Message-ID: <27124742.1075850998813.JavaMail.evans@thyme> Date: Tue, 27 Mar 2001 19:42:00 -0800 (PST) From: suzanne_nimocks@mckinsey.com To: skean@enron.com Subject: California Power Crisis Update (No. 10) Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: X-To: SKean@enron.com X-cc: X-bcc: X-Folder: \Steven_Kean_Oct2001_2\Notes Folders\Attachments X-Origin: KEAN-S X-FileName: skean.nsf We have been pulling together these weekly(sometimes more often) summaries for internal purposes. Would you find it helpful to be on the distribution list? Hope you are doing well. Look forward to touching base soon. ----- Forwarded by Suzanne Nimocks/HOU/NorthAmerica/MCKINSEY on 03/28/2001 03:41 AM ----- Memorandum TO: Pru Sheppard BCC: Suzanne Nimocks FROM: Pru Sheppard B. Venki Venkateshwara DATE: March 27, 2001 California Power Crisis Update (No. 10) DEVELOPMENTS THIS WEEK, 3/23/2001 The weeks highlights include: ? Continued indications that the issue of market power and possible remedies for it is likely to remain a high profile issue in California and elsewhere (both retroactively and prospectively) ? An ironical situation with respect to QFs in which QF power under contract is effectively being released into the market at higher prices ? A court order requiring Reliant to continue to sell power to the ISO even if it is not being paid in a full and timely manner ? Another Stage 3 emergency and rolling blackouts Market power There are continued indications that the issue of market power will not be settled simply. This week there was a lengthy and politically influential front page story in the New York Times about FERCs passive approach to policing generators (Critics Say U.S. Energy Agency Is Weak in Oversight of Utilities). The story was by Jeff Gerth and Joseph Kahn. (Jeff Gerth's 1992 story on the Whitewater deal is viewed by journalists to have been the origin of what eventually became a multi-year investigation of Bill Clinton.) The key issues are familiar: ? Does market power exist to a degree that warrants remedies such as price caps, refunds, and so on? ? If so, what is the basis for asserting that market power exists and what is the remedy? (See the discussion in the New York Times article on the "good hours" vs. "bad hours" approach and the associated political decision not to deal with "good hours"). ? Can market power be used as leverage to eventually settle generator bills in California at something less than 100 cents on the dollar. (The California ISO filed a complaint claiming $6 billion in overcharges this week.) The QF irony Through the 1990s, QF contracts were projected to be the source of stranded costs because they were priced "way above market." In recent months, in California, they look like a bargain (although some are not such great bargains because a portion of their price is tied to gas). You would think that the utilities would request QFs to maximize their output. But credit problems have created an ironical situation. The facts: ? PG&E and Edison have not been paying the QFs fully and promptly for some time. ? The QFs form a creditors committee and threaten to push PG&E and Edison into bankruptcy. (Some gas-fired QFs had to shut down because they did not have money to pay for the gas.) ? Last week's court decision allows MidAmerican/CalEnergy to essentially sell its power to others even though the QF contract "dedicates" the output to the purchasing utility. ? CalEnergy does so immediately, selling to El Paso. The Reliant Order A court ordered Reliant to continue to sell to the ISO, when requested, regardless of whether Reliant had been paid fully and promptly for past deliveries to the ISO. Reliant announced it will appeal the order. This is somewhat of a contrast to the QF situation except that the circumstances governing the 2 situations are probably different. The QF contracts pre-date the ISO and are with the utilities and most likely make no reference to providing power during emergencies. In fact, many QF contracts have the opposite provision: authority for the utility to cut takes during so-called "light load" periods. Stage 3 emergency and rolling blackouts--again There was another Stage 3 emergency in California ? with rolling blackouts this week. This prompted everyone to wonder why this was happening in March. Among the factors: ? Increased demand from summer-like temperatures ? Cutbacks in imports ? Loss of 1400 MW due to a transformer fire at an Edison plant ? Loss of about 3100 MW from QF plants that were forced to shutdown because they could not afford gas bills (VV) MARKET COMMENTARY (For easier printing of all the articles in this section use the file at the end of the section) Critics Say U.S. Energy Agency Is Weak in Oversight of Utilities By JEFF GERTH and JOSEPH KAHN 03/23/2001 The New York Times Page 1, Column 1 c. 2001 New York Times Company WASHINGTON, March 22 -- The pressure was intense when federal regulators met privately last month to debate remedies for soaring electricity prices in California. Officials of the Federal Energy Regulatory Commission, the agency whose mandate is to ensure ''just and reasonable'' electricity rates nationwide, had evidence that a few companies had been selling electricity to California at prices far above the cost of generating it. The agency faced an imminent deadline to challenge those prices or let the companies possibly pocket hundreds of millions of dollars in unfair profits. An internal memorandum laid out two choices. The agency could audit and punish ''bad actors,'' the companies that were exploiting the market. Or it could identify ''bad hours,'' when electricity shortages were most acute and spiking prices were arguably nobody's fault, and order refunds for only the most exorbitant prices. ''It may be easier to identify bad hours than bad actors,'' the memorandum said. The commission took the easier way. It decided not to investigate reports of abuses by companies, but issued an order that could require them to refund to the state utilities up to $124 million collected during a relatively few ''bad hours'' in January and February. That is hundreds of millions of dollars less than California might have claimed, since the most potential overcharging occurred during ''good hours,'' when power was more plentiful but prices were often just as extreme. The order ignored those hours. Today, in a criticism of the agency's lack of aggressiveness, California regulators estimated that generators had charged $6.2 billion above competitive levels over 10 months. They urged the agency to dig deeper, hoping it would demand more refunds or other stiff remedies. But the agency's track record -- one of complacency in the eyes of state officials -- leaves California regulators skeptical that Washington will confront the big power producers. The small, obscure agency, tucked behind the rail yard of Union Station here, has largely soft-pedaled its role as the electricity industry's top cop, even though it has wide authority to keep power companies in line. To keep rates reasonable, it can impose price caps, strip companies of the right to charge market rates, force them to return excessive profits and even suspend deregulation altogether. Instead, the agency has largely left it to private companies to pry open the $250 billion electricity industry, which has historically been controlled by monopoly utilities and state officials. The agency's defenders, including its chairman, Curt Hebert Jr., a fierce advocate of unfettered markets, say that its largely hands-off approach reflects the delicate balancing of competing interests -- a commitment to protect consumers while not stifling market forces. But politicians, utility executives, energy economists and local regulators say California's rolling blackouts and skyrocketing electricity prices are the signs of a market running amok. They accuse the agency of standing aside as companies manipulate their way to windfall profits. The agency's critics, who include one of its own commissioners and numerous staff members, say that its enforcement mission has been blunted by free-market passions and the influence of industry insiders in its ranks. When the agency began its first national investigation of high electricity prices last year, it named a newly recruited industry insider, Scott Miller, to lead the effort. Mr. Miller and his colleagues said in their report that there was ''insufficient data'' in California to prove any profiteering by generating companies. Yet his own former employer, PG&E Energy Trading, was at the time a subject of a civil antitrust investigation by the Justice Department that focused on electricity market abuses in New England. The agency has given state regulators a lead role in monitoring local power markets. Yet even as these regulators have urged the agency to be more aggressive in investigating suspicions that companies have abused their power in California, New England, the Midwest and the mid-Atlantic, they have frequently been ignored or rebuffed. Critics say that the agency began deregulation before it was ready or willing to make sure the markets worked effectively. They accuse it of showing favoritism to industry -- allowing companies, for example, to ignore requirements to file detailed reports of market transactions that are critical to proving accusations of market abuses. ''We need to wake up to the fact that this is a dysfunctional market that is being gamed and manipulated by those who participate in it,'' said William Massey, a commissioner of the agency who has become one of its leading critics. The agency's inaction, the critics say, leads to ''gaming'' -- jockeying for profits that does not necessarily involve illegality -- and outright market manipulation. Consumers and utilities are the victims, paying billions of dollars more for electricity than if the markets were truly competitive. Agency officials acknowledge that enforcement of market rules to curb gaming and manipulation had not been a high priority in previous years. But they defended their recent California order as proof that they intend to keep markets free of abuse. They add that the agency is also pressuring two generators to refund almost $11 million for possibly manipulating the California market last spring. Agency officials and some outside analysts say that poorly conceived deregulation plans by states, a shortage of power plants, rising natural gas prices, and even the weather have had more impact on electricity prices than abuses by companies or any failings by the agency. They say the agency must balance the competing interests of generators, local regulators and utility companies if it is to keep deregulation on track. ''We're trying to craft a system that gives breathing room to develop a market, but not so much room that undue market power punishes consumers,'' Mr. Hebert said. Fight Over Deregulation Today's debate traces back to the 1930's, when President Franklin D. Roosevelt backed legislation to break up utility monopolies. The Federal Power Act of 1935 gave the Federal Power Commission a mandate to ensure ''just and reasonable'' electricity rates. The Federal Power Commission was abolished in 1977 and replaced by the Federal Energy Regulatory Commission, an independent agency with 1,200 employees that also oversees oil pipelines and the natural gas market. The president appoints the chairman and four commissioners -- two Democrats and two Republicans with staggered terms of five years. Two Republican seats are currently unfilled. The deregulation of the electricity markets began in the late 1980's, after the agency had begun opening the gas markets. By 1996, the commissioners issued a landmark order that forced utility companies to open their transmission lines to other utilities and electricity wholesalers. The commission and many private economists expected that by prying open protected markets, electricity prices would immediately fall. That possibility set off a deregulation frenzy, most prominently in California, New York, New England and the mid-Atlantic states. Generating companies rushed to expand in the new, borderless market. But the agency's balancing act has grown more difficult as electricity deregulation has spread nationwide. Congress has forced it to trim its staff in recent years. Officials complain that investigating abuses in electricity markets strains their resources. And as the California crisis has worsened, the commissioners have begun sparring publicly among themselves about what to do. This week, Mr. Massey, a Democratic commissioner, and Mr. Hebert (pronounced AY-bear), a Republican, sat side by side before a House panel and argued diametrically opposed positions. Mr. Hebert said high prices in California ''were sending the right signals to get supply there.'' Mr. Massey called the prices that generators were charging ''unlawful'' and said that his agency, by not reining them in, ''is simply not doing its job.'' The agency's leadership has been in flux for months. Congressional and industry officials in Washington say President Bush is considering replacing Mr. Hebert, whom he named to the top post less than two months ago, with Pat Wood, who runs the Texas public utility commission. A White House spokeswoman had no comment on the reports. Though Mr. Hebert's positions are not far from those of the Bush administration, his relations with California leaders may have made his position tenuous. Mr. Hebert, a Mississippian who is a close ally of the Senate majority leader, Trent Lott, has warred with California politicians who have proposed new solutions to the crisis there. Mr. Hebert, who has served as a commissioner since 1997, has often taken the most ideologically free-market position of any commissioner. He flatly rejects the idea of price caps on electricity as hopelessly ineffective and contrary to market forces. When Gov. Gray Davis outlined a plan to have the state buy transmission lines to relieve utility companies' debt, Mr. Hebert's response was dismissive. ''It's not in the interest of the American public,'' he pronounced. Even as new electricity markets opened in the summer of 1999, they started producing nasty shocks. The mid-Atlantic region experienced some early volatility. As the turmoil grew, economists began raising the alarm about a phenomenon called ''market power,'' the ability of energy traders in the new national market to sustain prices above the competitive level. Proving such abuses is difficult, because it requires comparing tens of thousands of separate electricity transactions with the costs of the generators that initiated them. Joseph Bowring, who heads the market monitoring unit of the nonprofit entity that operates the mid-Atlantic transmission system, said that power companies there had exercised some market power. But only the Federal Energy Regulatory Commission, not local regulators, had the authority to collect the data to determine how much market power had been exercised and whether it had been abusive or not, he said. Mr. Bowring said he talked to agency officials about doing so. In the end, Mr. Bowring and several agency officials said, the agency chose not to investigate. The decision roiled some agency officials. Ron Rattey, a veteran agency economist, wrote a memorandum last June describing the staff as ''impotent in our ability to monitor, foster, and ensure competitive electric power markets.'' The staff, the memorandum said, did not even enforce a requirement that power companies file detailed quarterly reports listing essentially every sale they make. Such data would have been useful to Mr. Bowring. Local-Federal Clash Local regulators who want to ensure competitive prices often have to act on their own. Monitors in New England have intervened about 600 times since 1999 to correct prices they determined had been caused, at least in part, by market manipulation. The federal agency has sometimes chastised them for interfering too much. The industry, not surprisingly, shares that view. One vocal critic was Mr. Miller. Before the agency recruited him last July to head its division of energy markets, he was director of policy coordination for the national energy-trading unit of PG&E Corporation, the California holding company whose assets also include Pacific Gas and Electric, the California utility. Although the utility has lost billions of dollars during California's crisis, Mr. Miller's former unit has become one of the most profitable new energy traders nationwide. PG&E Energy Trading, by several estimates, is now the second-largest seller of electricity in New England. The company has had a rocky relationship with regulators. They intervened several times in 1999 and 2000 to retroactively cancel auctions they said produced excessive profits for PG&E and other companies. Mr. Miller denounced the practice, though he acknowledged in public testimony that his company sometimes charged ''very high'' prices when it could. ''One person's predatory pricing is another person's competitive advantage,'' Mr. Miller said at a public hearing on deregulation in Texas in 1999. New England regulators too often acted as ''judge, jury and executioner'' when overseeing the market, he said. One year later, Mr. Miller and his new colleagues at the federal agency got a chance to examine New England's problems from the regulators' perspective. Their Nov. 1 report attributed New England's frequent price gyrations to technical and regulatory flaws. As Mr. Miller's team was preparing its report, the Justice Department, whose threshold for stepping into possible industry wrongdoing is far higher than the agency's, began looking into whether price spikes in New England pointed to unlawful monopoly power or collusion, people contacted by the department during that inquiry said. One subject of the civil inquiry is possible price manipulation in one of New England's ancillary services markets, people contacted by the department said. They said the department was examining whether PG&E and two other companies tried to corner that market for several months early last year. PG&E confirmed that the Justice Department had contacted it, but denies wrongdoing and says it has cooperated with the department's requests. Mr. Miller has declined to comment on his role at PG&E or at the agency. His supervisors defended his work and said they had detected no conflict of interest between his work at PG&E and his duties at the agency. Those duties brought Mr. Miller to California last August. With electricity prices there soaring, he and his colleagues sat down with several utility executives at the agency's San Francisco office. One executive, Gary Stern, director of market monitoring for Southern California Edison, wanted the agency to stop what he suspected were market abuses by power generators. He provided a road map to help investigators figure out how power companies traded power contracts -- and whether they had manipulated the markets. But when Mr. Miller and his team approached 11 generators and marketers -- including his old employer -- a few weeks later, they did it their way. They asked eight questions, many of them imprecise, like: ''Describe your strategy for bidding generation resources into market.'' This question, Mr. Stern said in a recent interview, ''was equivalent to asking a suspected burglar how he spent his day.'' Some agency officials also thought the team should probe deeper. Mr. Rattey recommended that Mr. Miller seek the quarterly pricing reports that marketers were supposed to file. But his suggestion was not adopted, agency records show. Daniel Larcamp, Mr. Miller's supervisor, said ''there might have been more information that could have been obtained'' in the California inquiry. But he said the commission gave the staff only three months to finish, making it impossible to collect and analyze the reams of data involved. For Mr. Miller, agency documents show, the investigation was so time-consuming that he had no time to fill out the financial disclosure form required of new federal employees. Mr. Miller submitted his form in late January, after a reporter requested it. Agency lawyers approved the form, but only after he provided additional information about his job and compensation from PG&E. The lawyers said Mr. Miller's participation had been permissible because PG&E was not the subject of the investigation. When the staff report was issued on Nov. 1, it found high prices and problems in the design of the California market. But while the companies ''had the potential to exercise market power,'' the commission said, there was ''insufficient data'' to prove that they did. Some marketers saw the report as an exoneration. ''This has been looked at several times, most notably by the FERC and nobody has found any evidence of market manipulation and profiteering,'' Rob Doty, the chief financial officer of Dynegy Inc., told a reporter earlier this year. California Inquiry The agency has recently shown signs of wanting to apply pressure on generators. But its early efforts show how it is treading on new and uncertain turf. When the California crisis grew severe last December, the commission issued a refund order, a shot across the bow for generators charging high prices. It required them to submit detailed data any time they sold electricity in California for more than $150 per megawatt hour, considered at the time a fair estimate of the highest costs any of them faced. It also told generators that for the next several months, they could be forced to give refunds if the agency found that they had charged excessive prices. The commission also said that it would examine bidding practices and strategies for withholding generating capacity to ferret out any efforts to artificially raise prices. When the agency's own 60-day deadline for examining market data in January approached, however, it became clear that staff members had not made any detailed examination. Instead, staff members said, the agency scrambled to forge a last-minute compromise that would allow it to issue a statement opposing high prices in the state without a time-consuming investigation. During this scramble, a senior staff member, Kevin Kelly, suggested focusing on bad hours instead of bad actors. ''Our attempts to find illegal behavior or legal 'misbehavior' by sellers ('bad actors') always seems to fail,'' his memorandum said. It said that the agency could more easily blame high prices on acute shortages during the most critical hours. The suggestion won the day. The commission decided to limit its order to the hours when California declared a Stage 3 emergency, when supplies are critically low. Mr. Stern of Southern California Edison and several private-sector economists have attacked the economic logic of that order. They said that the commission has focused on times when prices might be legitimately high. The bigger worry: Generators can and often do sustain artificially high prices when supplies are not as tight, they say. Mr. Massey, the Democratic commissioner, dissented from the decision for those reasons. Because most high-priced transactions in January and February did not occur during bad hours, he argued, the commission effectively chose to bless as ''just and reasonable'' the hefty profits generators are making from the California crisis. ''The problem with my agency is that we're so carried away with the rhetoric of markets that we've gotten sloppy,'' Mr. Massey said. ''We're talking about electricity. It's the juice of the economy, so it's got to be available and reasonably priced.'' Williams defends pricing of electricity 03/23/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. TULSA, Okla. (AP) - Williams Cos. Inc. says it can justify the rates it charged for wholesale power, despite accusations from federal regulators that it sold over-priced electricity to California. Federal regulators claim Williams Energy Marketing and Trading Co., a unit of Tulsa-based Williams, owes California more than $40 million in refunds for power it sold to the state's Independent System Operator. The Federal Energy Regulatory Commission says that Williams is one of several power providers responsible for $124 million in overcharges from transactions in January and February. The Independent System Operator, which manages the state's power grid, claims the state was overcharged $6.2 billion by 21 wholesale power providers, including Williams, between May and February. Williams says the rates it charged California were fair and were based on production costs and market conditions. "Williams is confident that it performed within the guidelines established by the ISO," said Williams spokeswoman Paula Hall Collins. "We felt like we had worked within the regulations set up by ISO." According to the commission, power prices levied by Williams in January and February exceeded federal price ceilings based on the cost of natural gas and other market conditions. However, the price ceilings were established after the ISO accepted Williams' power prices, Collins said. The commission will review Williams' explanation and either accept the justification or order the company to pay refunds. Allegheny Energy makes big California connection 03/23/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. HAGERSTOWN, Md. (AP) - Allegheny Energy Inc. said Thursday it has agreed to sell $4.5 billion worth of power to California's electricity-purchasing agency over the next 10 years. The company said the contract call for Allegheny to provide up to 1,000 megawatts that the Hagerstown-based company has secured from western generating plants through its new energy trading division, Allegheny Energy Global Markets - formerly Merrill Lynch Global Energy Markets. "This is a win-win for both the state of California and Allegheny Energy. It provides a long-term source of fixed-price energy and should help to stabilize prices in California," said Michael P. Morrell, president of the Allegheny Energy Supply division. Allegheny Energy is the parent of Allegheny Power, which delivers electric energy and natural gas to parts of Maryland, Ohio, Pennsylvania, Virginia and West Virginia. Williams plans expansion of pipeline to help power Calif. 03/23/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. SALT LAKE CITY (AP) - The Williams Cos. plans to expands its Kern River pipeline, which runs through Utah, to provide more natural gas for generating plants in California. Williams' gas pipeline unit in Salt Lake City said Thursday that it plans to construct nearly 700 miles of additional pipeline that will run parallel to its existing Kern River line. Construction on the $1 billion project is expected to begin next year and is scheduled for completion in May 2003, said Kirk Morgan, director of business development for Kern River pipeline. "Shippers are seeking more access to natural gas from the Rocky Mountain basin, where producers are aggressively stepping up production," Morgan said. The new pipeline is expected to deliver about 900 million cubic feet of natural gas per day to markets in Utah, Nevada and California. Most of the gas will be used for generating plants planned in California. If all of the pipeline's capacity were used to generate electricity, it could produce about 5,400 megawatts. "That is enough to light around 4.5 million homes," Morgan said. The original Kern River line was completed in 1992. It enters Utah from Wyoming then crosses into the Salt Lake Valley near Bountiful. It turns south near the Salt Lake City International Airport then runs the length of the state before passing into southern Nevada and winding up near Bakersfield, Calif. It currently transports 700 million cubic feet of natural gas per day. Williams, based in Tulsa, Okla., recently filed an emergency application with federal regulators to install additional pumping stations on the line to increase its capacity by 135 million cubic feet per day. That $81 million pumping station project should be completed by July 1. During the 2002 construction period, the Kern River project will employ between 1,500 and 1,800 people. The company estimates annual property taxes it pays to Utah counties will increase from $3.5 million to about $7 million. Questar will be one of the customers on the new pipeline, Morgan said. The utility wants to supply additional gas to southern Utah cities, including St. George and Cedar City. "Our own pipelines serving southern Utah are at full capacity so this is an opportunity to transport additional gas into those areas from company-owned supplies in Wyoming," said Questar Gas spokeswoman Audra Sorensen. Calif Energy Commission OKs 3 Pwr Plants Worth 2,076 MW 03/23/2001 Dow Jones Energy Service (Copyright (c) 2001, Dow Jones & Company, Inc.) (This article was originally published Thursday) LOS ANGELES -(Dow Jones)- The California Energy Commission Wednesday approved three power plants worth 2,076 megawatts, two of which are scheduled to come on line by the end of 2002, a CEC spokesman said Thursday. The plants approved include BP Amoco PLC (BP) unit ARCO Western Energy's 500 megawatt Western Midway Sunset Project, slated to come on line in October 2002; Caithness Energy's 520 MW Blythe Power Plant, to come on line by Dec. 31, 2002; and Thermo Ecotek's 1,056 MW Mountainview Power Plant, scheduled to come on line in April 2003. All three of the new plants will be natural gas-fired combined-cycle plants. The $550 million Mountainview plant will be located in Southern California, near San Bernadino. The $300 million Western Midway-Sunset plant will be located in central Kern County, while the $250 million Blythe plant will be located in the city of Blythe in Riverside County. The latest approvals bring to 13 the total number of plants approved since April 1999 by the CEC, a spokesman said. Those plants will supply 8,405 MW to the state, which has seen rolling blackouts and spiking wholesale power prices in the last six months, in part due to lack of supply. -By Jessica Berthold, Dow Jones Newswires; 323-658-3872; jessica.berthold@dowjones.com Some CalEnergy Power Could Be Sold Outside Calif - CEO 03/23/2001 Dow Jones Energy Service (Copyright (c) 2001, Dow Jones & Company, Inc.) (This article was originally published Thursday) LOS ANGELES -(Dow Jones)- Some of CalEnergy Operating Corp's power could end up being sold outside of California, though that is not the company's intent, CalEnergy Chairman and CEO David Sokol said in a conference call Thursday. CalEnergy, an affiliate of MidAmerican Energy Holdings Co, which is majority owned by Warren Buffett's Berkshire-Hathaway (BRKA), was given legal authority Thursday to suspend 270 megawatts of power delivery to Edison International (EIX) utility Southern California Edison and sell on the open market, because SoCal Edison has not paid its bills since November. CalEnergy stopped supplying power to SoCal Ed immediately following the court ruling. "We stopped supplying power at 1 PM (PST) and have been selling to parties that will pay since then....We are selling it to marketers; our current marketing agent is El Paso Corp (EPG) and they will sell it for us," Sokol said. Sokol added that while it was his company's intention to have its power sold to California, that could not be guaranteed. "We leave the energy selling to El Paso....We've directed them that we would like the power to stay in California but we can't stop them," from selling out of state, Sokol said. Wholesale prices on the open market are about $400-$500 a megawatt-hour, three times more than what the company had received under its contract with SoCal Ed. The court's ruling did not address the $45 million SoCal Ed still owes CalEnergy for November and December power, and Sokol said that his company's separate lawsuit on that matter sought to attach the utility's assets as payment for that debt. Sokol said the court's ruling had "significant implications" for the entire community of small, independent generators, known as qualifying facilities or QFs, who have not received payment from SoCal Ed. "Edison's own lawyer said it best....that every QF in the state will begin to mitigate if the judge allowed us (to sell on the open market)," Sokol said. Sokol said his company was prepared to push SoCal Ed into involuntary bankruptcy Friday if CalEnergy hadn't won the case, but said he couldn't speculate whether other QFs may be more or less inclined to do so as a result of the court outcome. A group of renewable power suppliers, owed more than $100 million from SoCal Ed, said late Wednesday they want state lawmakers to release them for their supply contracts with PG&E Corp. (PCG) unit Pacific Gas & Electric and SoCal Ed until the utilities are restored to financial stability. The utilities claim close to $13 billion in undercollections due to an inability to pass high wholesale power costs to customers under a rate freeze. In a statement, SoCal Ed said it opposed CalEnergy's bid to suspend its QF contract because the utility believed Gov. Gray Davis and state regulators are close to resolving "very legitimate financial concerns of CalEnergy and other QF suppliers." SoCal Ed said it was concerned that CalEnergy's request to sell to third parties would lead to a major supply shortage in California. The utility said it has informed the QFs that it is working to resolve the issue without giving unfair advantage to one class of creditors. While many of the state's large power suppliers have been paid by on a forward basis for the power they sell into California, the QFs, which make up one-third of the state's total power supply, haven't been paid by SoCal Ed since November. PG&E has made partial payments to its QFs. -By Jessica Berthold, Dow Jones Newswires; 323-658-3872, jessica.berthold@dowjones.com (Jason Leopold contributed to this article.) California and the West Judge Frees Small Firm From Edison Contract KEN ELLINGWOOD; DAN MORAIN TIMES STAFF WRITERS 03/23/2001 Los Angeles Times Home Edition A-3 Copyright 2001 / The Times Mirror Company El CENTRO -- California's balance of electrical power shifted slightly Thursday when an Imperial County judge temporarily freed a small geothermal energy producer from its contract with Southern California Edison, allowing it to sell power on the open market. The ruling by Superior Court Judge Donal B. Donnelly could lead to a mass exodus by hundreds of small energy producers that have been selling power to the state's financially troubled utilities for months without getting paid. At the same time, it may have staved off plans by a group of the small generators to send Edison into involuntary bankruptcy as early as today. In Sacramento, energy legislation pushed by Gov. Gray Davis passed in the state Senate but foundered in the Assembly. The measure was intended to ensure that the state gets repaid for the electricity that it has been buying on behalf of Edison and Pacific Gas & Electric, which say they lack the cash and credit to purchase power. The bill also was supposed to guarantee that the small, alternative energy producers--which together provide nearly a third of the state's power--get paid. But Assembly Republicans opposed it, saying it hadn't been given sufficient scrutiny. The impact of the small producers was made clear in Imperial County, where Edison's failure to pay CalEnergy, the county's biggest property taxpayer, had outsize implications. CalEnergy had put county officials on notice that it was about to miss a $3.8-million property tax payment. The uncertainty had prompted the tiny Calipatria Unified School District to postpone a bond issue for badly needed school repairs. Among CalEnergy Chairman David Sokol's first acts after the judge's ruling Thursday was to promise Imperial County Supervisor Wally J. Leimgruber that the company would pay its property taxes on time. "That is great news," Leimgruber said. Within hours of its court victory, CalEnergy had stopped transmitting geothermal power to Edison and begun selling it to El Paso Energy, a marketing company that purchased the energy at prevailing rates and resold it on the spot market. Some of the more than 700 other small energy producers in the state said they were considering similar action against Edison and Pacific Gas & Electric. "We absolutely need the right to sell to third parties," said Dean Vanech, president of Delta Power, a New Jersey company that owns five small gas-fired plants in California and is owed tens of millions of dollars by Edison. Sokol praised the Imperial County judge and said his company simply wanted the authority to sell its power "to a credit-worthy company that, in fact, pays for the power." An Edison spokesman said the company was disappointed with the ruling, but sympathized with CalEnergy and other small producers because "California's power crisis has placed [them] in financial distress, just as it has placed utilities in financial distress." Edison expressed concern that the ruling would prompt CalEnergy and other small producers to sell their power out of state. Sokol said CalEnergy had specifically told El Paso Energy that it hoped its power would remain in California, "but if someone wants to pay a higher price out of state, we can't stop them." Sokol said that Edison still owes CalEnergy $140 million and that the company--along with seven other small producers--had been prepared to file a petition in federal bankruptcy court in Los Angeles today forcing the utility into involuntary bankruptcy. He said his company no longer intends to do so, and he believed--but wasn't certain--that the other companies would shelve their plans. Edison filed papers Thursday with the federal Securities and Exchange Commission showing that it owed $840 million to various small electricity producers, many of which rely on renewable energy sources such as geothermal steam, solar energy or wind. The alternative energy producers--and utilities--strenuously objected to the legislation considered in Sacramento on Thursday. The bill, spelling out how the utilities are to pay the state and the small producers, passed the Senate on a 27-9 vote, the exact two-thirds margin required. But it stalled in the Assembly on a 46-23 party-line vote, well short of two-thirds. "When I was a citizen back in Lancaster, I heard these stories about pieces of legislation that were cooked up late at night, that . . . were cut and pasted together and were rammed through by the Legislature," Assemblyman George Runner (R-Lancaster) said. "That's exactly what we have before us." The alternative electricity generators, including oil companies, warned that they would lose money under the Davis proposal, while representatives of Edison and PG&E, which have amassed billions in debt in the worsening energy crisis, said the legislation would push them deeper into the hole. "There isn't enough money," Edison attorney Ann Cohn testified at a Senate hearing on the bill Thursday. "It is a very simple question: Dollars going out cannot be greater than dollars coming in." The bill, AB 8X, combined several proposals. First, it sought to clarify earlier legislation by spelling out that Edison and PG&E must pay the state all money collected from consumers for electricity that the state has been buying. Additionally, the bill would turn over to the California Public Utilities Commission the thorny issue of how much to pay alternative energy producers for their electricity. Wind, solar and geothermal producers might agree to the prices offered by the administration. But most of the alternative energy producers, including Chevron and British Petroleum, use natural gas to generate electricity through "cogeneration," a process of creating steam for both electric generation and heat. With natural gas prices high, they contend, they would lose money at the prices Davis is offering. * Ellingwood reported from El Centro, Morain from Sacramento. Times staff writers Mitchell Landsberg in Los Angeles and Jenifer Warren, Nancy Vogel and Carl Ingram in Sacramento contributed to this story. (BEGIN TEXT OF INFOBOX / INFOGRAPHIC) Power Points Background The state Legislature approved electricity deregulation with a unanimous vote in 1996. The move was expected to lower power bills in California by opening up the energy market to competition. Relatively few companies, however, entered that market to sell electricity, giving each that did considerable influence over the price. Meanwhile, demand has increased in recent years while no major power plants have been built. These factors combined last year to push up the wholesale cost of electricity. But the state's biggest utilities--Pacific Gas & Electric and Southern California Edison--are barred from increasing consumer rates. So the utilities have accumulated billions of dollars in debt and, despite help from the state, have struggled to buy enough electricity. * Daily Developments * Overcharges by major electricity suppliers were estimated at $6.3 billion, up from the $5.5 billion first thought, California's power grid operator said. * Electricity producers denied that they have profiteered and argued that Cal-ISO's figures don't take into account all their costs. * A Superior Court judge's ruling Thursday freeing a small producer from its contract with Edison could lead to a mass exodus by small energy producers that have been selling to the utilities without getting paid. * Verbatim "If these guys have such high costs ... how come they're making so much money?" --Gary Stern, Edison's director of market monitoring and analysis, referring to power producers Complete package and updates at www.latimes.com/power Grid Operator Says California Paid Too Much for Power By Rebecca Smith and John R. Emshwiller Staff Reporters of The Wall Street Journal 03/23/2001 The Wall Street Journal A2 (Copyright (c) 2001, Dow Jones & Company, Inc.) California's electric-grid operator said power suppliers may have overcharged the state and its utilities by $6.2 billion, or a total of 30%, in a 10-month period, and has asked federal regulators to step up their policing of electricity markets. Meanwhile, a California state judge handed down a decision involving small power producers that could result in more electricity being made available in the energy-starved state, but likely at greater cost to the state government. The $6.2 billion figure was contained in a market analysis by the California Independent System Operator filed yesterday with the Federal Energy Regulatory Commission. The ISO says it isn't seeking a refund -- for the May through February period -- because its analysis lacked important market data. For example, it estimated costs for 21 suppliers based on published prices for natural gas, not on specific data showing what each generator actually paid for the fuel. "We don't know how much gas actually was purchased at spot-market prices," said Anjali Sheffrin, the ISO's head of market analysis. Charles Robinson, general counsel for the ISO, said FERC needs to become "more aggressive about market-power mitigation." The ISO's filing, he said, was intended to push the agency in that direction, since FERC is responsible for policing deregulated electricity and natural-gas markets. He said that if the FERC doesn't act, the state of California may find ways to discipline the market, such as through the state attorney general's office. The attorney general has been investigating the state's electricity market for many months but hasn't brought any court action. Dynegy Inc., a big owner of power plants in California, said it will provide additional information to FERC supporting its position that the prices it has charged for power have been "just and reasonable." The Houston company was one of 13 energy suppliers that the FERC this month ordered to pay refunds totaling $124 million or "show cause" why it should be excused. Dynegy said the FERC analysis was flawed, because it used "inaccurate" prices for natural gas and pollution credits. While big power producers such as Dynegy came under attack, small power producers won a potentially significant victory in a state court in Southern California's Imperial County. A judge granted 10 geothermal plants operated by the CalEnergy Co. unit of MidAmerican Energy Holdings Co., a unit of Berkshire Hathaway Inc., of Omaha, Neb., permission to suspend deliveries of electricity to Southern California Edison Co. and instead seek other buyers. These plants, known as "qualifying facilities," are under long-term contract to Edison and other utilities but haven't been paid for months. Edison, a unit of Edison International, of Rosemead, Calif., says it has been unable to pay hundreds of millions of dollars in power bills to CalEnergy and others because it has been driven to the brink of insolvency by the state's failed utility-deregulation plan. While the CalEnergy case involves only about 320 megawatts of power, the repercussions could be far greater. Collectively, hundreds of qualifying facilities, or QFs, produce as much as 30% of California's electricity needs. QFs totaling 3,000 megawatts cut their production in recent weeks for lack of payment. This loss of output was a significant cause of the blackouts that hit California this week. Observers believe the CalEnergy court decision could give other QFs an opportunity to sell power in the open market, presumably to the state government that now is California's biggest energy buyer. An hour after the court decision yesterday, some 400 megawatts of power came back into the market, the ISO said. However, additional QF power sales on the open market could substantially increase the state's tab. Already, the state has allocated more than $4 billion for electricity purchases. Separately, Edison said in a Securities and Exchange Commission filing that its unpaid power bills could contribute to a write-off of as much as $2.7 billion for 2000. Because of uncertainty caused by the energy crisis, the company hasn't yet reported year-end earnings. Power regulators debate who should be exempted from blackouts By KAREN GAUDETTE Associated Press Writer 03/22/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. SAN FRANCISCO (AP) - State power regulators said Thursday they are working to exempt all California hospitals, regardless of size, from rolling blackouts. The Public Utilities Commission met with representatives from hospitals and investor-owned utilities after Los Angeles lawyer David Huard filed an emergency motion with the PUC on behalf of more than 500 hospitals throughout the state. Under PUC rules, hospitals with more than 100 beds are exempt from losing electricity during power emergencies. But during rolling blackouts Monday, at least a dozen hospitals from Long Beach to Clearlake were forced to use their backup generators. Pacific Gas and Electric Co. and Southern California Edison Co. say they blacked out those hospitals specifically because they have backup generators. Both utilities said the temporary blackouts were part of their overall efforts to spread the burden of blackouts over more of their customers. Linda Ziegler, director of business and regulatory planning for SoCal Edison, said the utility is following state law and will implement new guidelines if the PUC changes them. But hospitals say there is a 10-second lapse before emergency generators kick in, which could harm patients in the midst of delicate surgical procedures such as organ transplants or brain surgery. "You wouldn't fly a plane with only your emergency backup systems in place," said Ann Mosher, a spokeswoman for California Pacific Medical Center in San Francisco. "Backup generators are just that, they're not designed to keep the hospital up and running at full capacity." Ziegler said that power still goes out for reasons beyond the energy crisis, from incidents like lightning or a knocked-down power pole. "If it's a serious problem for the hospital it's certainly something they should be address just from an ongoing basis," she said. The exemption would cover all hospitals within the territory of the state's investor owned utilities PG&E, Southern California Edison and San Diego Gas and Electric. Hospitals within the range of municipally owned utilities, such as the Los Angeles Department of Water and Power, are separately regulated. For more than two decades, prisons, hospitals with more than 100 beds and emergency services such as fire and police departments have been classified as "essential" services, and are exempted from blackouts by order of state power regulators. After rolling blackouts began darkening the state in January, many other public service groups began seeking relief from power interruptions, including transit systems, schools and water districts. --- On the Net: http://www.cpuc.ca.gov Federal Judge Orders Reliant To Keep Selling Pwr To Calif 03/22/2001 Dow Jones Energy Service (Copyright (c) 2001, Dow Jones & Company, Inc.) SACRAMENTO, Calif. (AP)--A federal judge issued a preliminary injunction Wednesday ordering a major electricity wholesaler to continue selling to California despite its fear that it will not get paid. U.S. District Judge Frank C. Damrell Jr. said Californians were at risk of irreparable harm if Reliant Energy (REI) stopped selling power to the Independent System Operator, which oversees the state's power grid. The ISO buys last-minute power on behalf of utilities to fill gaps in supply. Damrell dismissed Reliant's attempt to force the state Department of Water Resources to back the ISO's purchases for the state's two biggest utilities. The state has been spending about $50 million a day on power for Pacific Gas and Electric Co. and Southern California Edison, both denied credit by suppliers after amassing billions of dollars in debts. The judge said he had no authority to force the DWR to pay for that power. Gov. Gray Davis has said the state isn't responsible for purchasing the costly last-minute power ISO buys for Edison and PG&E, despite a law authorizing state power purchases on the utilities' behalf. ISO attorney Charles Robinson said the ruling gives ISO operators "a tool to assist them in keeping the lights on in California." "Had the decision gone the other way, one could expect other generators to simply ignore emergency orders," Robinson said. Damrell's preliminary injunction will remain in effect until the Federal Energy Regulatory Commission rules on the matter. Damrell denied the ISO's request for preliminary injunctions against three other wholesalers - Dynegy Inc. (DYN), AES Corp. (AES) and Williams Cos. (WMB) - which agreed to continue selling to the ISO pending the FERC ruling. Spokesmen for Reliant, Dynegy, AES and Williams were out of the office Wednesday night and didn't immediately return calls from The Associated Press seeking comment on the ruling. The ISO went to court in February after a federal emergency order requiring the power sales expired. The judge then issued a temporary restraining order, requiring the sales, but dropped it after the suppliers agreed to continue sales to California pending his Wednesday ruling. The ISO said it would lose about 3,600 megawatts if the suppliers pulled out, enough power for about 2.7 million households. One megawatt is enough for roughly 750 homes. Grid officials said Reliant's share alone is about 3,000 megawatts. Reliant said the amount at issue actually is less than a fourth of that, because most of its output is already committed under long-term contracts. Reliant, which currently provides about 9% of the state's power, worries it won't get paid due to the financial troubles of PG&E and Edison. PG&E and Edison say that together they have lost about $13 billion since June due to soaring wholesale electricity costs that California's 1996 deregulation law bars them from passing onto customers. Calif Small Pwr Producers To Shut Plants If Rates Capped By Jason Leopold Of DOW JONES NEWSWIRES 03/22/2001 Dow Jones Energy Service (Copyright (c) 2001, Dow Jones & Company, Inc.) LOS ANGELES -(Dow Jones)- Many of California's independent power producers late Wednesday threatened to take their small power plants offline this week if state lawmakers pass legislation that would cap the rates the generators charge for electricity they sell directly to the state's three investor-owned utilities. At issue is a bill that would repeal a section of the state's Public Utilities Code, which links the 688 so-called qualifying facilities' electricity rates to the monthly border price of natural gas. Lawmakers, however, are poised to pass the legislation. State regulators are then expected to approve a measure that would restructure the fluctuating rates the QFs charge PG&E Corp. (PCG) unit Pacific Gas & Electric, Edison International (EIX) unit Southern California Edison, and Sempra Energy (SRE) unit San Diego Gas & Electric from $170 a megawatt-hour to $69-$79/MWh, regardless of the price of natural gas. Whereas each of the 688 QF contracts differed, largely because natural gas prices are higher in Southern California than Northern California, the state wants the QFs to sign a general contract with the utilities. The cogeneration facilities, which produce about 5,400 megawatts of electricity in the state, said the rates are too low and they won't sign new supply contracts with the utilities. "For $79/MWh, natural gas would have to be $6 per million British thermal unit at the Southern California border," said Tom Lu, executive director of Carson-based Watson Cogeneration Company, the state's largest QF, generating 340 MW. "Our current gas price at the border is $12.50." Other gas-fired QFs said the state could face another round of rolling blackouts if lawmakers and state regulators pass the legislation, which is expected to be heard on the Senate floor Thursday, and allow it to be implemented by Public Utilities Commission next week. Lu, whose company is half-owned by BP Amoco PLC (BP) and is owed $100 million by SoCal Ed, said the proposals by the PUC and the Legislature "will only make things worse." David Fogarty, spokesman for Western States Petroleum Association, whose members supply California with more than 2,000 MW, said the utilities need to pay the QFs more than $1 billion for electricity that was already produced. State Loses 3,000 MW QF Output Due Of Financial Reasons The QFs represent about one-third, or 9,700 MW, of the state's total power supply. Roughly 5,400 MW are produced by natural gas-fired facilities. The rest is generated by wind, solar power and biomass. About 3,000 MW of gas-fired and renewable QF generation is offline in California because the power plant owners haven't been paid hundreds of millions of dollars from cash-strapped utilities SoCal Ed and PG&E for nearly four months. Several small power plant owners owed money by SoCal Ed have threatened to drag the utility into involuntary bankruptcy if the utility continues to default on payments and fails to agree to supply contracts at higher rates. The defaults have left many of the renewable and gas-fired QFs unable to operate their power plants because they can't afford to pay for the natural gas to run their units. Others continue to produce electricity under their contracts with the state's utilities but aren't being paid even on a forward basis. The California Independent System Operator, keeper of the state's electricity grid, said the loss of the QF generation was the primary reason rolling blackouts swept through the state Monday and Tuesday. Gov. Gray Davis, recognizing the potential disaster if additional QFs took their units offline, held marathon meetings with key lawmakers Monday and Tuesday to try and hammer out an agreement that would get the QFs paid on a forward basis and set rates of $79/MWh and $69/MWh for five and 10 year contracts. He also said he would direct the PUC to order the utilities to pay the QFs for power they sell going forward. "After next week the QF problem will be behind us," Davis said Tuesday. "We want to get the QFs paid...the QFs are dropping like flies...and when that happens the lights go out." But this just makes the problem worse, said Assemblyman Dean Florez, D-Shafter, a member of the Assembly energy committee. "I don't know how we are going to keep the lights on," Florez said in an interview. "Many of these congenerators are in my district. They said if the legislation doesn't change they are going offline. This compounds the issue of rolling blackouts, especially now when we need every megawatt." Davis, who didn't meet with people representing the QFs, said he was handing the QF issue to the PUC because lawmakers failed to pass legislation that would have set a five-year price for natural gas and allow the QFs to sign individual contracts with the utilities. In addition, SOCal Ed opposed the legislation, saying the rates should be below $50/MWh. Some renewable power producers said they aren't vehemently opposed to the new rate structure because it guarantees them a higher rate than what was originally proposed. QFs Want Third Party Supply Contracts John Wood, who represents the SoCal Ed Gas Fired Creditors Committee, one of a handful of groups that have formed since January to explore options on getting paid by the utilities, said his group of gas-fired QF creditors want to be released from their supply contracts and sell to third parties. "Under our plan, we would be permitted to sell electricity to third parties (including the state Department of Water Resources) until a resolution to the crisis can be accomplished," wood said. Hal Dittmer, president of Sacramento-based Wellhead Electric in Sacramento, which is owed $8 million by PG&E, has 85 MW of gas-fired generation units offline. Under the state's plan, Dittmer said he risks going out of business. "I can't buy natural gas for what I would be paid under this decision," he said. "The state needs to quit kidding themselves that they don't need to raise electricity rates. All of this is being driven by an artificial construct that California can avoid raising rates." -By Jason Leopold, Dow Jones Newswires; 323-658-3874; jason.leopold@dowjones.com Power Strain Eases but Concerns Mount Energy: Officials say summer prices will be high, and a state report shows that contracts with generators are far short of goals. DAN MORAIN; JENIFER WARREN TIMES STAFF WRITERS 03/22/2001 Los Angeles Times Home Edition A-3 Copyright 2001 / The Times Mirror Company SACRAMENTO -- California's fragile electricity system stabilized Wednesday, but a Davis administration report suggested troubles ahead because the state could be forced to buy most of its power for the coming summer on the costly and volatile spot market. After two days of statewide blackouts, power plants that had been shut down were cranked up. Unseasonable heat tapered off. The operators of the statewide power grid relaxed their state of emergency. But plenty of ominous signs remained. Many small producers remained shut down, skeptical about Gov. Gray Davis' plan for utilities to pay them. State Controller Kathleen Connell issued a sharp warning about the high cost of the state's foray into the power business and announced that she will block an administration request that she transfer $5.6 billion into an account that could be tapped to pay for state purchases of electricity. And a report from the administration summarizing contracts between Davis and independent power generators showed that the state has signed contracts for only 2,247 megawatts of electricity, significantly less than the 6,000 to 7,000 megawatts previously claimed. While there are agreements in principle for the full amount, the report notes that generators can back out of the contracts for a variety of reasons, including the state's failure to sell bonds to finance power purchased by July 1. The Legislature has approved plans to sell $10 billion in bonds, but none have yet been issued. "We are exposed enormously this summer," Senate Energy Committee chairwoman Debra Bowen (D-Marina del Rey) said after looking at the report. "We owe the people the truth about how difficult this summer is going to be. We don't have a power fairy." Perhaps most significant, the report suggests that the contracts fall significantly short of Davis' stated goal of buying no more than 5% of the state's summer needs on the spot electricity market, where prices can be many times those of long-term contracts. After reading the report, Frank Wolak, a Stanford University economist who studies the California electricity market, said the numbers suggested that the state's long-term contracts will cover less than half of what the state will need this summer. "We're definitely short this summer, next summer and the summer of 2003," he said. California was forced to start buying electricity in December--at a cost of $50 million a day--because producers refused to sell to Southern California Edison and Pacific Gas & Electric. The two utilities amassed billions of dollars in debt when prices for wholesale power soared on the spot market. Vikram Budhraja, a consultant retained by Davis to negotiate deals with generators, said the report represents a "work in progress." He said the state may yet sign new contracts. However, Wolak said the contract figures confirm what he and others have been dreading: that summer is going to be rife with rolling blackouts unless serious steps to cut demand are taken immediately. Wolak and other experts say large industrial customers must be switched to real-time meters and pricing to persuade them to use the bulk of their energy at times of low demand. The head of the Energy Foundation, a San Francisco-based nonprofit that promotes sustainable sources of power, made the same proposal to Davis on Wednesday. "The government need not ask customers to swelter in the dark this summer," foundation President Hal Harvey argued in a letter. He also proposed a crash campaign to boost sales of efficient appliances and lightbulbs. He said the state needs to take over the utilities' contracts with alternative energy providers to ensure they stay in business, and sign new contracts for 1,500 megawatts of new wind power--the cheapest, fastest and cleanest source of new supply. Davis had proposed a formula Tuesday to force private utilities to pay the alternative producers, some of which have not been paid since November. But some of them warned Wednesday that Davis' plan offers them little incentive to turn on their generators. Alternative energy producers supply more than a quarter of the electricity consumed in California. Many producers generate electricity from wind, sun and geothermal sources. But most of them generate power using natural gas--and the cost of natural gas has been soaring. Several natural gas users said Davis' plan, which caps rates, won't cover their fuel costs. Davis assumes that the price of natural gas will fall. But small generators say they don't have sufficient purchasing power or sophistication to gamble on future prices. The Public Utilities Commission is expected to approve Davis' proposal next week. It offers producers two choices: 7.9 cents a kilowatt-hour if they agree to supply power for five years, or 6.9 cents a kilowatt-hour over 10 years. "The price of natural gas is higher than that," said Marty Quinn, executive vice president and chief operating officer of Ridgewood Power LLC, which owns three natural gas-fired co-generation plants. "If we operate, we'll lose money." Ridgewood is not operating, having been cut off by gas suppliers. The company sued PG&E last month seeking overdue payments and release from its contracts with the utility. A hearing is scheduled in El Centro today in another lawsuit filed by a small energy producer, an Imperial Valley geothermal producer that sued Edison for refusing to let it break its contract and sell on the open market. CalEnergy says Edison owes it about $140 million for energy sold since November. A company spokesman, Jay Lawrence, said CalEnergy was going ahead with its suit despite Davis' proposal. "We've had promises before," he said. In other developments: * A federal judge in Sacramento on Wednesday ordered Reliant Energy of Houston, a major producer, to continue selling power to California during emergencies, despite the company's argument that it may not be fully reimbursed. The order will remain in effect for 60 days or until the U.S. Federal Energy Regulatory Commission decides a related case. * Connell said the state budget surplus has shrunk to $3.2 billion because the state has spent roughly $2.8 billion on electricity. She criticized the administration for withholding basic information about state finances, and said she will begin an audit on Monday of the Department of Water Resources, which is responsible for purchasing power. Davis' aides said Connell took her action because the Democratic governor endorsed one of Connell's foes this week in the race for Los Angeles mayor, former Assembly Speaker Antonio Villaraigosa. A Connell aide scoffed at the notion. * Sen. Dianne Feinstein (D-Calif.) said she "never has had a response" from President Bush after writing him last month for an appointment to discuss the California energy crisis. In a wide-ranging lunch talk with reporters in Washington, she deplored the fact that "huge, huge profits are being made" in the California crisis, and said "an appropriate federal role" would be to guarantee a reliable source of power until the state can get nine new generators online. * Times staff writers Mitchell Landsberg in Los Angeles and Robert L. Jackson in Washington contributed to this report. (BEGIN TEXT OF INFOBOX / INFOGRAPHIC) Power Points Daily Developments * Wholesale electricity suppliers overcharged by about $5.5 billion between May and last month, and that money should be refunded to taxpayers and utilities, according to a Cal-ISO report. * The state may have to buy most of its power for summer on the costly spot market, which could drive consumers' bills up, a Davis administration report concludes. * State Controller Kathleen Connell said she will block a request by the Davis administration for $5.6 billion for state purchases of electricity. Verbatim "We owe the people the truth about how difficult this summer is going to be. We don't have a power fairy." Debra Bowen (D-Marina del Rey), Senate Energy Committee chairwoman CPUC Must Address Rates In QF Repayment Order - SoCal Ed 03/21/2001 Dow Jones Energy Service (Copyright (c) 2001, Dow Jones & Company, Inc.) LOS ANGELES -(Dow Jones)- Any order from the California Public Utilities Commission requiring utilities to pay small, independent generators going forward must determine how that could be done within the existing rate structure, a spokesman for Edison International (EIX) utility Southern California Edison said Wednesday. The utility was responding to a PUC proposed decision that would require utilities to pay small generators, called qualifying facilities, $79 a megawatt hour within 15 days of electricity delivery. The decision will be voted March 27 by the CPUC. "We're still reviewing (the decision) and should have more to say in a day or two. To the extent that the commission orders us to pay going forward of course we will. But it needs to address how we will pay the QFs," a SoCal Edison spokesman said. SoCal Edison and PG&E Corp. (PCG) unit Pacific Gas & Electric Co. are struggling under nearly $13 billion in uncollected power costs due to an inability to pass high wholesale power costs to customers under a rate freeze. Gov. Gray Davis Tuesday blasted the utilities for not having paid their QF bills in full since December. Pacific Gas & Electric Co. has made some partial payments to QFs, but SoCal Edison has paid nothing. Together, they owe the QFs about $1 billion, but the order doesn't address that debt. An Edison executive said, in reaction to the governor's sharp comments, that the company simply doesn't have the money to pay creditors. "The root problem here is there just isn't enough money in the current rate base to pay our bills," said Edison Senior Vice President of Public Affairs Bob Foster. "We understand the financial distress (the QFs) face; we are facing financial distress ourselves." The proposed PUC order would also require the state's investor-owned utilities to offer the small generators five- and 10-year contracts for power for $79/MWh and $69/MWh, respectively. The QFs "may be able to live with" the PUC proposal, but the five- and 10-year contract prices may be inadequate if natural gas prices at one of the California borders are high, said Jan Smutny-Jones, president of the Independent Energy Producers Association. Natural gas prices into California are currently higher than anywhere in the country. But some say the proposed decision may not be enough to prevent the QFs from filing involuntary bankruptcy proceedings against the utilities for the money they are still owed. "There's still a lot of skepticism. To say our position has changed based on the CPUC decision or the governor's announcement is not accurate. A lot still has to happen," said Jay Lawrence, a spokesman for a renewable creditors committee. -By Jessica Berthold, Dow Jones Newswires; 323-658-3872; jessica.berthold@dowjones.com -0- 22/03/01 01-27G State Says It's Accelerating Plan to Buy Power Utilities' Grid Government: Talks with Edison are reported near completion, but agreement with heavily indebted PG&E has a way to go. RONE TEMPEST; DAN MORAIN TIMES STAFF WRITERS 03/21/2001 Los Angeles Times Home Edition A-22 Copyright 2001 / The Times Mirror Company SACRAMENTO -- As blackouts hit California for a second day Tuesday, a key consultant to Gov. Gray Davis said negotiations to buy the power grid owned by the state's largest utilities "are proceeding at an accelerated pace." Wall Street consultant Joseph Fichera said talks with Southern California Edison could be wrapped up within days, although those with PG&E are much less advanced. The administration and PG&E have not reached even an agreement in principle, he said. PG&E, which has more debt than Edison, says its transmission lines are more extensive than those of its Southern California counterpart. The state wants to buy the utilities' transmission lines and other assets for about $7 billion to provide cash to the utilities, help stabilize the electricity supply and ease the power crunch that has plagued California for months. To research the grid purchase, Fichera said, the state has had to pore over 80,000 documents just to assess the utilities' liabilities. "We are working at a good pace," said Fichera, chief executive of the New York firm Saber Partners. " . . . If we get to a deal-breaker, it might be longer." By making Fichera, who is also a consultant to the Texas Public Utilities Commission, available to reporters Tuesday, the Davis administration was clearly trying to reassure the public that progress is being made on the governor's plan to pull the state out of the crisis. Since mid-January, when the big utilities' credit failed and suppliers stopped selling to them, the state has spent nearly $3 billion buying electricity from a handful of large suppliers in Texas, Oklahoma, Georgia and North Carolina. Not a cent has gone to the hundreds of alternative energy suppliers in California who provide about a quarter of the state's electricity. The Monday and Tuesday blackouts occurred partly because many of the cash-strapped alternative suppliers, including solar, biomass and wind power units, cut their normal supply to the system in half. They say Edison and PG&E have not paid them since November; the utilities say they are out of cash. Assemblyman Fred Keeley (D-Boulder Creek) said the plight of the alternative suppliers has dragged on because of the complexity of dealing with "almost 700 individual contractors." Another delaying factor, said Keeley, who with state Sen. Jim Battin (R-La Quinta) worked for almost three months to come up with a legislative plan to lower the small producers' prices, was "the huge enmity . . . manifested between the utilities and the qualifying facilities. These people just don't like each other." This week's blackouts provided two painful lessons for the Davis administration: * When it comes to electricity, size doesn't matter--every kilowatt counts. During peak use, a small wind power facility in Riverside County can make the difference between full power and blackouts. * There is no such thing as a partial solution. Unless the whole energy equation is balanced, the parts don't work. For the Davis plan to work, several key elements need to come together or utility customers will almost certainly face rate increases above the 19% already set in motion * The cost of power purchased by the state must be reduced through long-term contracts with the big out-of-state producers. These contracts, the details of which the Davis administration has kept confidential, are still being negotiated by Davis consultant Vikram Budhraja of the Pasadena firm Electric Power Group. The administration says it has concluded 40 contracts with generators, about half of which have been signed. According to the most recent statistics released by the Department of Water Resources, which buys power for the state, current prices are still well above the rate state Treasurer Phil Angelides says is necessary for a planned $10-billion bond offering to succeed. The bonds, set for sale in May, will be used to reimburse the state for the money it will have spent by that time to buy electricity. The state is currently spending at a rate of $58 million a day to buy power. If prices stay high, the $10 billion in bonds will not cover the state's power purchases by the end of the summer. Angelides says he cannot proceed with bridge financing for the bonds until the Public Utilities Commission devises a formula to guarantee that a portion of utility bills will be dedicated to bond repayment. Angelides has estimated that, under the January law that put the state in the power buying business, the state must be reimbursed $2.5 billion annually, and that $1.3 billion is needed to service the debt. PUC Administrative Law Judge Joseph R. DeUlloa is expected to announce his ruling on the reimbursement rate later this week, leading to a PUC vote on the matter as early as next week. * The rates charged for electricity by the alternative producers, known as qualifying facilities, must be cut at least in half, down from an average of more than 17 cents per kilowatt-hour. In his news conference Tuesday, Davis said he will ask the PUC to set QF rates at 6.9 cents for 10-year contracts and 7.5 cents for five-year contracts. Meanwhile, PUC Chairman Loretta Lynch, a Davis appointee, said Tuesday that the commission will vote next week on a proposed order requiring Southern California Edison and Pacific Gas & Electric to pay the QFs for electricity in the future. Lynch said a recent PUC assessment showed that the utilities have enough cash on hand for that. "We are trying to make sure the folks providing the power get paid," Lynch said. "The qualified facilities have demonstrated that they haven't been paid and that it is impairing their ability to provide power." The utilities contend that if they pay the small providers what they owe them, there will not be enough money left to pay other creditors. "There is not enough money in the current rate structure to pay the [alternative producers], pay the [Department of Water Resources] and pay the utilities for their generation," said John Nelson, a spokesman for PG&E. * The utilities must sell to the state the power they produce themselves, mainly from hydro and nuclear sources, at a rate only slightly above the cost of producing it. This is tied to the ongoing negotiations between the Davis administration and the utilities to restore the near-bankrupt utilities to solvency. * Times staff writers Julie Tamaki, Miguel Bustillo and Tim Reiterman contributed to this report. Davis OKs Subsidy of Pollution Fees Smog: As part of secret deal to get long-term energy contracts, state would pay for some of the credits that allow excess power plant emissions. Critics renew call for full disclosure. DAN MORAIN TIMES STAFF WRITER 03/21/2001 Los Angeles Times Home Edition A-23 Copyright 2001 / The Times Mirror Company SACRAMENTO -- As part of his closed-door negotiations to buy electricity, Gov. Gray Davis has agreed to relieve some generators from having to pay potentially millions of dollars in fees for emitting pollutants into the air, Davis said Tuesday. Davis announced two weeks ago that his negotiators had reached deals with 20 generators to supply $43 billion worth of power during the next 10 years. However, the Democratic governor has refused to release any of the contracts or detail various terms, contending that release of such information would hamper the state's ability to negotiate deals with other generators and therefore ultimately would raise prices Californians pay for electricity. Sources familiar with the negotiations, speaking on condition of anonymity, said the agreement reached with Dynegy Inc., a power company based in Houston, is one that includes language requiring that the state pay the cost of credits that allow emissions. Dynegy spokesman Steve Stengel declined to discuss the company's deal with the state. "We couldn't get them to sign contracts; it was a sticking point," Davis said of the decision to pay the fees of some generators. "We had to lock down some power so we were not totally dependent on the spot market." The fees in question are part of an emission trading system known as RECLAIM. Under the system, companies are allotted a certain amount of allowable pollution. If their operations pollute more, companies are required to purchase credits on an open market. Currently the credits cost about $45 per pound of pollution--an amount that can lead to a bill of well over $10 million a year for a power plant. The South Coast Air Quality Management District, which regulates pollution in the Los Angeles Basin, is considering steps to significantly lower the cost of the system--a step that could considerably cut the state's potential cost, Davis said. Senate Energy Committee Chairwoman Debra Bowen (D-Marina del Rey) defended the decision to cover the power company's costs. "It is a question of whether it brings down the price of power," she said. "If it brings down the price of power, I don't have a problem with it." Nevertheless, word that the contracts could bind the state to pay pollution fees caused some critics of Davis' policy to renew calls for Davis to reconsider the secrecy surrounding the power negotiations. The payment provision underscores the fact that the contracts involve more than merely the prices the state will pay for its megawatts, the critics note. "The Legislature should have known about it," said Senate President Pro Tem John Burton (D-San Francisco). "It is going to cost taxpayers money. It makes you wonder. . . . This was a policy issue that was never discussed with the Legislature." V. John White, a lobbyist for the Sierra Club, who also represents alternative energy producers, called the contract proposal "a horrible precedent." "Until we know exactly what the state has agreed to and how much of a subsidy this represents, we can't determine how serious the breach of principle this is," White said. Another critic of the secrecy of the negotiations, Terry Francke, general counsel for the California First Amendment Coalition, said the provision in question "raises the possibility that there are other [concessions]" that have not yet come to light. In the summer, when demand for power is highest, some generators probably will exceed pollution limits set by regional air quality management districts. To avert blackouts, state officials might ask the companies to keep plants running. In such cases, some sources familiar with aspects of the contracts said, the contract language could be interpreted to suggest that the state would cover any fines--although Davis said Tuesday the state will not cover the cost of fines. A recent Dynegy filing with the Securities and Exchange Commission underscores the rising cost of pollution-related measures. The company, which is partners with NRG Energy in three California plants in El Segundo, Long Beach and Carlsbad in San Diego County, said its "aggregate expenditures for compliance with laws related to the regulation of discharge of materials into the environment" rose to $14.3 million in 2000, from $3.6 million in 1999. A South Coast Air Quality Management spokesman said Dynegy's facilities appear to be fairly clean--although Sierra Club lobbyist White said Dynegy has been seeking a permit at one of its plants to burn fuel oil, which is dirtier than natural gas. Davis said he intends to "make this information public," but he added that "we do not want to put the public's interest in jeopardy by asking them to pay higher prices." "Nobody likes the notion that [the administration is] not being fully forthcoming," Davis said. "But I also have a corollary responsibility that I don't stick these generators with a higher rate." FERC ORDERS WILLIAMS ENERGY AND AES TO EXPLAIN THEIR REFUSAL TO MAKE CERTAIN RMR UNITS AVAILABLE TO CALIFORNIA ISO LAST YEAR 03/21/2001 Foster Electric Report 5 (c) Copyright 2001, Foster Associates, Inc. Following a preliminary, non-public investigation, FERC directed AES Southland Inc. and Williams Energy Marketing & Trading Co. (IN01-3) on March 14 to show cause why they did not violate section 205 of the Federal Power Act (FPA) by failing to provide power to the California ISO from two reliability must-run (RMR) generator units during a period in April and May 2000. The investigation responded to a matter referred by the Cal-ISO. If a violation is found, Williams Energy and AES could be required to refund excess profits of $10.9 million (as calculated by FERC) and face restrictions on their market-based rate authority for a year. The show cause order involves two generation units (Alamitos 4 and Huntington Beach 2), owned and operated by AES. Williams Energy markets all output from the Alamitos and Huntington Beach plants, including the two units at issue here, pursuant to a tolling agreement filed with the Commission. The Cal-ISO designated the two units as RMR units that it could call on when necessary to provide energy and ancillary service essential to the reliability of the California transmission network. The Cal-ISO makes both a fixed payment to the RMR owner or operator to compensate for the RMR unit's availability and a variable payment for the RMR unit's output (if the unit is not otherwise participating in the market). Williams Energy and the Cal-ISO executed RMR agreements, filed as rate schedules with the Commission, allowing the Cal-ISO to dispatch units "solely for purposes of meeting local reliability needs or managing intra-zonal congestion." The ISO may dispatch a non-RMR unit if the designated RMR unit is not available. Under its RMR agreement with the ISO, Williams is paid the greater of its contract price or marginal cost for operating RMR units. However, if a non-RMR unit has to be dispatched because a designated RMR unit is unavailable, Williams will be paid its bid price, not the RMR contract price. During the April to May 2000 period, the Cal-ISO sought to dispatch both Alamitos 4 and Huntington Beach 2 as RMR units to provide voltage support. However, according to the FERC order, Williams Energy refused to make Alamitos 4 available from April 25 through May 5, and to make Huntington Beach 2 available from May 6 through May 11, "for reasons not directly related to the necessary and timely maintenance of the units." Consequently, the Cal-ISO was forced to dispatch non-RMR units at a higher cost, namely, Williams Energy's bid price for service provided by the replacement units. By contrast, if the RMR units had not experienced outages and been available from April 25 through May 11, Williams Energy would have received either (1) the market revenues only from the respective units, which would have resulted in no payments for RMR output from the ISO to Williams Energy, or (2) Williams Energy's variable cost for operating the RMR units less the market revenues from the respective units' output. Accordingly, FERC observed, Williams Energy had "a financial incentive to prolong any outages of Alamitos 4 and Huntington Beach 2 in April and May 2000." The bid price for the non-RMR units was at or near the Cal-ISO's then-effective bid cap of $750/MWh, FERC continued. Therefore, Williams Energy received payments from the Cal-ISO of more than $11.3 million, or about $10.3 million greater than the estimated average variable operating cost of the non-RMR units (approximately $63/MWh) during the period in question. This indicates a refund amount, including interest, of nearly $10.9 million. The information in this order and a non-public appendix, the Commission declared, suggests that AES declared outages at the two RMR units and maintained Huntington Beach 2 in a manner inconsistent with good utility practice, and that Williams Energy took action to extend the outage at Alamitos 4 and to make Huntington Beach 2 unavailable for "pretextual reasons." Based on this information coupled with Williams Energy's financial incentive not to make the Alamitos 4 and Huntington Beach 2 units available, FERC found serious questions about whether (1) AES and Williams Energy violated applicable RMR contracts and tariffs on file with the Commission pursuant to FPA section 205 when they refused to make Alamitos 4 and Huntington Beach 2 available for dispatch by the Cal-ISO; (2) whether Williams acted inconsistently with its market-based rate authority and the market monitoring information protocols of the Cal-ISO's tariff regarding the unavailability of the RMR units during the period at issue; and (3) whether AES violated a tolling agreement on file with the Commission pursuant to section 205. The Commission identified two remedies for these potential violations: a refund by Williams Energy and/or AES of revenues received greater than the amount that would have collected from the ISO if the RMR units had been available, and a condition on Williams Energy's market-based rate authority. Specifically, for a one-year period, if an RMR unit were not available when dispatched by the Cal-ISO, a non-RMR unit dispatched in its place would only receive payment according to the terms of the applicable RMR contract. In other words, Williams Energy would not receive the bid price for operation of the substitute, non- RMR unit. The Commission directed Williams Energy and AES to show cause, within 20 days, why they should not be found to have committed the above-described violations and why the specified remedies should not be imposed. Further, to ensure procurement of all relevant information, the Commission instituted a formal, non-public investigation into the operation, maintenance and sales of power from the Alamitos and Huntington Beach plants in 2000 and 2001. Calif Consumers Failing To Conserve Pwr Despite Blackouts 03/20/2001 Dow Jones Energy Service (Copyright (c) 2001, Dow Jones & Company, Inc.) LOS ANGELES -(Dow Jones)- California consumers haven't been conserving enough electricity to relieve strain on the power grid and reduce demand in the state, a spokesman with the Independent System Operator said Tuesday. The ISO said that despite two straight days of statewide rolling blackouts, consumers aren't using less electricity, which means additional megawatts will be taken off the grid. As a result, blackouts could last longer and impact additional communities, the ISO said. ISO spokesman Pat Dorinson said Monday "conservation in California is no longer an option," but consumers in the state aren't heeding the call to reduce consumption. Conservation efforts during rolling blackouts Monday and Tuesday were far less than Jan. 17 and Jan. 18, when blackouts swept through Northern California due to transmission constraints. Jim Detmers, the ISO's vice president of operation, said consumers saved the state about 1,000 megawatts of electricity, enough power for 1 million houses. The ISO said conservation efforts Monday were about 500 MW or less. "We would be very happy if we saw the same amount this time," Detmers said. The state's Energy Commission said consumers think it's no longer important to save electricity until blackouts are imposed. "People have been saving generally, but it isn't a big bump from hour to hour," a spokesman for the Energy Commission said. Gov. Gray Davis launched a massive conservation campaign this month, promising consumers a rebate on their summer electricity bill if they save at least 20% of electricity, compared with last summer. The governor said he believes conservation this summer will amount to possibly saving 5,000 MW and averting the chance of rolling blackouts. -By Jason Leopold; Dow Jones Newswires; 323-658-3874; jason.leopold@dowjones.com Gas Co.'s Success Opens Debate Southern California energy supplier has reaped millions of dollars in state incentives for keeping down its costs. Though consumers get a share of the windfall, regulators are asking whether they should get more of the bonus, which is expected to be huge this year, as a form of price relief. The natural gas provider says it deserves to keep its reward. TIM REITERMAN TIMES STAFF WRITER 03/18/2001 Los Angeles Times Home Edition C-1 Copyright 2001 / The Times Mirror Company SAN FRANCISCO -- While consumers suffer soaring energy bills and the big electric utilities lurch toward insolvency, the news is not all dire at Southern California Gas Co. Through vigorous deal making, the Sempra Energy subsidiary has consistently beaten the volatile natural gas market during the last year, and the company stands to reap millions of dollars in savings through a state incentive program that rewards utilities for keeping costs down. For several years, the utility has been splitting the savings 50-50 with ratepayers whenever the company's gas costs fall slightly below market levels. Those savings, Gas Co. executives acknowledged, have shot to unprecedented heights during the state's power crisis. Now, in this climate of high consumer gas bills and runaway market prices, regulators are taking another look at the program. The question before the Public Utilities Commission: Should Gas Co. ratepayers, who endured huge bill increases this winter, get a bigger share of the savings? The total windfall under the incentive program has in some years exceeded $20 million. But the amount for the last 12 months is expected to multiply many times over, company executives said, partly because the Gas Co. has done so well in the wild market by selling, lending and trading gas as well as buying it. "The recent market conditions . . . could possibly result in some unintended consequences that result in shared savings of benefits that may be more appropriately allocated entirely to ratepayers," the PUC's consumer protection arm, the Office of Ratepayer Advocates, reported Oct. 30, even before the latest upward market spirals. Gas Co. representatives express frustration, saying they have done what the state has requested under its gas-cost incentive program: Buy smarter, and pass the savings along to its 5 million residential and small-business customers. The company contends it has worked hard to keep bills down and should be rewarded for taking risks to obtain gas at the lowest possible cost. "The PUC, every time we do well, raises the bar on us," said Jim Harrigan, director of gas acquisition. "I don't necessarily agree with it." By virtue of its purchasing power and storage and pipeline capacity, the Gas Co. has become a big player in the regional natural gas market. In the company's bustling trading room at its Los Angeles headquarters, 15 employees track price movements, pipeline supplies and even the weather via computer, while cutting deals and arranging gas shipments. Although the Gas Co. buys the commodity for its customers, the company also sells to marketers, other utilities and producers. State officials say the number of transactions by the company has risen steeply to 10,000 to 20,000 a year, including gas sales along California's border, where prices have rocketed. The PUC created the cost incentive program for the state's three major gas utilities--San Diego Gas & Electric Co. in 1993, Southern California Gas the next year and PG&E Corp.'s Pacific Gas & Electric Co. in 1997. Like Southern California Gas, SDG&E is a subsidiary of Sempra Energy. The program was designed to give utilities added motivation for obtaining gas at the best price for customers. It replaced lengthy and contentious reviews by the PUC, which assessed whether utilities had purchased gas at reasonable prices and sometimes ordered them to return millions of dollars to customers. An annual audit of the Gas Co. program and a staff evaluation requested by the PUC recently concluded that the program has achieved many of its goals, but it also proposed adjustments that would give customers a greater share of the rewards. "These incentives were designed in less volatile times," said program supervisor Mark Pocta of the Office of Ratepayer Advocates, which conducted the audit. "There is a question of how much should go to ratepayers and shareholders." His office also plans to assess whether the Gas Co.'s trading had any negative effects on the gas market, resulting in diminished supplies or higher prices for other utilities and their customers. Under the program, the Gas Co. shares risks and rewards with its ratepayers, but since the program was launched, it has consistently produced awards. If the cost of gas is 0.5% or more below a benchmark based on monthly gas market indexes, the company and its customers split the savings 50-50. California's gas utilities are not allowed to profit on their raw commodity costs; they merely pass along those costs to ratepayers with no markup. The savings under the incentive program are automatically reflected in consumers' monthly gas bills but are not itemized. At the end of the year, the utilities request their share of the savings, and the PUC has routinely granted approval. Then the companies, and thus their shareholders, are paid through customer utility bills. The resulting bill increases typically have been modest, less than 1%. But as the awards increase, regulators say, the effect on customers will become more significant unless the present structure is changed. "There's no question, when you start to talk about $100 million [or more in savings], and add [the company's award] into rates in a year, it will make a noticeable difference," said Los Angeles economist Jeff Leitzinger, president of Econ One, who has done consulting for the Gas Co. Still, he said, ratepayers should bear in mind that they already benefit from below-market gas and transportation costs. In the early years of the program, records show, the Gas Co.'s awards went from zero to $3.2 million, $10.6 million, $2 million and $7.7 million. Last year's award of $9.8 million is awaiting PUC approval. This year's proposed award, covering the period through the end of this month, has not yet been submitted by the Gas Co. But the utility has provided monthly figures and oral updates on a confidential basis to PUC officials, who declined to provide figures. Harrigan of the Gas Co. said the savings are expected to multiply "many times over," largely because the company was well-equipped for the market fluctuations and tried to insulate its customers from high gas prices. "Any trading company, especially one with assets like we have, has benefited from volatility in the market," he said. Harrigan said, however, that he does not believe the company's level of activity has adversely affected the market and that its trading pales in volume to that of unregulated energy companies. Anne Smith, the Gas Co.'s vice president of customer service and marketing, said the utility will not release figures for this year's incentive program until they are filed with the PUC in June. "I don't want to interrupt that process," Smith said, noting that the PUC ultimately will determine the company's award. "I think they need to focus on what [the Gas Co.] has done for the ratepayers. It has been immense." Although the typical monthly gas bill has risen to $80 from $50 a year ago, Gas Co. customers tend to have lower rates than those of other California utilities. The company's gas procurement cost in February was 66 cents per therm, or 100 cubic feet. That's more than twice last year's cost but only about half what sister company SDG&E paid for its 740,000 customers in February. It's also much lower than the $1.09 per therm PG&E pays. "We were as upset about the overall [gas price] increase as anyone else," Harrigan said. "I would rather see the prices of a year ago, even though we managed to do a little better in the [recent] environment." When it comes to keeping down costs, regulators say, the Gas Co. has advantages over other utilities in the marketplace. For one, the company has so much pipeline capacity at major gas basins that it purchases a relatively small portion of its needs--about 10% to 15%--at the California border, where prices in December briefly rose to the equivalent of $6 per therm, or 20 times those a year earlier. This presents opportunities. "At the beginning of the month, they forecast a certain amount of gas they have to buy," said Pocta of the Office of Ratepayer Advocates. "If they go out and buy and do not need to use as much because the weather is more moderate than expected, they can either inject the gas into storage or they can make sales at the border." With gas price run-ups like those seen in the last year, Pocta said, "there is a question: Should that benefit be shared, or flow entirely to ratepayers?" Customers, he pointed out, may be entitled to additional benefits because they pay for the interstate and intrastate pipeline capacity and the gas storage that give the company the flexibility to make advantageous deals. "By the same token, we want [the Gas Co.] . . . to go into the market and generate cost savings that can be passed on to the customers," he added. "We want them to have incentives. The question is how to balance them." Under deregulation, the Gas Co. adopted the nontraditional role of marketer, according to a PUC Energy Division report in January. The company makes gas sales at various locations. It engages in exchanges. It makes futures transactions to help stabilize costs. "They look for ways to lower the gas cost," said Richard Myers, program supervisor at the Energy Division. "Before they were lots more risk-averse. Now they feel they can take risks and make money for shareholders, and it is a benefit for ratepayers at the same time." The incentive programs are tailored to individual utilities, so it is difficult to compare them. Records show that the shared savings at SDG&E, a much smaller utility, declined steadily from $9.2 million in the 1996-97 cycle to $560,000 in 1999-2000. Spokesman Ed Van Herik said the falloff largely represents a drop in gas purchases, especially as the company sold off its own gas-fired electricity-generating plants. He said the company does not yet know how much savings have accrued in the last year. In an annual report to the PUC in February, PG&E said it had no savings under the incentive program and thus it is not entitled to any award for the 1999-2000 cycle. The Utility Reform Network, a San Francisco-based consumer advocacy group, said it will closely watch the PUC's evaluation of the incentive program at the Gas Co. "We want to make sure, given the dramatic changes in the gas market and prices, ratepayers are not left out of the [additional] benefits," TURN attorney Marcel Hawiger said. "We'll look to see whether the mechanism should be changed." Severin Borenstein, director of the Energy Institute at UC Berkeley, said the program should be changed to provide more incentive for utilities to enter long-term contracts that would smooth out volatility in the market. "Unfortunately, under the system," he said, "the only incentive is to beat the [spot] market." Use this file to download and print all the articles in this section (See attached file: Dow Jones Interactive-california-03233001-selected.doc) IMPLICATIONS FOR OTHER MARKETS (For easier printing of all the articles in this section use the file at the end of the section) New York: New York at the crossroads Wednesday, March 21, 2001 Energy Insight (Embedded image moved to file: pic24389.pcx) By Dave Todd dtodd@ftenergy.com U.S. Energy Secretary Spencer Abraham declared this week that the Big Apple is on the verge of being bitten hard by power cuts and rising energy prices. Delivering the keynote address at the U.S. Chamber of Commerce's national energy summit in Washington Monday, Abraham said, "California is not the only state facing a mismatch between supply and demand," what with "electricity shortages predicted for New York City and Long Island this summer" and low capacity margins threatening electricity reliability elsewhere across the country. But how likely is it that New Yorkers will face blackouts of the sort confronting Californians? Not very, says energy trade specialist Edward Krapels, managing director of Boston-based METIS Trading Advisors. Krapels, a consultant helping major Northeastern utilities, such as Consolidated Edison, design market-hedging programs, adamantly decried what he said are facile comparisons between conditions in New York and California, there being "more differences than there are similarities" between those two industrial cornerstones of the country's economy in respect to energy security management. "First of all, New York has a more varied portfolio of energy generation sources than California," he said. California has hydro, nuclear and gas, but when it lost a lot of hydro, the state needed gas to pick up the slack, and the "capacity just wasn't there." In New York's case, the state has oil and coal still in the mix and its overall dependence on gas is much lower than California's, Krapels added. New York avoids making same mistakes Portfolio diversity is one pillar of any effective plan to help New York avoid the same errors made in redesigning California's marketplace. New York's Independent System Operator (ISO), in a new report warning that the state is at an "energy crossroads" in terms of its capacity adequacy in the immediate future, argues that a concerted effort is required to arrest declining in-state generation capacity reserve margins, and a strategy must be put in place, whether or not new generation comes on-line, in accordance with current anticipated scenarios. A measure of New York's essential difficulty is that, between 1995 and 2000, statewide demand for electricity grew 2,700 MW, while generating capacity expanded by only 1,060 MW. With no major new generating plants in downstate New York fully approved, the gap is expected to continue to widen. To avoid "a replication of California's market meltdown" the New York ISO calculates the state's daily generating capacity needs to grow by 8,600 MW by 2005, with more than half of that located in New York City and on Long Island. Expressing concern this may be too big a burden for the current bureaucratic process to bear, the ISO wants to see a state-appointed ombudsman named to help would-be merchant power plant investors plow through red tape. "Increasing New York's generating capacity will also lessen the state's escalating and risky reliance on out-of-state sources of electricity," the ISO added. "Since 1999, New York State has been unable to cover its reserve requirements from in-state sources." Not everyone agrees with that analysis, insofar as it argues for circling the wagons inward. Some analysts believe the ultimate solution lies not in tying in more inwardly dedicated power, but in expanding the marketplace by breaking down inter-jurisdictional barriers. In any case, New York energy regulatory authorities and those responsible elsewhere in the U.S. Northeast, such as PJM (Pennsylvania-New Jersey-Maryland) Interconnection and the New England Power Pool, are in vastly better shape in terms of "cross-border" cooperation than California and its neighbors in that efforts are being made among various authorities toward developing an integrated regional electricity market. In California, by contrast, the state's focus?for example, in the case of new gas-fired power plant development?has been to ensure dedicated supply to the California market alone, rather than on a regional marketplace. (Embedded image moved to file: pic05075.pcx) The New York ISO's new broad-based analysis of market-restructuring needs argues that the relatively stronger health of its reformed environment is "due in large part to the ability of New York's utilities to enter into long-term power contracts." What needs to be done most, it says, is to move aggressively to build some of the more than 29,000 MW of "proposed new generation in the siting pipeline." In the meantime, the 30,200 MW of electricity New Yorkers used on a peak day last summer shouldn't be eclipsed on too many days this coming summer (given early long-range weather forecasts). Demand, however, is expected to increase at an annual average rate of up to 1.4%. So while New York City, the rest of the state and adjacent parts might breathe easy this year, it could be a brief rest from the fray. Meanwhile, a 4% shortfall is still being planned for this summer that is not yet provided for, as authorities hurriedly seek to arrange new generation plants around Manhattan, on Long Island and even on barges offshore. One way or another, whether it is the weather or the politics of siting new energy facilities, it's going to be a hot time in the city. Long-term solutions hit brick wall Meanwhile, attempts at longer-term solutions continue to run into trouble. Last week, Connecticut state regulators came out against a proposal to run a new underwater cable under Long Island Sound that Hydro-Quebec subsidiary TransEnergie U.S. Ltd. wants to build to pump more juice into Long Island Power Authority's load pocket. Despite strong promises from TransEnergie to be diligent in avoiding damage to oyster beds in Long Island Sound, the proposal failed to convince authorities, who were persuaded the pipeline project could lead to diversion of electricity from Connecticut. In similar fashion, private companies wanting to build 10 small independent power plants and temporary generators offshore New York City are running into intense opposition from environmental groups and citizen orga nizations?some of whom have taken their cases to the state assembly in Albany. The David vs. Goliath nature of such controversies has further alerted energy companies to the difficulties of addressing complex energy supply issues that may ultimately devolve to people not wanting things in their backyard, regardless of what the alternative might mean to their fellow citizens or the greater public good. But suddenly, in New York, California's troubles?while still distant in their intensity? may not be so far away. By some estimates, this summer's bills for Consolidated Edison customers could be up as much as one third or more over last year's charges. Letting the time slip when it comes to building new infrastructure isn't going to make the pain go away. NEW YORK: NY-ISO REPORT SAYS STATE NEEDS 4,000 - 5,000 MW OF NEW GENERATION SOON TO AVOID SEVERE SHORTAGES; NY-ISO ALSO ASKS FERC TO EXTEND BID CAP AND TEMPORARY EMERGENCY PROCEDURES 03/21/2001 Foster Electric Report 2 (c) Copyright 2001, Foster Associates, Inc. Raising the specter of an East Coast version of the California crisis, the New York Independent System Operator, Inc. (NY-ISO) is warning of serious electricity shortages, air quality deterioration and stunted economic growth without immediate approval of between 4,000-5,000 MW of new generating capacity in the state. Of this amount, 2,000-3,000 MW is needed to serve New York City. Another 8,600 MW of new capacity will have to be built by 2005, the NY-ISO said in a recent report, Power Alert: New York's Energy Crossroads. "New York is heading towards a very serious situation unless it acts immediately to get new supply sited within its borders," said NY-ISO president William Museler in a statement accompanying the report. "This report is essentially a caution light at New York's energy crossroads." Sources in the New York Public Service Commission have downplayed the NY-ISO's warning, asserting that a process for bringing on new generation is well underway, with more than 85 projects in the approval pipeline. In a related development, the NY-ISO asked FERC to approve a proposed tariff amendment (ER01-1517) extending existing bids caps in some of its markets until 10/31/02, and a separate and related amendment (ER01-1489) extending the NY-ISO's so-called temporary extraordinary procedures (TEP) that allow the ISO to make price adjustments and take other corrective actions if it finds evidence of market power abuse. The NY-ISO Report --The NY-ISO likened the situation in New York to that faced by California, where a relentless increase in demand has not been met with an equal increase in supply. The NY-ISO said that between 1995 and 2000, statewide demand for electricity rose by 2,700 MW, while generating capacity increased by only 1,060 MW. With no major new generating plants in downstate New York fully approved for construction at this time and generation demand in the state expected to grow around 1.3 percent annually for the next several years, the NY-ISO said this gap will continue to widen. The inevitable result of this trend is large rate increases for New York's power consumers. The NY-ISO's modeling suggests that "by 2005, statewide prices are likely to be more than 20-25 percent lower in the case in which new plants are built than in the case where they are not." In New York City, "the price to consumers of electric power could be reduced by as much as 28 percent when compared to the case of no new supply or load management programs." Besides large rate increases, the NY-ISO asserted that a failure to site and build new plants in New York will threaten power reliability in the state and lead to increasing reliance on out-of-state resources. The report said that if no new in-state generation comes on line in the next five years, the state's generation reserve margins will shrink from the current 14.9 percent above peak demand "to a dangerously low 8.4 percent by 2005." Pointing to California's situation, the report added that increased reliance on power imports "can subject electrical suppliers and customers in New York to transmission restrictions and political and economic considerations beyond the control or influence of responsible New York State entities." To avoid these harsh consequences, the NY-ISO said New York's new siting law, known as the Article X process, needs to be modified. Since the law was passed 18 months ago, the report noted that only two plants have been approved (both upstate) and neither has yet been built. The problem, according to the NY-ISO, is that the siting process "requires the cooperation of multiple state agencies." To expedite the process, the report suggested the "clear designation of a lead agency and the adoption of an `ombudsman program' to expedite and coordinate the work of the agencies responsible for the Article X process must be made." The NY-ISO added that an expedited approval process would improve the environment because older, more polluting power plants would be replaced by cleaner gas-fired units. On a more positive note, the NY-ISO reported that New York's restructured power market "is far healthier than that in California, due in large part to the ability of New York `s utilities to enter long-term power contracts. The basic structure of the New York market will also reduce unwarranted price spikes and other market disruptions through mitigation programs which automatically correct price spikes due to market power abuses." "Nevertheless, California `s experience raises a caution flag for all New Yorkers," the report continued. "The deregulated market in New York cannot achieve lower costs through competition without an increase in generating capacity similar in magnitude to the recommendations of this report, along with simultaneous efforts to institute greater conservation, better load management and alternative energy supply initiatives. Additionally, closer integration with regional suppliers of power is both inevitable and beneficial." The report also recommended (1) accelerating conservation, real-time metering and price-sensitive load programs; and (2) upgrading the state's and the Northeast's transmission infrastructure. The Proposed Tariff Amendments -- New York's Article X siting process and continuing tight supplies were also cited in the NY-ISO's request to extend from 4/30/01 until 10/31/02 its $1,000/MWh bid caps. FERC first approved the 1,000/MWh bid caps in July 2000 (see REPORT No.197, pg.6), and subsequently extended them. The NY-ISO's board "is sensitive to the Commission's concerns about undue intervention in energy markets," the filing related. "Nevertheless, the NY-ISO is submitting this request because it believes that delays in New York state's `Article X' process for licensing and siting new generating capacity is inhibiting supply from increasing to match continued demand growth. . . . Moreover, although the NY-ISO proposes to implement several demand-side measures this summer, it is not yet clear whether they will make demand sufficiently price-responsive to avoid periods of high prices that would not occur if there were an efficient demand-side response." Thus, the NY-ISO insisted that the requested extension is needed to provide more time for the development of additional generation and to gauge the effectiveness of the NY-ISO's proposed demand-side response mechanisms "in order to avoid exposing consumers to price spikes that are not a product of the interplay of competitive market forces." Other problems cited in the NY-ISO's filing which keep New York's power market from being fully competitive include continuing capacity and operating constraints at the state's Central-East interface, and questions over adequate gas supply. "The NY-ISO remains acutely aware that taking steps to deal with price abnormalities can have undesirable consequences," the filing continued. "Nevertheless, the NY-ISO believes that the $1,000/MWh cap that has been used in the PJM's markets since inception does not appear to have had an adverse impact there. . . . The permanent bid caps in PJM, and the interim bid caps in ISO New England (proposed for extension through the end of 2001) also make continuation of the NY-ISO's bid caps more important in order to maintain uniformity across the Northeastern markets. The NY-ISO also continues to believe that suppliers will not be materially harmed by the continuation of bid caps, which are likely to come into effect very rarely and are set at levels that prevent only artificially high run-ups in prices." The NY-ISO's request to extend its TEP procedures (which also were previously extended) through 10/31/02 cited similar problems with New York's power markets, but claimed that the NY-ISO "has made great strides" toward eliminating market design and software flaws. "The TEPs were, and remain, an indispensable tool for responding to and correcting market flaws and other instances where the markets are not operating as the NY-ISO and the Commission intended," the filing insisted. MASSACHUSETTS: Attorney general says summer poses electricity concerns By JOHN McELHENNY Associated Press Writer 03/19/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. BOSTON (AP) - The state's top consumer advocate warned that Massachusetts may see "California-type" electricity blackouts this summer when temperatures rise and residents turn on air conditioners and fans. "It would be a mistake to feel this is a cold weather problem," said Attorney General Thomas Reilly in an interview with The Associated Press. "Our major problem will come this summer." State deregulation of the electric industry has been among the factors blamed for local power outages in California, and on Monday, California for the first time suffered rolling blackouts across the entire state. Massachusetts relaxed regulations on its own electric industry in 1998 to attract more companies to stir competition. But that hasn't happened yet, largely because the current high cost of oil and gas make it expensive to produce electricity. "The promise of deregulation was that there was going to be competition," said Reilly, a Democrat. "That competition in the wholesale market is not happening." Hot summer weather drives up electricity use as residents turn on air conditioners and fans, and Reilly said a few particularly hot days could strain the grid that provides the region's power. A spokeswoman for the region's power grid said electricity use is expected to rise 1.5 to 2 percent this year, but the region should have enough power because of six new power plants that have begun generating electricity in the past 18 months. "The situation is unlike California because we have new generation coming on line that is outpacing demand," said Ellen Foley, spokeswoman for ISO New England Inc., which manages the grid of 330 generators connected by 8,000 miles of high voltage transmission lines. Still, a particularly hot day and an unforeseen power generation breakdown could prompt ISO to ask residents to conserve electricity, a situation that arose once last summer, Foley said. In order to avoid any power outages and protect consumers, Reilly repeated calls for electric companies to build more power lines and to offer more options for new customers who have signed up since deregulation. Those customers typically pay more than long-term customers. Electric transmission companies should also be allowed to enter into two-year contracts with suppliers, instead of the six-month contracts many have now, to avoid short-term price spikes for consumers, Reilly said. The Attorney General's Office acts as an advocate for consumers. Michael Monahan, a spokesman for NSTAR, which provides electricity to more than 1 million customers, is upgrading some of its power lines and last year built a new line to Cape Cod, but currently has no lines under construction. "I wholeheartedly concur with the attorney general that it's something we have to focus on," Monahan said, but he added, "The indications I see are that we have an ample supply of electricity." California's statewide outages were ordered on Monday after a transformer fire, high demand and a lack of electricity imports pushed power reserves to near zero. California partially deregulated its electric industry in 1996, two years before Massachusetts. --- On the Net: Attorney General's Office: http://www.ago.state.ma.us NSTAR: http://www.nstaronline.com ISO New England Inc.: http://www.iso-ne.com NEVADA: Discussion of bill stopping power plant sales to continue Wednesday By JOHN WILKERSON Associated Press Writer 03/19/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. CARSON CITY, Nev. (AP) - Lawmakers hit more delays Monday in trying to pass a measure that pulls the plug on the sale of Nevada power plants to avoid California-style energy problems. "The goal of this bill is only stopping the divestiture of power plants and making sure it's constitutional," said Senate Commerce and Labor Chairman Randolph Townsend, R-Reno. "And that's not as easy as it sounds." Townsend's comment just before his committee began working on SB253 was prophetic - witnesses kept bringing up the need for more flexibility in the measure. Translation: Don't kill all deals by stopping Reno-based Sierra Pacific Power and Las Vegas-based Nevada Power from selling their Nevada power plants until June 2003 - and possibly until 2006. Pete Ernaut, a lobbyist for Reliant Energy which has been trying to buy a power plant, said unforeseen market changes could make a plant sale before 2003 a deal that would be in the public's interest. "If you put a two-year moratorium on these plants, all these deals are going to go away," he said. "When the cow leaves the barn, it's difficult to catch." Townsend had hoped to wrap up committee work on SB253 on Monday. Now it's up for review again Wednesday in the Commerce and Labor Committee. Reliant isn't the only company trying to keep power plant purchases alive. Earlier this month, executives of Pinnacle West Energy told the committee that it's in the public's interest to allow Sierra Pacific Resources to sell its Harry Allen power plant. The Harry Allen plant produces about 72 megawatts out of the 2,900 megawatts of energy that Nevada utilities generate. Pinnacle has plans to expand that to 700 megawatts by 2004. Other provisions not strictly related to the plant divestitures, such as ways in which Sierra Pacific and Nevada Power can recover the cost of undoing the sales contracts, don't have to be included in SB253, Townsend said. Townsend said the other concerns dealing with the energy crisis and utility deregulation can be handled in later bills - but the power plant sale issue must be handled now. Nevada's PUC and the Federal Energy Regulatory Commission had directed Sierra Pacific and Nevada Power to sell the plants as a condition of the companies' merger in 1999 under the parent company Sierra Pacific Resources. Critics of the plant sales say the plants generate about half the state's electricity - and if they're sold, the unregulated new owners could sell the power to other states and put Nevada into the energy dilemma California faces of shrinking supply and rising prices. The Southern Nevada Water Authority has presented an analysis stating that rate payers will save from $1.7 billion to $3.5 billion by July 2001 if the power plant sales are stopped. Nevada's Consumer Advocate's Office previously had projected a conservative estimate of $915 million in savings. MAINE: Panel of experts would review impact of energy deregulation By GLENN ADAMS Associated Press Writer 03/19/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. AUGUSTA, Maine (AP) - In the wake of rolling blackouts in California and rate spikes in their home state, Maine's top legislators proposed a study Monday into the effects of deregulation of the energy industry. "Deregulation of electricity is a new idea and we still have a lot to learn," Senate President Michael Michaud said as he called for the analysis. A panel of industry insiders, elected officials and consumers would study issues such as what standard rate consumers can expect and the likelihood of energy shortfalls over the next three years, and whether Maine consumers are vulnerable to anti-competitive activities. In addition, the Blue Ribbon Commission would look into whether changes in Maine's deregulation law are needed to encourage more generating capacity, improve conservation and spur competition. The study is being proposed as consumers remain mindful of a power crisis in California that resulted from high wholesale energy costs, a consumer rate cap and too few power plants in that deregulated state. Maine's deregulation law is designed to avoid such pitfalls, said Rep. William Savage, D-Buxton, House chairman of the Legislature's Utilities Committee. Maine's law does not cap consumer prices, as California's does, and the state has more than enough generating facilities to meet the state's energy needs, Savage said. Since Maine's deregulation law took effect in March 2000, Bangor Hydro-Electric Co. rates have increased 19 percent. The Public Utilities Commission approved a residential standard rate increase as recently as last month. Federal energy regulators are reviewing their decision to allow steep fee increases for utilities and power wholesalers that fail to arrange enough capacity to meet customers' peak load. Gov. Angus King and all four members of Maine's congressional delegation oppose the hike. The PUC has approved standard rate increases for energy delivered by Central Maine Power Co. to medium-sized and large industrial users. On the other hand, some towns and school districts are saving money on energy through deals they can get in the deregulated market. In the meantime, legislation has been introduced in response to some of the changes that have occurred in Maine's deregulated energy industry. One would use some of the money from the sale of power-generating assets to offset an increase in rates paid by large industrial users, said Sen. Norman Ferguson, R-Hanover, Senate chairman of the Utilities Committee. Supporters of the utility study that was proposed Monday said they are not looking to make changes in Maine's deregulation law, but if it needs fixing it could be done during next year's session. The lawmakers' primary interest is to find out how trends in a new environment designed to encourage competition will affect consumers, and to try to identify what consumers can expect in the few years ahead. House Speaker Michael Saxl, D-Portland, said the Legislature "has a fundamental public policy interest in making sure rate-payers and businesses are protected against exorbitant rate hikes." Michaud, D-East Millinocket, said he's interested in finding out how future changes in electric prices and availability might affect businesses and consumers in northern Maine. "The economy in my part of the state is the most vulnerable, and I want to make certain we are leaving no stone unturned in our effort to prevent any shocks to the economy in northern, western and eastern Maine," Michaud added. The commission would include House and Senate members from each party, a utility executive, and representatives of energy producers, providers, a large commercial consumer and individual consumers. OREGON: State Senate moves to combat energy crisis 03/16/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. SALEM, Ore. (AP) - In an attempt to avoid a California-like energy crisis, the Oregon Senate approved a bill Friday that would quicken the process of siting power plants that use gas and renewable resources. "It's important for Oregon. It makes sure that energy will be available to everyone," said Sen. Lee Beyer, D-Springfield. The measure, SB843, would shorten the siting process for power plants that use gas and renewable resources, like wind, from a year and a half to a matter of months. The speeded-up process would be in effect for two years. "If we can act now, we can actually start to solve power supply problems by this summer," said Sen. Jason Atkinson, R-Jacksonville California's strict regulations on the construction of new power plants has contributed to its current shortage and legislators took note. Beyer said though California was definitely a wake-up call, the measure is a reaction to the larger power picture in the Northwest. With low rainfall, hydroelectric generators will have trouble meeting demand, Beyer said. Gas-fired and wind plants could come online as soon as this fall and would provide relief. "We are not in a position to sit back and do nothing about the energy crisis the Northwest and the country are experiencing," said Senate Minority Leader Kate Brown, D-Portland. Conservationists, however, caution that lawmakers should be careful not to rush to provide power at the expense of environmental standards. WISCONSIN: Two utilities to add 975 megawatts in plan to avoid energy crisis By The Associated Press 03/22/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. Plans of two state utilities to add 975 megawatts to Wisconsin's electric power grid as a way of avoiding an energy crisis similar to California's were questioned Thursday by a consumer advocate who said too many power plants may be in the works. "Certainly nobody wants to see blackouts like you have in California but there is the danger Wisconsin could be overbuilding," said Steve Hiniker, executive director of the Citizens' Utility Board, which represents consumer interests in utility rate cases. He noted that plant construction costs ultimately are born by the utility customers. Alliant Energy Corp. announced its proposal Wednesday - in a filing with the state Public Service Commission - to spend $1 billion to build one coal and two gas-fired power plants. Alliant has proposed building a 500 megawatt coal-fired plant and a 100 megawatt natural-gas fired plant by 2006. It also wants to build a 200 megawatt natural gas-fired facility in 2011. Wisconsin has not built a coal-fired plant in more than two decades. Alliant has not determined the plants' locations. Also, Madison Gas & Electric, the state's smallest investor-owned utility, said Wednesday that it had signed deals to buy 175 megawatts of power from three generating plants in Wisconsin and Illinois. "Three out of the four past summers, we've had public appeals for conservation due to shortages somewhere in the state. We need to take steps to avoid that, and the California situation makes that even more clear," said Alliant spokesman Chris Schoenherr. "Getting more iron in the ground will give us more flexibility in the state to be able to react." Alliant acknowledged the new plants will probably mean rate increases, but it was too early to say how much rates would go up. California's problems, which this week resulted in the first deliberate blackouts since World War II, stemmed from underestimating the state's power needs, forcing utilities to sell their power plants but not allowing them to secure long-term supply contracts, and freezing rates, among other things. But Wisconsin's situation is far different. The state has moved slower than California toward deregulation, and there has been no desire here to speed up the process in recent years as power reliability became a problem. The PSC estimates that Wisconsin will need an additional 3,000 megawatts of power over the next decade. Hiniker said Wisconsin needs to coordinate its planning to avoid overbuilding. The costs of new power plants are passed on to ratepayers, meaning electric bills will increase as new generation is added. In addition, coal-generated power plants are a major source of air pollution in the state. "We don't have the advance planning that has kept Wisconsin from overbuilding in the past," said Hiniker. "This is something the PSC should be doing." MG&E's deals are: -A 10-year contract to buy 75 megawatts from Calpine Energy Services starting in May 2004. The power will come from the natural gas-fired plant Rock River Energy Center, near Beloit. Calpine Energy Services is a unit of San Jose, Calif.-based Calpine Energy Corp. The plant is being built by Northbrook, Ill.-based SkyGen Energy LLC, which Calpine bought last year from SkyGen President Michael Polsky and Wisvest Corp., a unit of Wisconsin Energy Corp. -A 10-year contract to buy 50 megawatts of power from the Rainy River Energy Corp. starting in May 2002. The power is coming from a natural gas-fired plant near Joliet, Ill. owned by LS Power Co. Rainy River is a unit of Duluth-based Minnesota Power Inc. -A five-year contract to buy 50 megawatts from an El Paso Merchant Energy plant near Cordova, Ill., in western Illinois. The owner of the natural gas facility is the Cordova Energy Center Co., which is a unit of Iowa-based MidAmerican Energy Holdings. Alliant also offered support in the Wednesday filing for a $7 billion plan of Milwaukee-based Wisconsin Energy, which includes five new power plants in Oak Creek and Pleasant Prairie. -- On the Net: CUB: http://www.wiscub.org/ Alliant Energy: http://www.alliant-energy.com Wisconsin Public Service Commission: http://www.psc.state.wi.us Wisconsin Energy: http://www.wisenergy.com/ Madison Gas & Electric: http://www.mge.com Use this file to download and print all the articles in this section (See attached file: Dow Jones Interactive-california-03233001-implications.doc) If you wish to be removed from the distribution list for this update please contact Pru Sheppard - DC. 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