huntington Beach and Redondo Beach--are owned by= =20 AES, but the electricity is sold by Williams. Under a 3-year-old deal, know= n=20 as a tolling agreement, Williams essentially rents out the capacity of the= =20 plants for annual payments to AES. Williams supplies natural gas to fire th= e=20 plants and sells the electricity under long-term contracts and in the costl= y=20 spot market.=20 Williams and AES have similar tolling agreements at plants in Pennsylvania= =20 and New Jersey. However, AES spokesman Aaron Thomas said the Justice=20 Department's investigative requests have focused only on agreements between= =20 Williams and AES in Southern California .=20 Thomas would say only that the agreement at the center of the investigation= =20 is simply a delineation of "how expansion or repowerings are done at the=20 facilities."=20 The three plants have a combined capacity of more than 3,900 megawatts,=20 enough to supply about 3 million homes. This summer, AES is bringing anothe= r=20 450 megawatts on line by reactivating two mothballed generators in Huntingt= on=20 Beach.=20 Paula Hall-Collins, a spokeswoman for Tulsa-based Williams Cos., said she= =20 believes that the investigation is unrelated to a recent inquiry by the=20 Federal Energy Regulatory Commission into whether AES and Williams=20 unnecessarily shut down plants to jack up prices. A portion of that=20 investigation was settled in April, when Williams, without admitting any=20 wrongdoing, agreed to pay about $8 million.=20 "We've always maintained that we've operated within the law, and we're=20 certain the investigation by the DOJ will find we are operating legally,"= =20 Hall-Collins said.=20 Williams and AES are among the power plant owners and marketers that have= =20 been lambasted by Gov. Gray Davis because of gold-plated electricity prices= =20 that have pushed the state's biggest utilities to the edge of ruin and are= =20 steadily draining the state's budget surplus.=20 State officials are asking FERC to revoke the rights of AES and Williams to= =20 sell electricity at whatever price the market will bear. That right was=20 granted for three years, beginning in 1998 by federal regulators when=20 California 's $28-billion electricity market was opened to competition.=20 Under that plan, the rights of AES and Williams to sell into the market are= =20 the first to come up for renewal.=20 AES Southland and Williams Energy Services are both arms of large energy=20 companies--AES Corp. of Arlington, Va., and Williams Cos. of Tulsa, Okla. California ; Metro Desk=20 Natural Gas, Power Prices Drop Sharply Energy: More conservation, mild=20 weather are among factors keeping costs down, experts say. RICARDO ALONSO-ZALDIVAR; NANCY VOGEL ?=20 06/06/2001=20 Los Angeles Times=20 Home Edition=20 Page B-1=20 Copyright 2001 / The Times Mirror Company=20 WASHINGTON -- The wholesale prices of electricity and natural gas in=20 California have fallen sharply in recent weeks, and experts said Tuesday th= at=20 the relief could be the harbinger of an energy turnaround.=20 Or it may be just a blip.=20 In the last couple of weeks, California power prices have plunged to the=20 lowest levels since April 2000, traders say, with electricity selling on so= me=20 days for less than $100 per megawatt-hour.=20 At night, when demand slackens, power sometimes sells for less than $20 per= =20 megawatt-hour. That is reminiscent of the days before prices went haywire= =20 last summer.=20 It is a drastically different scenario than the $500 to $800 the state paid= =20 during a spate of hot weather last month.=20 Meanwhile, wholesale natural gas prices at a bellwether pipeline junction o= n=20 the Southern California -Arizona border dipped last week to their lowest=20 levels since November, according to a publication that tracks the industry.= =20 Separately, Southern California Gas Co. and Pacific Gas & Electric Co.=20 reported June rate cuts for their residential gas customers of 16% and 38%,= =20 respectively.=20 Experts credited a combination of conservation, mild weather, a burst of=20 increased hydroelectric generation and lower natural gas prices for the dro= p=20 in electricity costs.=20 "Conservation is starting to worry the generators, which is nice to see,"= =20 said Severin Borenstein, director of the University of California Energy=20 Institute in Berkeley. Californians used 11% less energy last month than in= =20 May 2000, according to the state Energy Commission.=20 "I'm worried that if we don't push harder on conservation, [prices] won't= =20 stay down," Borenstein added.=20 On the natural gas side, experts said the price decline is due to replenish= ed=20 storage within California , a nationwide drop in the cost of the fuel and= =20 easing demand from power plants.=20 The number of shippers competing to get natural gas to the state has also= =20 increased, with the expiration of a controversial contract on the El Paso= =20 pipeline system last week.=20 But economists were reluctant to make sweeping predictions based on the=20 latest indicators.=20 "It's hard to draw specific conclusions," said Bruce Henning, who tracks th= e=20 natural gas markets for Energy and Environmental Analysis Inc., an Arlingto= n,=20 Va., consulting firm.=20 How the summer turns out depends on the weather in the state, Henning said,= =20 adding, "The weather represents the balance in the Southern California=20 market."=20 Natural gas fuels most California power plants. With wholesale prices=20 recently averaging three to four times the rates charged elsewhere in the= =20 country, state and federal officials have despaired of chances for=20 controlling electricity costs.=20 Last Friday, however, the daily price for immediate delivery of natural gas= =20 in Topock, Ariz., a pipeline junction near the California border, dipped to= =20 $7.85 per million British thermal units.=20 According to Natural Gas Week, it was the first time since mid-November tha= t=20 the price at that location had fallen below $8 per million BTUs. One millio= n=20 BTUs is what a typical Southern California home uses in five or six days.= =20 Considered a bellwether for other pipeline systems serving California , the= =20 Topock price reached a record $56.54 per million BTUs on Dec. 8. It stood a= t=20 $9.36 per million BTUs at the close of business Tuesday, still below recent= =20 weekly averages.=20 Other industry publications have also picked up signals of price declines.= =20 Platts, the energy information division of McGraw-Hill Cos., reported Tuesd= ay=20 that the price for monthly gas delivery contracts to California fell 22% in= =20 June, following a nationwide trend.=20 But Henning said the drop in California prices is attributable to both lowe= r=20 prices around the country and a decline in the high markups for shipping ga= s=20 to California . Those markups, which far exceed the cost of transporting ga= s,=20 have drawn the attention of state and federal investigators.=20 Henning said the markups are declining as depleted storage levels in=20 California are replenished. "Storage levels have been filling very rapidly,= =20 and that fact is reflected in prices coming down," he said.=20 The link between natural gas and electricity prices is a hotly debated=20 subject. Some experts say high-priced natural gas is driving up the cost of= =20 electricity . Others believe that record prices for power are raising the= =20 prices that generators are willing to pay for their fuel.=20 Electricity prices that range from $20 to $200 per megawatt-hour--instead o= f=20 the $150 to $500 per megawatt-hour paid in recent months--are great news fo= r=20 Gov. Gray Davis.=20 Average daily power prices in California for transactions through the=20 Automated Power Exchange have dropped from $149 per megawatt-hour last Frid= ay=20 to $110 per megawatt-hour Tuesday. The exchange is a private company that= =20 brings together electricity buyers and sellers and accounts for less than 1= 0%=20 of the state's market.=20 Davis spokesman Steve Maviglio said Tuesday that average daily power=20 purchases by the state have recently dipped below $50 million.=20 The state has sometimes had to pay more than $100 million a day since it=20 started buying power in January through the Department of Water Resources.= =20 The state stepped in because California 's two biggest utilities became too= =20 financially crippled to withstand the prices being charged by generators.= =20 Davis' plan to pay for past and future energy purchases with a $12.4-billio= n=20 bond issue hinges on an assumption that power prices will be driven down th= is=20 summer through long-term contracts, conservation and the construction of ne= w=20 power plants.=20 UC Berkeley's Borenstein said conservation efforts have not gone far enough= .=20 "You walk into most buildings and you still need a sweater," he said. "That= =20 ain't the way to hit the target."=20 If Californians conserved an additional 10% off their peak usage on hot=20 afternoons, he said, "we could really break the backs of the generators, we= =20 could really collapse the price."=20 Prices tend to skyrocket in California 's electricity market on hot=20 afternoons, when demand soars and grid operators must scramble to purchase= =20 enough electricity . Cool weather, which reduces demand for air conditionin= g,=20 and conservation help keep the state from reaching such crisis situations.= =20 Borenstein said he believes generators are also asking less money for their= =20 electricity in part because of a federal order that took effect last month.= =20 The order limits the price power plant owners can charge when California 's= =20 supplies are strained.=20 Power sellers say there are more fundamental forces at work.=20 "There's more supply relative to demand, which is softening prices," said= =20 Gary Ackerman, executive director of the Western Power Trading Forum. "The= =20 market is working, and it's providing cheaper wholesale power more quickly= =20 than any regulatory scheme could ever do."=20 *=20 Times staff writer Dan Morain in Sacramento contributed to this story.=20 RELATED STORY=20 PG&E wins: The utility averted a $1-billion bill for power buys. B6=20 (BEGIN TEXT OF INFOBOX / INFOGRAPHIC)=20 A Blip or a Trend?=20 Daily natural gas prices at the California border with Arizona--considered = a=20 bellwether of the state's costs--have been declining in the last two weeks.= =20 *=20 Natural gas price per 1 million Btu=20 $9.36=20 Source: Natural Gas Week California ; Metro Desk=20 The State Utility Averts $1 Billion in Costs Courts: PG&E and Cal-ISO agree= =20 to recognize Department of Water Resources as purchaser of the power. TIM REITERMAN ?=20 06/06/2001=20 Los Angeles Times=20 Home Edition=20 Page B-6=20 Copyright 2001 / The Times Mirror Company=20 SAN FRANCISCO -- Pacific Gas & Electric Co. and the state's power grid=20 operator reached an agreement Tuesday that insulated PG&E at least=20 temporarily from more than $1 billion in power purchases the state made for= =20 its customers.=20 The California Independent System Operator sent $1.26 billion in invoices t= o=20 the utility for power purchases by the state Department of Water Resources= =20 for PG&E customers from January through March.=20 But the utility contended in Bankruptcy Court proceedings that it was not= =20 liable for such purchases and that continued purchases would cause annual= =20 losses of $4 billion.=20 After arguments before Judge Dennis Montali, PG&E and Cal-ISO agreed that t= he=20 Department of Water Resources, not PG&E, purchased the power. Cal-ISO had= =20 argued that it was making the purchases on PG&E's behalf.=20 "PG&E wants to be a utility and have obligations to serve customers, but th= ey=20 don't want to pay for it," Cal-ISO general counsel Charles Robinson said=20 later.=20 If PG&E refuses to pay the invoices, Robinson said, Cal-ISO will send the= =20 bills to the Department of Water Resources, and officials there can decide= =20 whether to pursue claims in Bankruptcy Court. A spokesman for department,= =20 which has authorization to sell $13 billion in bonds for power purchases,= =20 said the agency will have no comment until the matter can be studied.=20 State agencies have stayed out of the bankruptcy proceedings, hoping to=20 preserve their immunity from suits in federal court.=20 The agreement will be submitted for Montali's approval Monday, but the judg= e=20 said it would not be binding on the department because no one represented t= he=20 agency in court.=20 PG&E's own production and contracts provide the majority of the power for i= ts=20 customers. But state legislation adopted this year allows the department to= =20 secure power contracts to serve customers of ailing utilities. When a=20 shortage threatens the power grid, the department purchases additional powe= r=20 through Cal-ISO on the spot electricity market.=20 PG&E filed for Chapter 11 protection from creditors on April 6, saying it w= as=20 $9 billion in debt.=20 Dramatic drop in cost of electricity=20 LOWER BILLS: Cheaper fuel, milder weather credited=20 David Lazarus, Chronicle Staff Writer Wednesday, June 6, 2001=20 ,2001 San Francisco Chronicle=20 URL: http://www.sfgate.com/cgi-bin/article.cgi?f=3D/c/a/2001/06/06/MN199202= .DTL=20 California electricity prices have plunged unexpectedly to their lowest lev= el=20 in more than a year, partly as the result of a simultaneous drop in prices= =20 for natural gas, which fuels most power plants.=20 Make no mistake: Gas and electricity prices could surge upward again in=20 months ahead.=20 But for the first time since California's energy markets went haywire last= =20 summer, industry experts are beginning to ask whether the state finally may= =20 have turned a corner in its battle with runaway power costs.=20 "California is not yet out of the woods," said Kelley Doolan, who tracks=20 natural gas prices for energy market researcher Platts. "But this is a very= =20 significant decrease in costs."=20 Along with lower gas prices, the decline in electricity costs was attribute= d=20 by state and industry officials to milder weather, which reduces demand for= =20 power. They also credited recent conservation efforts by consumers and=20 better-than-expected runoff at dams for hydroelectric plants.=20 Gary Ackerman, executive director of the Western Power Trading Forum, an=20 energy-industry association, said these factors came together to produce th= e=20 lowest wholesale electricity prices since April 2000.=20 Electricity on the spot market could have been purchased yesterday for as= =20 little as $50 per megawatt hour, he noted, compared with more than $500=20 earlier this year.=20 "If the weather stays this way, we could have reasonable prices all summer,= "=20 Ackerman said. "We may also have fewer blackouts."=20 It is tempting for Californians to be suspicious of virtually any swing in= =20 energy prices. If power companies manipulated prices on the way up, as=20 critics have alleged, might they not be up to some trick as prices head in= =20 the opposite direction?=20 Nettie Hoge, executive director of The Utility Reform Network in San=20 Francisco, speculated that generators are allowing electricity prices to fa= ll=20 so they can discourage federal regulators from taking a more active role in= =20 the dysfunctional California market.=20 "They're trying to take the heat off," she said.=20 Others cautioned that the lower prices may be nothing more than a statistic= al=20 blip.=20 "This was just one month's decline," said Michael Shames, executive directo= r=20 of the Utility Consumers' Action Network in San Diego. "We really have to s= ee=20 how this plays out in the future."=20 Steve Maviglio, a spokesman for Gov. Gray Davis, said the governor was very= =20 encouraged by the lower energy prices. Davis announced Sunday that=20 California's power use was down 11 percent last month from a year before.= =20 "We're not there yet," Maviglio said of whether an end to the state's power= =20 woes is in sight. "But the trend is pointing in the right direction."=20 WHITE ELEPHANT Yet this sudden drop in energy prices does have a dark side: California cou= ld=20 end up with a huge white elephant after spending about $40 billion in publi= c=20 funds on long-term power contracts.=20 The logic behind the contracts, which are at an average price of $69 per=20 megawatt hour over 10 years, is that the state expected to pay below-market= =20 rates for electricity for a number of years before prices came down and=20 California found itself paying above-market rates.=20 If current trends continue, though, California will find itself paying=20 consistently above-market rates much sooner than expected, making the long-= =20 term contracts a sweet deal for the same power companies that profited so= =20 handsomely during the state's darkest hours.=20 "The contracts look really ugly right now," said Shames at the Utility=20 Consumers' Action Network. "They may be way overpriced."=20 Maviglio, the governor's spokesman, said it is too early to conclude that t= he=20 state did poorly negotiating dozens of long-term power contracts.=20 "No one has a crystal ball on this," he said.=20 CUSTOMERS' BILLS TO DROP In any case, Pacific Gas and Electric Co. said yesterday that customers'=20 average gas bills will drop 26 percent this month to $26 and should stay ne= ar=20 that level all summer.=20 Platts, which monitors average monthly spot prices, found that the wholesal= e=20 price of gas at the California-Oregon border has tumbled nearly 42 percent= =20 since the beginning of May -- from $9.98 per million British thermal units = to=20 $5.81.=20 The wholesale gas price at the California-Arizona border fell 45 percent,= =20 from $11.91 to $6.50. This compares with a 25 percent monthly decline in=20 average natural gas prices nationwide.=20 However, California gas prices are still about 50 percent higher than they= =20 were a year ago, whereas national prices are now below year-ago levels for= =20 the first time since last spring.=20 While cooler weather nationwide helped push gas prices down overall, Doolan= =20 attributed the especially steep drop in California to a commensurate surge = in=20 prices last month related to fears of a long, hot summer of rolling=20 blackouts.=20 "You had state officials all but promising rolling blackouts this summer," = he=20 said. "That created enormous demand for electricity generation.=20 "What has changed is that we've had weeks of mild weather," Doolan observed= .=20 "The electricity generators have not come out of the woodwork buying up all= =20 the gas."=20 This allowed utilities like PG&E to beef up gas inventories, which eased=20 demand and resulted in substantially lower prices, he said.=20 'BACK ON TRACK'=20 "We're back on track to be completely full for winter," said Staci Homrig, = a=20 PG&E spokeswoman. "That's a very good thing."=20 Gas prices historically dip in the spring and summer and then rise again in= =20 the winter. PG&E is forecasting that customers' average gas bills could ris= e=20 to as high as $75 in December if current trends continue.=20 However, the precipitous drop in gas prices in recent weeks suggests that= =20 California's unusually high costs at last may be abating.=20 Individual power companies so far are reluctant to speculate on whether the= =20 drop in gas prices will have a lasting effect on electricity costs.=20 E-mail David Lazarus at dlazarus@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 1=20 San Jose council gives green light to generating plant=20 VOTE REVERSAL: Officials pressured to OK project=20 Marshall Wilson, Chronicle Staff Writer Wednesday, June 6, 2001=20 ,2001 San Francisco Chronicle=20 URL: http://www.sfgate.com/cgi-bin/article.cgi?f=3D/c/a/2001/06/06/MN167180= .DTL=20 In a clear sign that the political landscape has shifted because of the=20 state's power crisis, the San Jose City Council gave a green light yesterda= y=20 for construction of a generating plant it had unanimously opposed in=20 November.=20 Yesterday's 10-to-1 vote came after months of mounting pressure for the cit= y=20 to reverse course and approve the controversial 600-megawatt Calpine plant = at=20 Coyote Valley.=20 That pressure -- increased by the occasional rolling blackout -- has come= =20 from nearly every corner of the state, from elected officials to high-tech= =20 businesses and labor unions worried the power crisis will drain away jobs,= =20 ruin the economy and lead to voter backlash over skyrocketing energy bills.= =20 Even the local branch of the NAACP and environmentalists pushed the council= =20 to approve the Calpine proposal -- despite overwhelming opposition from the= =20 plant's neighbors.=20 Council members did not hide their disdain yesterday for being forced to=20 reconsider their opposition to the so-called Metcalf Energy Center.=20 "I'm holding my nose to vote for this thing," said Councilwoman Linda=20 LeZotte.=20 "I'm just as unhappy as everybody else," Vice Mayor George Shirakawa said. = "I=20 feel like no matter what happens, we can't win."=20 GOVERNOR OFFERED HIS SUPPORT After the council's solid opposition in November, Calpine appealed to the= =20 California Energy Commission, which has the final say. The controversial=20 plant then received a huge boost in April when Gov. Gray Davis threw his=20 support behind it.=20 San Jose officials conceded yesterday that the energy commission was likely= =20 to override their opposition and grant approval within a few weeks. They sa= id=20 the commission's likely approval was stripping them of their power to decid= e=20 local land-use issues.=20 "What I think has happened . . . is the governor and the Legislature at the= =20 state level have taken this out of our hands," said Councilwoman Pat Dando.= =20 "I don't think there's any chance at all the California Energy Commission i= s=20 going to turn down the Metcalf Energy Center," Councilman Chuck Reed said.= =20 CONSTRUCTION MAY BEGIN SOON If given the go-ahead by the state, Calpine could begin construction as ear= ly=20 as next month. The natural-gas fired plant would generate electricity by=20 mid-2003, company spokesman Kenneth Arbeu said.=20 At the urging of Mayor Ron Gonzales, the council yesterday approved a new= =20 "cooperation agreement" with Calpine. The vote, with Councilman Forrest=20 Williams casting the lone nay, is preliminary while a final vote that is=20 scheduled for June 26.=20 Gonzales argued that the agreement did not amount to a flip-flop because it= =20 differs from what Calpine proposed in November.=20 The agreement approved by the council calls for increased monitoring of air= =20 pollution, the use of treated wastewater to cool the plant, which will redu= ce=20 discharges into San Francisco Bay, and a $6.5 million "community benefits"= =20 package, with the bulk going toward parkland acquisition, Gonzales said.=20 "This council has not changed its decision," he said. "What we've done is= =20 change the facility."=20 Critics, incensed that the city was buckling to outside pressure, vowed to= =20 change the council at the next election.=20 CONCERNS OVER HEALTH RISKS They raised concerns that boiled wastewater steam wafting over their homes= =20 from Calpine's plant could pose health risks. Jona Denz-Hamilton said more= =20 controls are needed to ensure the safety of neighbors like herself and her= =20 family and argued that new, cleaner-burning technologies should be installe= d=20 at the plant.=20 "It's too great of a risk," she said.=20 Other critics said the state's energy woes will be solved and largely=20 forgotten by the time the plant opens in two years, while the Santa Teresa= =20 neighborhood will be stuck with pollution for decades.=20 Approval seemed a given at the start of the more than three-hour hearing.= =20 Much of the afternoon's debate focused around plans to extend a pipeline fo= r=20 treated wastewater to the new plant.=20 Critics said Calpine was receiving a sweet deal by paying only $10 million = of=20 the $50 million cost of extending the pipeline. Several council members ask= ed=20 for a more detailed report into the financing plan before the final vote is= =20 taken June 26.=20 Chronicle staff writer Bill Workman contributed to this report.=20 E-mail Marshall Wilson at marshallwilson@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 1=20 Developments in California's energy crisis=20 Wednesday, June 6, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/06/06/s= tate1 053EDT0177.DTL=20 (06-06) 07:53 PDT (AP) --=20 Developments in California's energy crisis:=20 WEDNESDAY: * No power alerts Wednesday as reserves stay above 7 percent.=20 TUESDAY: * Gov. Gray Davis' administration says the state's electricity costs are=20 dropping substantially, even as it asks state legislators for another=20 half-billion dollars for power purchases. That brings to $8.2 billion the= =20 amount the state is paying for electricity on behalf of three financially= =20 strapped utilities.=20 Spokesman Steve Maviglio says the cost to the state treasury has dropped in= =20 the last few weeks well below the $50 million dollars the state had been=20 paying on a typical day. He credits cooler weather, conservation, more powe= r=20 plants online and more long-term contracts with helping drive down the cost= .=20 * A state Senate committee agrees to issue subpoenas to eight out-of-state= =20 electricity generators demanding they hand over documents on bidding, prici= ng=20 and other aspects of power sales in the state. The subpoenas would help a= =20 special Senate committee's investigation into whether the companies are=20 illegally profiteering from California's power crisis. The committee's=20 chairman says he expects the companies to resist, setting the stage for a= =20 court battle.=20 * Oil giant Chevron threatens to cut gasoline production in California unle= ss=20 it is exempted from rolling blackouts. The San Francisco Chronicle says it= =20 has a copy of a letter sent Friday from Chevron chairman David O'Reilly to= =20 Davis. In the letter, O'Reilly says the company will scale back gasoline=20 production at its Richmond and El Segundo plants, operating those refinerie= s=20 only with power produced by generators at the sites.=20 * New U.S. Senate Majority Leader Tom Daschle, D-S.D., supports Federal=20 Energy Regulatory Commission price caps. "FERC must meet its obligation und= er=20 current law to ensure 'just and reasonable' prices for wholesale electricit= y=20 in the state of California. FERC has failed to meet this responsibility...,= "=20 Daschle says in a letter to Davis. "Unless FERC acts soon, Senator (Dianne)= =20 Feinstein's legislation should be taken up and passed to direct FERC to tak= e=20 action. I will support all necessary efforts to meet that goal."=20 * House Subcommittee on Energy Policy, Natural Resources and Regulatory=20 Affairs Chairman Doug Ose, R-Sacramento, cites Electric Utility Week figure= s=20 that FERC's limited price caps helped cut California's power rates from $30= 0=20 to $108.47 per megawatt hour within an hour after taking effect last week.= =20 While he says more information is needed, Ose uses the figures to tout his= =20 pending bill to impose the price caps around the clock and to all Western= =20 states.=20 * Pacific Gas & Electric Co. asks U.S. Bankruptcy Judge Dennis Montali to= =20 stop the manager of the state's power grid from buying electricity for=20 utility or charging it for any electricity bought after the utility filed f= or=20 bankruptcy on April 6. Separately, the utility's creditors support its=20 request to the bankruptcy court to pay out $17.5 million in bonuses to the= =20 management team that guided the utility into bankruptcy.=20 * California Department of Water Resources reveals it is negotiating with= =20 municipal utilities to buy their surplus power. Department spokesman Oscar= =20 Hidalgo says talks began last week but no agreements are imminent.=20 * State lawmakers criticize a $3 million lobbying campaign by Southern=20 California Edison. The utility is telephoning shareholders to describe the= =20 dire consequences if the utility goes bankrupt. The call is then transferre= d=20 to the state Capitol so shareholders can implore lawmakers to support a=20 controversial plan to help the utility. Legislators and their staffers say= =20 the shareholders often are confused and scared their investments will be=20 degraded or wiped out.=20 * State Treasurer Phil Angelides joins an advocacy group for the poor in=20 urging the state's huge pension funds to use their economic power to levera= ge=20 power companies. The Pacific Institute for Community Organization says the= =20 two pension funds own at least $1.2 billion in stocks and bonds in most of= =20 the firms that sell electricity to California.=20 * The Assembly, by a 69-0 vote, approves a bill to spend $10 million on=20 environmental studies needed before Path 15, the inadequate transmission-li= ne=20 group between Northern and Southern California, can be expanded. The bill= =20 moves to the Senate.=20 * Pacific Gas and Electric announces a decrease in natural gas prices, down= =20 38 percent from May's rates and 66 percent lower than January's rates. The= =20 decline will bring the average residential gas bill to $26 when it goes int= o=20 effect June 7. Market analysts predict the rates will remain stable until= =20 December when demand is expected to increase with winter heating loads.=20 * No power alerts Tuesday as electricity reserves stay above 7 percent.=20 * Shares of Edison International closed at $10.05, down 53 cents. PG&E Corp= .=20 closed at $11.25, down 15 cents. Sempra Energy, the parent company of San= =20 Diego Gas & Electric, closes at $26.91, down 43 cents.=20 WHAT'S NEXT: * Davis' representatives continue negotiating with Sempra, the parent compa= ny=20 of San Diego Gas and Electric Co., to buy the utility's transmission lines.= =20 THE PROBLEM: High demand, high wholesale energy costs, transmission glitches and a tight= =20 supply worsened by scarce hydroelectric power in the Northwest and=20 maintenance at aging California power plants are all factors in California'= s=20 electricity crisis.=20 Edison and PG&E say they've lost nearly $14 billion since June to high=20 wholesale prices the state's electricity deregulation law bars them from=20 passing on to consumers. PG&E, saying it hasn't received the help it needs= =20 from regulators or state lawmakers, filed for federal bankruptcy protection= =20 April 6.=20 Electricity and natural gas suppliers, scared off by the two companies' poo= r=20 credit ratings, are refusing to sell to them, leading the state in January = to=20 start buying power for the utilities' nearly 9 million residential and=20 business customers. The state is also buying power for a third investor-own= ed=20 utility, San Diego Gas & Electric, which is in better financial shape than= =20 much larger Edison and PG&E but also struggling with high wholesale power= =20 costs.=20 The Public Utilities Commission has approved average rate increases of 37= =20 percent for the heaviest residential customers and 38 percent for commercia= l=20 customers, and hikes of up to 49 percent for industrial customers and 15=20 percent or 20 percent for agricultural customers to help finance the state'= s=20 multibillion-dollar power buys.=20 ,2001 Associated Press ?=20 California conserves=20 Wednesday, June 6, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/06= /06/E D86597.DTL=20 WHEN RAIN fails to fall from the sky, Californians know why there is a=20 drought. But when rolling blackouts suddenly appeared in the dead of winter= ,=20 many of us wondered who was responsible for and who has profited from what= =20 now seems like an artificially created power shortage in the state.=20 Our skepticism proved to be right. Windfall profits were reaped by=20 electricity generators while natural gas importers extracted prices far abo= ve=20 the national average.=20 Timid federal overseers exact only wrist-slap penalties on the offending=20 energy firms. The White House scoffs at temporary controls for a=20 malfunctioning market. California's state government has ended up as the bi= ll=20 payer for the sickly utilities, forking over $8 billion to generators. This= =20 number may hit $40 billion by year-end.=20 It's an infuriating tangle. All the more remarkable, then, that skeptical= =20 Californians have managed, within two months, to reduce their use of=20 electricity by 11 percent. The public's response to the governor's appeal f= or=20 energy conservation has exceeded expectations. Although many businesses hav= e=20 suffered enormous losses, ordinary people have made relatively painless=20 sacrifices. People turned off their lights, purchased energy-efficient=20 lightbulbs, used air conditioning less and shut off their computers when no= t=20 in use.=20 Despite this remarkable civic compliance, we still face an unconscionable= =20 lack of leadership. President Bush seems perfectly willing to allow Texas= =20 power companies to pummel the once-powerful California economy. He repeats = a=20 mantra about creating more supply -- which California is doing with 15 powe= r=20 plants under construction -- while ignoring the outsized sums paid to a=20 handful of energy generators.=20 At the same time, Gov. Gray Davis, who has given new meaning to the word=20 dithering, has failed to make the tough and transparent decisions. He delay= ed=20 an inevitable rise in power rates. Davis also dragged his feet in openly=20 announcing new power contracts that commit California to billions in spendi= ng=20 over the next decade.=20 To Davis' credit, he has urged California to conserve by laying out an $800= =20 million plan to cut power use and invest in energy-saving programs. The=20 message is getting out as higher rates take effect this month.=20 Despite a woefully unbalanced market and shortsighted leadership, the peopl= e=20 of California have demonstrated that if there is a will, there is a way.=20 Now it is time for our leaders to follow the wisdom of their constituents.= =20 ,2001 San Francisco Chronicle ? Page?A - 20=20 L.A. power customers awash in cheap energy=20 John Wildermuth, Chronicle Staff Writer Wednesday, June 6, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/06= /06/M N133438.DTL=20 Los Angeles -- These are flush times for the city's Department of Water and= =20 Power and the energy executives are loving every minute of it.=20 As are their customers.=20 Private power companies throughout California have been raising rates and= =20 warning customers about a long, hot summer filled with blackouts, but the= =20 city- owned DWP has been keeping prices stable and the lights on for 1.2=20 million Los Angeles customers.=20 "Our customers are being really nice to us," said Angelina Galiteva, the=20 utility's strategic planning director. "They love the DWP."=20 Although Gov. Gray Davis' administration announced that the state had reduc= ed=20 its energy consumption 11 percent from a year ago, those in Los Angeles had= =20 cut back less than half that -- and polls show they view the energy situati= on=20 less seriously than other Californians.=20 Public utilities such as Los Angeles water and power have seen their revenu= es=20 increase during the energy crunch because they can sell their excess power = at=20 higher prices than ever before in a market tilted toward sellers.=20 The rest of the state doesn't always feel that same warm glow. Davis has=20 accused the DWP and other California public utilities of putting exorbitant= =20 price tags on the excess electricity they sell to the rest of the energy-= =20 starved state.=20 It's a charge Los Angeles utility executives deny, arguing that their exces= s=20 power is sold at cost plus 15 percent, which they say is a fair return for= =20 their customers.=20 "Without our support, a million more homes (elsewhere in California) would= =20 have suffered rolling blackouts, which is a powerful message," Galiteva sai= d.=20 It wasn't supposed to be this way. When the power industry was deregulated = in=20 the late '90s, energy giants like Pacific Gas and Electric Co. and Southern= =20 California Edison were expected to be the big winners. Now, PG&E is in=20 bankruptcy and Edison is a short step away.=20 "When deregulation came, the experts said that the investor-owned utilities= =20 would become lean, mean machines that would be better able to operate in th= e=20 new environment," Galiteva said. "But now public power has shown it can ser= ve=20 customers more efficiently at lower rates."=20 While much of the state worries about electrical supply, Los Angeles=20 residents have been saved many of those concerns.=20 In a survey done last month by the Public Policy Institute of California, 4= 8=20 percent of the people in the Bay Area thought that electricity cost and=20 availability were the most important issues facing the state. In Los Angele= s,=20 however, only 33 percent put the energy crunch on top. When questioned abou= t=20 the size of the power problem and the effect it would have on the state's= =20 economy, Los Angeles residents were consistently less concerned than people= =20 elsewhere in California.=20 People in Los Angeles have been "somewhat isolated" from the energy crisis,= =20 concluded Mark Baldassare, who conducted the survey.=20 That doesn't mean the state's energy problems haven't had an effect. The DW= P=20 has seen a 3 percent to 5 percent reduction in some uses, which officials= =20 have dubbed "sympathy conservation." The utility also is offering its bigge= st=20 customers financial incentives to cut back on their power use.=20 "Our average annual load growth is about 80 megawatts," Galiteva said. "By= =20 this summer, we expect to have saved 40 megawatts through conservation. By= =20 December, we expect 60 megawatts in savings."=20 The utility also is making a major attempt to create a conservation ethic= =20 among its customers. DWP's comfortable situation has made it possible to=20 offer them the carrot without the need to show them the stick.=20 "Conservation no longer means doing without," Galiteva said. "Beer can be= =20 just as cold with a superefficient refrigerator. Rooms can be just as brigh= t=20 with superefficient light bulbs."=20 A "Green Power" program also is promoting the use of renewable energy=20 resources such as solar, wind and hydroelectric power. About 75,000 custome= rs=20 are paying an extra $3 per month to increase DWP's use of renewable power= =20 sources.=20 "We're trying to give our customers a choice and a voice in determining the= =20 mix of power they use," Galiteva said. "They know they can do (conservation= )=20 now or see it being mandated later."=20 Los Angeles power officials -- and their customers -- know the DWP isn't=20 always going to continue as an island of tranquility in a sea of energy=20 turmoil. The utility's aging gas-fired plants have been affected by the=20 rising price of natural gas. Demand for energy continues to rise. In a deba= te=20 last month, both candidates for mayor of Los Angeles agreed that increases = in=20 local power bills are inevitable.=20 But the DWP has been supplying power to Los Angeles since 1916, and its=20 executives believe that the state's deregulation disaster has shown the=20 advantages of the city-owned utility.=20 "It's nice to be the lean, mean, green efficient machine that no one ever= =20 expected us to become," Galiteva said.=20 E-mail John Wildermuth at jwildermuth@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 13=20 PG&E doesn't want to pay for energy to avert blackouts=20 DAVID KRAVETS, Associated Press Writer Wednesday, June 6, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/06/06/s= tate0 306EDT0102.DTL=20 (06-06) 00:06 PDT SAN FRANCISCO (AP) --=20 Pacific Gas & Electric Co. has told a bankruptcy judge it should not have t= o=20 pay for what could amount to billions of dollars in spot-market energy cost= s=20 to avert blackouts.=20 The company's position was one of two developments that emerged Tuesday as= =20 the bankrupt utility tries to cope with fallout from California's power=20 crisis. The other development saw a group of creditors that PG&E owes=20 billions endorse $17.5 million in bonuses for top managers at the utility.= =20 San Francisco-based PG&E filed for bankruptcy protection in April after=20 racking up an $8.9 billion debt which under state law it could not recoup= =20 from customers.=20 Tuesday's court dispute centered on who pays for energy bought at the last= =20 minute to avoid blackouts.=20 PG&E said an April federal regulatory decision requires that electricity ca= n=20 only be sold to those with the ability to pay electricity generators. The= =20 state is the only player with such ability, said PG&E attorney Jerome Faulk= ,=20 who argued that the utility shouldn't have to pay the $330 million in month= ly=20 spot-market energy bills.=20 Judge Dennis Montali said he may craft such an order. But he said the order= =20 would not preclude the state from suing PG&E to recover the cost.=20 In a separate but related development, a committee charged with devising a= =20 payment plan for those creditors owed billions by PG&E said it will sign of= f=20 on the utility's plan to pay $17.5 million in bonuses to PG&E's management= =20 team.=20 Attorney Allan Marks, who represents the committee, said such payments are= =20 normal during large bankruptcy cases. Under the agreement, which Montali wi= ll=20 consider at a June 18 hearing, the company must quickly produce a debt=20 payment plan that passes judicial muster.=20 The utility said it needs the bonuses for a "management retention program."= =20 Marks agreed. While the $17.5 million leaves less for creditors, without a= =20 financial incentive PG&E's key top brass may not be willing to cooperate wi= th=20 a payment plan, Marks said.=20 "The main goal for the creditors' support here is to move the bankruptcy as= =20 quickly and smoothly as possible," Marks said.=20 The Utility Reform Network, a consumer watchdog group, says PG&E is simply= =20 rewarding managers of a failed business effort.=20 "They're just showering money on the same people who got them in this mess,= "=20 said TURN's Mike Florio.=20 The proposed bonuses would come on top of $50 million in bonuses and raises= =20 PG&E awarded just before the April 6 bankruptcy filing.=20 The case is In Re Pacific Gas & Electric Co., 01-30923 DM.=20 ,2001 Associated Press ?=20 Metcalf plant gets preliminary approval=20 Posted at 12:21 a.m. PDT Wednesday, June 6, 2001=20 BY MIKE ZAPLER=20 Mercury News=20 As the San Jose City Council approached its 10-1 vote Tuesday to give an=20 initial nod to Calpine's big power plant in South San Jose, Councilwoman=20 Linda LeZotte perhaps captured the body's mood best.=20 ``I'm holding my nose to vote for this thing,'' she said. ``Without faultin= g=20 the mayor or his staff, quite frankly I think this deal stinks.''=20 Caught in what some members called a bind beyond their control, the council= =20 gave preliminary approval to an agreement negotiated by Mayor Ron Gonzales= =20 and Calpine on the company's proposed 600-megawatt Metcalf Energy Center.= =20 Councilman Forrest Williams, who represents the Santa Teresa neighborhood= =20 near the site, cast the lone vote against the deal.=20 The agreement is scheduled to come back before the council for a final vote= =20 on June 26, but Tuesday's vote effectively shifts the battle to the courts,= =20 where residents are expected to lodge a lawsuit in one final attempt to blo= ck=20 the plant.=20 Still, Councilwoman Pat Dando and some of her colleagues raised questions= =20 about the deal they said they want answered before the final vote. Their=20 issues could be incorporated into the final deal.=20 Many of the concerns focused on a $50 million recycled water pipeline=20 Gonzales agreed to have the city build to accommodate the project, $10=20 million of which would be reimbursed by Calpine over 30 years.=20 Pipeline possibility=20 Dando said that a private company, Great Oaks Water, may be willing to buil= d=20 the pipeline extension itself, saving the city the $50 million expense.=20 Officials at Great Oaks were unavailable Tuesday.=20 Council members peppered staff with other questions. Many were alarmed by= =20 claims of the Silicon Valley Toxics Coalition, which said that using treate= d=20 sewage water to cool the power plant could allow dangerous chemicals to see= p=20 into drinking water aquifers. An environmental services director said the= =20 recycled water meets federal specifications, but that there is no protocol= =20 for testing other chemicals not included in those standards.=20 Councilman Ken Yeager asked why Calpine should be allowed to spread a $3.9= =20 million water connection fee over 10 years -- an arrangement that would=20 mandate an amendment to city law.=20 LeZotte, meanwhile, said she wants to hold Calpine accountable to install= =20 ammonia-free technology at the plant. Ammonia is highly hazardous, and=20 residents say the use of the chemical to clean the plant is among their chi= ef=20 concerns.=20 The agreement requires the company to install technology to reduce or=20 eliminate the use ammonia when it becomes ``technologically and economicall= y=20 feasible.'' LeZotte said she wants a clear definition of ``feasible''=20 included in the deal.=20 Tuesday's vote marked a stark departure from the council's November vote to= =20 deny Metcalf. At the time, council members said a power plant was=20 inappropriate for the area, and many members said Tuesday that they still= =20 believe that.=20 Bowing to pressure=20 But with Gov. Gray Davis endorsing Metcalf in April and the California Ener= gy=20 Commission widely expected to override the city's denial this month, counci= l=20 members said they had no choice but to cut the best deal it could and allow= =20 the project to proceed.=20 That explanation, however, didn't sit well with residents of the Santa Tere= sa=20 neighborhood adjacent to the Metcalf site, one of whom accused Gonzales and= =20 the council of ``switching sides when the opposing team gets too close to t= he=20 goal line.''=20 Contact Mike Zapler at mzapler@sjmercury.com or at (408) 275-0140.=20 Feds probe AES, Williams=20 Antitrust investigation looks into allegations of manipulated energy prices= =20 through reduced power-plant construction.=20 June 6, 2001=20 By JAMES ROWLEY Bloomberg News=20 WASHINGTON - The U.S. Justice Department opened an antitrust investigation= =20 into California's electricity shortage by probing allegations that AES Corp= .=20 and Williams Energy Services Co. are limiting power-plant expansion to driv= e=20 up prices.=20 AES Corp., the biggest U.S. power-plant developer, disclosed the=20 investigation in a filing with the U.S. Securities and Exchange Commission.= =20 The Justice Department is looking into a supply-and-marketing agreement=20 between AES' California power-plant unit and a Williams unit that supplies= =20 natural gas.=20 Williams, owner of the second-largest U.S. natural-gas pipeline system, als= o=20 markets the power produced by AES' three electricity plants in the state.= =20 The department alleges the agreement limits expansion of generating capacit= y=20 near some AES plants.=20 AES said it was cooperating with the Justice Department investigation, whic= h=20 began last month, into possible violations of Section 1 of the Sherman=20 Antitrust Act.=20 That provision outlaws any restraint of trade that stifles competition.=20 A shortage of generating capacity in California has led to soaring wholesal= e=20 prices and rolling blackouts and prompted Pacific Gas & Electric, the state= 's=20 largest utility, to seek bankruptcy protection in April.=20 Aaron Thomas, a spokesman for AES, based in Arlington, Va., said the U.S.= =20 investigation started "no more than a couple of weeks ago."=20 Williams spokeswoman Paula Hall-Collins said the Tulsa, Okla.-based company= =20 is cooperating.=20 Gina Talamona, Justice Department spokeswoman, said the agency had no=20 immediate comment.=20 The investigation was opened several weeks after the Federal Energy=20 Regulatory Commission investigated AES plants in Long Beach and Huntington= =20 Beach, designated "must run" under the Federal Power Act, did not produce= =20 electricity for 10 days in April and May 2000. Williams agreed to pay the= =20 operator of California's electric grid $8 million to settle allegations tha= t=20 it overcharged for power.=20 FERC charged in March that the companies had a financial incentive to keep= =20 the units out of service to force the California Independent System Operato= r=20 to buy power from AES' plant in Redondo Beach at prices close to the=20 FERC-imposed cap of $750 per megawatt-hour.=20 AES said it was complying with a Justice Department demand for documents=20 about the agreement between its AES Southland LLC unit and Williams Energy= =20 Services Co. AES Southland, which operates the three power plants, was also= =20 asked to respond to interrogatories, the company said.=20 The Williams unit supplies the natural gas to fuel the AES plants and marke= ts=20 the power they produce.=20 AES and Williams jointly produce and sell about 4,000 megawatts in Californ= ia=20 -- 6 to 8 percent of the state's power -- enough electricity to light about= 3=20 million typical California homes.=20 AES shares dropped $2.05, to $42.54. Williams Cos. shares dropped $1, to=20 $38.20. Calpine Begins Construction of Peaking Energy Center in Gilroy, Calif.=20 June 6, 2001=20 SAN JOSE, Calif., June 5 /PRNewswire/ via NewsEdge Corporation -=20 Calpine Corporation (NYSE: CPN), the San Jose, Calif.-based independent pow= er=20 company, today announced that initial construction of 135 megawatts (mw) of= =20 peaking generation capacity will begin during this week adjacent to its=20 existing Gilroy Power Plant in Gilroy, Calif. Through an Application for=20 Certification (AFC) filed with the California Energy Commission (CEC) on=20 April 25, 2001, Calpine proposed to add three 45-mw simple-cycle gas turbin= e=20 peaking units in the first of a two-phase process. The California Energy=20 Commission approved the project on May 21, 2001.=20 "Because the required natural gas, water and transmission infrastructure=20 exists at our Gilroy plant, it is an ideal site for the addition of peaking= =20 generation, allowing for rapid installation of needed capacity. The first= =20 three units are expected to begin generating electricity this September,"= =20 commented Bryan Bertacchi, Calpine Vice President - Western Region.=20 Upon completion the two-phase build out, the Gilroy Energy Center will be a= =20 270-mw, natural gas-fired, simple-cycle peaking generation facility located= =20 on approximately 9.5 acres at 1400 Pacheco Pass Highway in Gilroy. Commerci= al=20 operation of Phase One is scheduled for September 2001. An additional three= =20 45-mw gas turbine generators will be installed in Phase Two with full=20 build-out estimated for May 2002. Phase Two requires the filing of an=20 additional application with the CEC and is subject to a four-month review= =20 process.=20 Initial construction will begin this week with site and civil engineering= =20 activities occurring for approximately six weeks at which time the site wil= l=20 be cleared and leveled. Foundation work and the installation of generation= =20 equipment will follow shortly thereafter, and commissioning and testing wil= l=20 take place for a two to three week period prior to commercial operation in= =20 September 2001.=20 The Gilroy Energy Center web site has been created to host all information= =20 and updates related to this project. For additional information, please vis= it=20 www.gilroypower.com.=20 Calpine Corporation, based in San Jose, Calif., is dedicated to providing= =20 customers with reliable and competitively priced electricity. Calpine is=20 focused on clean, efficient, natural gas-fired generation and is the world'= s=20 largest producer of renewable geothermal energy. Calpine has launched the= =20 largest power development program in North America. To date, the company ha= s=20 approximately 32,200 megawatts of base load capacity and 7,200 megawatts of= =20 peaking capacity in operation, under construction, pending acquisitions and= =20 in announced development in 29 states and Canada. The company was founded i= n=20 1984 and is publicly traded on the New York Stock Exchange under the symbol= =20 CPN. For more information about Calpine, visit its Website at=20 www.calpine.com.=20 This news release discusses certain matters that may be considered=20 "forward-looking" statements within the meaning of Section 27A of the=20 Securities Act of 1933, as amended, and Section 21E of the Securities=20 Exchange Act of 1934, as amended, including statements regarding the intent= ,=20 belief or current expectations of Calpine Corporation ("the Company") and i= ts=20 management. Prospective investors are cautioned that any such forward-looki= ng=20 statements are not guarantees of future performance and involve a number of= =20 risks and uncertainties that could materially affect actual results such as= ,=20 but not limited to, (i) changes in government regulations, including pendin= g=20 changes in California, and anticipated deregulation of the electric energy= =20 industry, (ii) commercial operations of new plants that may be delayed or= =20 prevented because of various development and construction risks, such as a= =20 failure to obtain financing and the necessary permits to operate or the=20 failure of third-party contractors to perform their contractual obligations= ,=20 (iii) cost estimates are preliminary and actual cost may be higher than=20 estimated, (iv) the assurance that the Company will develop additional=20 plants, (v) a competitor's development of a lower-cost generating gas-fired= =20 power plant, and (vi) the risks associated with marketing and selling power= =20 from power plants in the newly competitive energy market. Prospective=20 investors are also cautioned that the California energy environment remains= =20 uncertain. The Company's management is working closely with a number of=20 parties to resolve the current uncertainty, while protecting the Company's= =20 interests. Management believes that a final resolution will not have a=20 material adverse impact on the Company. Prospective investors are also=20 referred to the other risks identified from time to time in the Company's= =20 reports and registration statements filed with the Securities and Exchange= =20 Commission.=20 MAKE YOUR OPINION COUNT - Click Here=20 http://tbutton.prnewswire.com/prn/11690X10523723=20 SOURCE Calpine Corporation=20 CONTACT: media, Lisa Poelle, ext. 1285, or investors, Rick Barraza, ext.=20 1125, both of Calpine Corporation, 408-995-5115=20 Web site: http://www.gilroypower.com=20 Web site: http://www.calpine.com (CPN)=20 Reliant Urges FERC to Drop or Amend California Price Caps to Avoid Addition= al=20 Shortages and More Blackouts=20 June 6, 2001=20 HOUSTON, June 5 /PRNewswire/ via NewsEdge Corporation -=20 Reliant Energy (NYSE: REI) filed an emergency motion with the Federal Energ= y=20 Regulatory Commission (FERC) on Monday urging the agency to drop the=20 California price caps first applied May 29, or at a minimum, amend them to= =20 reflect the true costs they are attempting to control. The current price=20 caps, which send inaccurate market signals, are actually decreasing supply= =20 and increasing demand thus worsening an already dire situation.=20 "FERC has been publicly dedicated to an open market from the beginning of t= he=20 California power crisis. We encourage FERC to reexamine these price caps an= d=20 continue that dedication," said Joe Bob Perkins, president and chief=20 operating officer, Reliant Energy Wholesale Group. "Reliant is committed to= =20 helping keep the lights on in California this summer and wants to ensure th= at=20 if caps must remain part of the picture, they actually help increase supply= =20 and fix the problem."=20 Although the price caps were first imposed less than a week ago, they have= =20 already begun to damage the market by decreasing supply. The price caps are= =20 creating a myriad of problems:=20 -- Creates Misleading Signals - The price cap methodology is misleading=20 the public on the actual cost of power. Reported "dispatch" costs in=20 Southern California during emergencies is far below what the actual=20 financial settlements will be under the FERC's final market mitigation=20 order. This confusion results from the "proxy" price used for=20 dispatch utilizing an extremely distorted blended fuel cost index.=20 This index averages gas costs in northern and southern parts of the=20 state, an impossibility in the actual market. This authorizes the=20 California Independent System Operator (ISO) to require that=20 generators dispatch power at reported market clearing prices well=20 below actual cost when back-up generation capacity begins to dip below=20 7.5 percent.=20 -- Depletes Power from Peaking Plants - The price caps distort dispatch=20 signals on peaking plants, which in some cases may be run only a few=20 days of the year because of emission regulations. The current FERC=20 price controls encourage the ISO to purchase power from emergency=20 peaking plants before it is really needed, even in the absence of a=20 stage three emergency. This depletes supplies that will, by law, run=20 out when blackout season intensifies later this summer. This power=20 from peaking units should only be purchased when blackouts are=20 imminent -- not in stage one or two emergencies.=20 -- Eliminates Price Signals for Retail Customers - Price caps remove=20 price signals for retail customers. Customers, particularly=20 industrial companies, which should be encouraged to curtail during=20 shortages, are not encouraged to conserve power when dispatched price=20 caps keep prices below the actual cost to produce electricity.=20 -- Discourages Supply from Out-of-State - Suppliers outside of=20 California, who are under no legal obligation to dispatch power during=20 an emergency in the state, are not encouraged to increase available=20 production when reported market clearing prices are below their cost=20 to produce. During times of emergencies, utilities across the Western=20 region are not likely to take on additional risks and costs if they=20 don't believe they will be fully compensated - a situation the current=20 price caps create.=20 MAKE YOUR OPINION COUNT - Click Here=20 http://tbutton.prnewswire.com/prn/11690X43182157=20 SOURCE Reliant Energy=20 CONTACT: Maxine Enciso of Ketchum Public Relations, Los Angeles,=20 310-444-1303, for Reliant Energy; or media, Richard Wheatley of Reliant=20 Energy, 713-207-5881=20 Photo: NewsCom: http://www.newscom.com/cgi-bin/prnh/20000309/DATH030 AP=20 Archive: http://photoarchive.ap.org PRN Photo Desk, 888-776-6555 or=20 212-782-2840=20 Company News On-Call: http://www.prnewswire.com/comp/419090.html or fax,=20 800-758-5804, ext. 419090=20 Web site: http://www.reliantenergy.com (REI)=20 By Kathleen McFall kmcfall@ftenergy.com President George W. Bush's energy package encourages the use of biomass fue= ls=20 for both transportation purposes and electricity generation. "They can=20 provide a reliable source of energy at a stable price, and they can also=20 generate income for farmers, landowners and others who harness them," his= =20 administration's report said.=20 Despite this warm and fuzzy language, however, the administration offered n= o=20 tangible funding for the fledgling biofuels industry=01*other than an exten= sion=20 of an existing ethanol tax credit that was not due to expire until 2007=01*= a=20 significant disappointment, and surprise, to advocates of renewable=20 transportation fuels. The report did recommend expanding tax credits for biomass energy projects = to=20 include forest-related and agriculture fuel sources and threw its weighty= =20 support at a new credit for electricity produced from biomass co-fired with= =20 coal. These recommendations are already included in the president's 2002=20 budget.=20 "We are pleased that the administration included expansion of the biomass t= ax=20 credit and hope that, with congressional leadership, we will see this=20 expanded provision signed into law this year," said Katherine Hamilton,=20 co-director of the American Bioenergy Association (ABA).=20 Unlike other portions of the recommended energy policy, biomass energy=20 probably will not suffer under the recent change in Senate composition, giv= en=20 Senate Majority Leader Tom Daschle's (D-S.D.) agricultural constituency and= =20 his previous support of the biofuels industry.=20 According to the National Energy Policy Development report, biomass account= s=20 for about 76% of non-hydropower renewable electricity generation,=20 representing a total of about 1.6% of total U.S. electricity supply.=20 Biopower advocates, however, envision an even greater market penetration in= =20 the coming decades and point to its environmental and ancillary advantages.= =20 For example, given that biomass combustion can be carbon dioxide-neutral (i= f=20 the growth and use cycle is managed sustainably), environmental groups=20 support an expanded role. Farmers with marginal lands that could grow bioma= ss=20 fuel could enjoy economic benefits. With large amounts of wood residue, the= =20 forest industry also stands to benefit from wider use of wood as a power=20 source.=20 Renewable energy offers a particular advantage to the lumber and paper=20 industry, and many analysts project that the industry may soon become a net= =20 seller of electricity.=20 "In the lumber and paper industries, wood scraps are sometimes directly fed= =20 into boilers to produce steam for their manufacturing processes or to heat= =20 their buildings. For that reason, renewable energy offers a particular=20 advantage to the lumber and paper industry, and many analysts project that= =20 the industry may soon become a net seller of electricity," said the energy= =20 policy report.=20 Co-firing with coal Biomass=01*usually wood or wood residue=01*has traditionally been burned di= rectly=20 in the industrial sector for heat or on-site electricity generation.=20 According to the U.S. Department of Energy (DOE), the existing 10 GW of=20 installed capacity are based on this direct-combustion technology.=20 For utilities and power-generating companies with coal-fired capacity,=20 however, biomass co-firing may represent one of the least-cost renewable=20 energy options, said the DOE. The process involves blending different=20 materials in varying amounts with coal.=20 Not only does mixing biomass with coal reduce emissions, it is likely to be= =20 cost-effective. Southern Co. estimates that a biomass plant alone could=20 generate power, depending on its location, at 4 to 11 cents/kWh. Given that= =20 the lower range of this corresponds to coal generation costs, there are=20 clearly circumstances where biomass-coal co-firing would be economically=20 attractive today. Plus, the environmental public relations benefit for=20 utilities with coal-fired capacity would be valuable.=20 Domestic biomass generation capacity could reach 20-30 GW by the year 2020 = by=20 co-firing at existing U.S. coal-fired power plants.=20 According to a recent report prepared by five National Laboratories, domest= ic=20 biomass generation capacity could reach 20-30 GW by the year 2020 by=20 co-firing at existing U.S. coal-fired power plants.=20 A recent report by the United Nations Intergovernmental Panel for Climate= =20 Change (IPCC) also cites the potential of coal co-firing with biomass. The= =20 IPCC report concludes that co-firing in coal boilers results in the lowest= =20 cost and least technical risk of the examined approaches for biomass=20 conversion to electricity.=20 Working out the technical kinks Already, said the DOE, six power plants in the U.S. are currently co-firing= =20 coal and wood residue products on a regular basis. Another 10 plants have= =20 successfully tested co-firing over the last decade, and at least six more= =20 plants are now conducting or planning tests.=20 For example, Southern Co. is working with DOE, the Southern Research=20 Institute and the Electric Power Research Institute to study ways to grow a= nd=20 harvest switchgrass to blend with coal as a fuel for power generation.=20 Ideally suited for the southeastern U.S., switchgrass is a rugged grass tha= t=20 can be grown on marginal agricultural land. Reaching heights of up to 12=20 feet, it requires little fertilization and herbicide and can be harvested= =20 twice a year.=20 Harvesting methods, co-milling of switchgrass and pulverized coal,=20 pilot-scale co-firing tests, and a full-scale demonstration of co-firing at= =20 Alabama Power Co.'s Plant Gadsden are part of Southern Co.'s collaborative= =20 project.=20 The U.S. Agriculture Department is also taking a role in exploring the=20 potential of biomass and coal co-firing as a means to give farmers new=20 markets, especially for currently idle land. The agency recently authorized= =20 funding for three co-firing demonstration projects.=20 In Iowa, the Chariton Valley Biomass Project is a cooperative effort to=20 develop warm and cool season grasses (such as switchgrass) to co-fire with= =20 coal at Alliant Energy's Ottumwa Generating Station. The project is designe= d=20 to generate a sustained supply of 35 MW of biomass energy. Eventually, the= =20 grass could substitute for as much as 5% of the coal currently burned at th= e=20 plant.=20 In addition to reducing coal emissions, the Chariton Valley Biomass Project= =20 will support the local farm economy.=20 In addition to reducing coal emissions, the project will support the local= =20 farm economy because the grass and trees will come from acreage taken out o= f=20 production under the Agriculture Department's Conservation Reserve Program= =20 (CRP). CRP land is generally marginal land that the government subsidizes= =20 farmers to leave idle to both prevent erosion and protect commodity prices= =20 from product surpluses.=20 The Pennsylvania Switchgrass Energy and Conservation Project will produce= =20 switchgrass on CRP land for sale to a local cooperative's coal-fired=20 fluid-bed combustors.=20 In New York, the Agriculture Department project will fund willow biomass=20 crops and switchgrass on CRP acreage in the central and western part of the= =20 state. The primary markets for the willow biomass are two coal-burning powe= r=20 plants and a small university central heating facility.=20 Land conflicts, transportation may be obstacles As these pilot projects illustrate, biomass conversion efforts may have the= =20 most significant potential in rural areas. "Since biomass is widely=20 distributed it has good potential to provide rural areas with a renewable= =20 source of energy. The challenge is to provide =01( conversion and delivery = of=20 bioenergy to the marketplace in the form of modern and competitive energy= =20 sources," said the IPCC report.=20 A potential drawback to co-firing is transportation. Transportation of=20 wood-based energy products is more costly, per unit of energy, than coal, f= or=20 example, and most analysts believe it will prove most economical to site=20 generation plants near biomass sources.=20 "The generating plant or biorefinery must be located near to the resource t= o=20 minimize transport costs of the low-energy-density biomass as well as to=20 minimize impacts on air and water use," the IPCC report said. However, note= s=20 the report's authors, economies of scale may be significant enough to offse= t=20 the transport costs involved.=20 A potential drawback over the long term, however, for biomass conversion is= =20 land use conflicts. The IPCC report notes that by 2100, the global land=20 requirement to feed the growing world population will increase substantiall= y.=20 "Up until this time there may well be sufficient land to supply all demands= =20 for food, fibre and energy, but at some stage after that, land-use conflict= s=20 could arise and before that, competition for water and irrigation may be a= =20 constraint."=20