Energy Issues

Please see the following articles:

Sac Bee, Tues, 5/8: "Hot spell forces blackouts: More outages=20
are probable today in a likely preview of a long, hot summer"

Sac Bee, Tues, 5/8: "$13.4 billion bond bill clears split Assembly"

Sac Bee, Tues, 5/8: "Dan Walters: Summer-like heat brings blackouts,=20
partisan fingerpointing"

Sac Bee, Sun, 5/6: "How Californians got burned" (Jeff Skilli=
ng=20
quoted)

SD Union, Tues, 5/8: "Heat wave spawns statewide blackouts"

SD Union, Tues, 5/8: "Bond clears Assembly with a partisan twist" (Enron=
=20
mentioned)

SD Union (AP), Tues, 5/8: "Refinery merger could raise California gas pric=
es"

SD Union (AP), Tues, 5/8: "Enron could supply universities with=20
state-subsidized power"

LA Times, Tues, 5/8: "Edison's agony
For CEO, Life in 'Foxhole' Means Little Sleep, Peace"

LA Times, Tues, 5/8: "Power Cut to Parts of State"

LA Times,Tues, 5/8: "Landlords, Janitors Join in Plan to Save Energy"

LA Times, Tues, 5/8: "Effort to Repay State for Power Is Delayed"

LA Times, Tues, 5/8: "Blackouts Mean More Than Inconvenience for Disabled"

LA Times, Tues, 5/8: "In 1st Hearing, PUC Urged to Lift Rate Hike"

LA Times, Tues, 5/8: "An Oilman's Dream" (Commentary)

LA Times, Tues, 5/8: "Cheney's an Oaf on Conservation" (Commentary)

SF Chron, Tues, 5/8: "Secret power deals contain hidden costs=20
THE CLAUSE: A link to natural gas prices "

SF Chron, Tues, 5/8: "Bush won't budge on fuel prices=20
Despite fears of a $3 gallon, he will oppose controls"

SF Chron, Tues, 5/8: "Hot weather sparks new round of blackouts=20
SUPPLIES LOW: Usage keeps climbing as temperatures surpass 90 degrees "

SF Chron (AP), Tues, 5/8: "Developments in California's energy crisis"=20

SF Chron (AP), Tues, 5/8: "Blackouts hit California as spring heat wave se=
ts=20
in"

Mercury News, Tues, 5/8: "Scorching heat sparks rolling blackouts"

Mercury News, Tues, 5/8: "More than 100,000 customers hit by power blackou=
ts"

Mercury News, Tues, 5/8: "Carmaker Says Outages Could Damage Equipment,
Harm Efficiency"

Mercury News, Tues, 5/8: "SF Airport plans to run extra generators"

Mercury News, Tues, 5/8: "EXEMPT FROM BLACKOUTSThe state Public Utilities
Commission exempts the following energy users from rolling"=20

OC Register, Tues, 5/8: "Blackouts back, businesses cope"

OC Register, Tues, 5/8: "Shortage somewhat a surprise"

OC Register (AP), Tues, 5/8: "Energy notebook
Gas pipeline expansion OKd to benefit Southwest"

OC Register, Tues, 5/8: "Energy borrowing OKd
Democrats in Assembly support the $13.4 billion bond over GOP opposition"

OC Register, Tues, 5/8: "Jones has bright ideas on electricity" =20
(Commentary)

Individual.com (Businesswire), Tues, 5/8: "Power Scramble/ A Forbes.com=20
Special Report"

Individual.com (Bridgenews), Tues, 5/8: "[B] Calif. ISO says power=20
blackouts this evening unlikely"

Individual.com (PRnewswire), Tues, 5/8: "Stage 2 Electrical Emergency=20
Declared;
SCE to Curtail 'Load' for Some Customers"

Individual.com (AP), Tues, 5/8: "Rolling Blackouts Hit California"

Energy Insighty, Tues, 5/8: "Hearts, minds, & pocketbooks"
---------------------------------------------------------------------------=
---
----------------------------------------------

Hot spell forces blackouts: More outages are probable today in a likely=20
preview of a long, hot summer.
By Carrie Peyton and Dale Kasler
Bee Staff Writers
(Published May 8, 2001)=20
It's starting.=20
A brief wave of forced blackouts swept across California on Monday, in a=20
prelude to what could become the summer of our disconnect.=20
Lights and air conditioners began flicking off just before 5 p.m., affectin=
g=20
more than 100,000 homes and businesses from San Juan Capistrano to the=20
Central Valley for about an hour.=20
Too many air conditioners straining against an early heat wave and too many=
=20
power plants temporarily closed for repairs or upgrades combined to overloa=
d=20
the state's electric grid, according to the California Independent System=
=20
Operator.=20
"The load ended up 2,500 megawatts higher than what I saw (forecast) when I=
=20
walked in this morning," said Jim McIntosh, ISO director of operations.=20
He said more blackouts are "probable" today, with more than one-fourth of t=
he=20
state's power plants off-line and temperatures expected to sizzle.=20
In the Sacramento region, the outages disrupted stores and restaurants and=
=20
darkened traffic lights in Elk Grove, triggering at least one accident.=20
Hungry diners were turned away at Tecate Grill in Elk Grove, Target shopper=
s=20
were shooed out after paying for purchases at battery-operated cash=20
registers, and disappointed browsers clustered outside Borders Books.=20
"They didn't believe they had to leave," said Borders manager Tammi Kole.=
=20
Even grid operators were a little taken aback by the quick flurry of=20
blackouts, ordered at 4:45 p.m., less than three hours after McIntosh said =
at=20
a press conference that the state probably had escaped power disruptions fo=
r=20
the day.=20
"We thought things were under control," he said later, but an expected late=
=20
afternoon decline in demand never materialized, and no more electricity cou=
ld=20
be lined up to bridge the gap.=20
He told the state's utilities to cut off 300 megawatts of power, which=20
affected about 103,000 homes and businesses, including 4,600 served by the=
=20
Sacramento Municipal Utility District and 54,000 served by Pacific Gas and=
=20
Electric Co.=20
PG&E's outages were confined mostly to urban areas with computerized=20
switching because the blackouts were ordered on such short notice.=20
Southern California Edison wound up blacking out 36,000 customers in 40=20
cities, and San Diego Gas & Electric cut power to about 8,600 customers in=
=20
two counties.=20
It was California's first glimpse of what a hot summer could do to its fray=
ed=20
electric grid, which already has seen January and March blackouts that were=
=20
widely acknowledged to be triggered at least partly by financial chaos in=
=20
electric markets.=20
"This is going to be a long summer. We're at risk of blackouts now all the=
=20
way through October," said Mike Zenker of Cambridge Energy Research=20
Associates, a consulting firm.=20
Industry officials and analysts predict there could be 20 to 36 days this=
=20
summer of rolling blackouts, when electricity is deliberately cut off to ke=
ep=20
the power grid from collapsing under the strain of overuse.=20
Power use this summer will go well above Monday's peak of about 33,000=20
megawatts, but late spring is expected to be touch-and-go because so many=
=20
power plants are being retooled to get ready for the summer crunch.=20
One unit at PG&E's Diablo Canyon nuclear plant is closed for refueling, par=
t=20
of San Onofre nuclear plant is still down for fire-related repairs, and=20
numerous smaller plants are undergoing maintenance or air pollution upgrade=
s.=20
"May and June are promising to be the worst months of the year," said Gary=
=20
Ackerman of the Western Power Trading Forum, an association of generators.=
=20
"This is something we're going to have to get used to."=20
The ISO and utilities around the state repeated their calls for consumers t=
o=20
raise thermostats, draw blinds, shut off unneeded appliances and do=20
everything possible to put a damper on power usage from about noon through=
=20
early evening.=20
"We're going to need conservation," said the ISO's McIntosh "As we roll int=
o=20
summer, that's the only way we're going to avoid large-scale interruptions.=
"=20
The ISO has forecast potential blackouts for any day when demand soars abov=
e=20
40,000 megawatts, which happened 34 times last summer.=20
But as 2001 has shown five times already, blackouts can occur at far lower=
=20
usage levels, and no one can really say for sure how bad it might get.=20
In Sacramento, SMUD is trying to recruit more people for a wide range of=20
conservation efforts, including a revised "Peak Corp" program, which will p=
ay=20
volunteers for each time it remotely shuts off their air conditioners.=20
"I don't think it's ever been more important," said Mike Weedall, SMUD=20
manager of energy services.=20
"We've got a real challenge here in California, and energy efficiency,=20
despite what the vice president says, is a very important option and a very=
=20
viable option."=20
Earlier Monday, unusually warm weather, refueling and repair closures at fo=
ur=20
Western nuclear plants, and a three-hour blip in power imports from Canada=
=20
combined to bring the grid within five minutes of blackouts, said McIntosh.=
=20
BC Hydro, a government-run Canadian utility, refused to deliver promised=20
power for several hours unless it received more money up front from the=20
state, according to the state Department of Water Resources.=20
The state had to wire the money before shipments were resumed. BC Hydro=20
officials declined to comment.=20
In addition, temperatures were above normal for much of California.=20
Sacramento topped out at 96 degrees downtown, compared with a normal high o=
f=20
79 degrees for May 7, according to the National Weather Service.=20
High temperatures -- and the risk of rotating outages -- are forecast to=20
continue today and decline slightly on Wednesday.=20
If more blackouts are needed today, PG&E outages will resume with Block 14=
=20
and then continue on, if needed, into Blocks 1 and 2. SMUD neighborhoods ne=
xt=20
in line for outages include parts of Galt, Elk Grove, Laguna West, Walnut=
=20
Grove, Meadowview, Florin/Fruitridge, Pocket, Greenhaven and South Land Par=
k.=20
Monday's outage triggered a two-car crash about 5:30 p.m. at Bruceville Roa=
d=20
and Kilconnell Drive, where traffic signals were not working, according to=
=20
the California Highway Patrol.=20
Robin Lake of Elk Grove was take by ambulance to the hospital with head and=
=20
shoulder injuries. Two people in the other vehicle were not injured.=20

The Bee's Carrie Peyton can be reached at (916) 321-1086 or=20
cpeyton@sacbee.com.=20
Bee Staff Writer Ted Bell contributed to this report.

$13.4 billion bond bill clears split Assembly=20
By Jim Sanders
Bee Capitol Bureau
(Published May 8, 2001)=20
With billions in electricity bills clouding California's budget, state=20
lawmakers passed legislation Monday to allow the sale of what is believed t=
o=20
be the largest revenue bond in U.S. history to help solve the current crisi=
s.=20
The planned sale of up to $13.4 billion in revenue bonds is designed to rep=
ay=20
the general fund for power purchases made since January and give the state =
a=20
multibillion-dollar pot to draw from to keep the lights on until more power=
=20
plants are built.=20
"We have to do it," Assemblyman Fred Keeley, D-Boulder Creek, told=20
legislators who were deeply divided along party lines on the bond proposal.=
=20
"We don't have to like it, but we have to do it."=20
The Assembly voted 49-29 to authorize the bonds, with only one Republican,=
=20
Anthony Pescetti of Rancho Cordova, supporting the measure.=20
The bill failed to receive the two-thirds majority needed for an urgency=20
measure, however, meaning that bonds can't be sold until 90 days after the=
=20
end of the Legislature's current special session to address the energy=20
crisis.=20
The special session is expected to be discontinued this week after Senate=
=20
action on the bill, SB 31x. That vote could come today or Wednesday.=20
The measure is designed to keep the state's energy crisis from forcing deep=
=20
cuts in public services next year, but it means that ratepayers would foot=
=20
the bill far into the future for electricity consumed this year and next.=
=20
The multibillion-dollar bonds would be repaid through rate increases recent=
ly=20
proposed for customers of two debt-ridden private utilities -- Pacific Gas=
=20
and Electric Co. and Southern California Edison.=20
A heated, two-hour Assembly debate before the final vote Monday revealed a=
=20
deep philosophical split over how best to shoulder the financial burden for=
=20
an energy market that has spun wildly out of control.=20
Republicans argue that using bonds to pay for electricity is like using a=
=20
credit card that would result in massive, long-term interest expenses and=
=20
keep rates high long after new plants have been built and the market=20
stabilized.=20
"For heaven's sake, when is this going to come to a stop?" asked Assemblyma=
n=20
Tim Leslie, R-Tahoe City.=20
Republicans argued that California should bite the bullet now and allocate =
$5=20
billion of the state's projected budget surplus to help foot the bill for=
=20
about $6 billion in electricity purchased since January.=20
Since that approach would call for all Californians to help rescue customer=
s=20
of private utilities, the Republican plan proposed to provide a $1.5 billio=
n=20
rebate that would offset any losses to residents served by public utilities=
.=20
But Democrats ripped the plan as a boon to businesses -- which buy the vast=
=20
majority of power in California. They also argued that raiding the general=
=20
fund would jeopardize funding for vital public services ranging from=20
education to health care.=20
Gov. Gray Davis blasted Republicans for withholding their votes and forcing=
=20
the 90-day wait before the bonds can be sold.=20
"The Republican Party that brought us this disastrous energy deregulation=
=20
scheme is now obstructing its solution," the Democratic governor said.=20
"Their decision to play partisan politics with the energy crisis seriously=
=20
complicates the budget process and could ultimately threaten our economy."=
=20
Specifically, SB 31x calls for:=20
Sale of up to $13.4 billion in revenue bonds. Davis has said about $12.5=20
billion is needed to weather the crisis until adequate new power is added t=
o=20
the state's supply by Jan. 1, 2003.=20
An expedited review of legal challenges to avoid lengthy, potentially=20
devastating delays in implementing the state's plan.=20
No bond proceeds to be used to reduce the debts of private utilities.=20
No general fund money to be used after Nov. 15 for power purchases, with th=
e=20
possible exception of $500 million for short-term cash flow purchases.=20
Since the bonds can't be sold for at least 90 days, Monday's legislative=20
action apparently clouds the state's plan to arrange $4.13 billion in=20
short-term financing to repay the general fund prior to the new year's=20
budget, Keeley said.=20
The state conceivably could craft a contingency budget, with one level of=
=20
spending if the bonds are sold and another if they are not, Keeley said.=20
Officials were assessing their options Monday, and some still held out hope=
=20
that agreement could be reached between Republicans and Democrats on a bill=
=20
that could allow the immediate marketing of bonds.=20
Assembly Speaker Robert Hertzberg said he planned to meet with the Republic=
an=20
leadership.=20
It's not unusual for the state to count on revenues not yet in hand, state=
=20
budget officials said. That happens every year when the state anticipates=
=20
getting some revenue from the federal government, for instance.=20
So passing a budget before the bonds are sold won't necessarily throw the=
=20
state budget out of kilter or require cuts.=20
"There is a precedent for assuming you're going to be reimbursed," said Bra=
d=20
Williams, chief economist of the nonpartisan Legislative Analyst's Office.=
=20
But "this would be on a grand scale," he said.=20
The 90-day wait could get the state close to draining its bank accounts,=20
which could require it to stop making some payments.=20
But the state had a surplus of almost $8 billion going into the fiscal year=
=20
starting July 1 -- an amount higher than expected in January because of=20
healthy income tax returns in April.=20
There are many variables in the electricity equation, making it uncertain=
=20
whether the state could keep the cash flowing until the bonds are sold in=
=20
August. Among them is the amount the state will get from electricity rates,=
a=20
formula still being settled before the state Public Utilities Commission, a=
nd=20
the future cost of power.=20
Even though the budget could be unscathed by the 90-day wait, however, one=
=20
casualty could be perceptions on Wall Street.=20
Joe Fichera, Davis' financial adviser, said the state is probably paying a=
=20
premium in bond interest rates because of the state's political turmoil.=20
"Most investors tend to be very risk averse," he said. "They don't want to=
=20
take any chance that they could lend money and have it suddenly not be ther=
e.=20
"All it does is make Wall Street wonder what's going on over here."=20

The Bee's Jim Sanders can be reached at (916) 326-5538 or jsanders@sacbee.c=
om
.=20
Bee Staff Writers Emily Bazar, John Hill, Dale Kasler and Kevin Yamamura=20
contributed to this report.

Dan Walters: Summer-like heat brings blackouts, partisan fingerpointing

(Published May 8, 2001)=20
Temperatures soared to near the century mark outside California's Capitol o=
n=20
Monday as a wave of summer-like heat swept over the state, and the spiking=
=20
electricity load forced power grid operators to impose rolling blackouts on=
a=20
number of communities.=20
Just as the power demand reached its peak in the late afternoon, the state=
=20
Assembly began debating a $13.4 billion bond issue aimed at financing=20
electricity purchases during the critical summer season. And it soon became=
=20
evident that the partisan atmosphere inside the building was becoming just =
as=20
superheated as the air outside.=20
Just one Republican voted for the measure that Gov. Gray Davis and other=20
Democratic politicians said was critical to keeping California's lights=20
burning and its air conditioners humming, thus blocking its immediate=20
implementation. Democrats went to a fallback plan under which the bond issu=
e=20
would be approved on a simple majority vote, but it can't take effect for 9=
0=20
days, which may make its usefulness doubtful.=20
"We have to do it," Assemblyman Fred Keeley of Boulder Creek, the leading=
=20
Democratic power strategist, told the Assembly. "We don't have to like it,=
=20
but we have to do it."=20
"We owe our kids a top-notch education," Assemblywoman Lynne Leach, R-Walnu=
t=20
Creek, said during the lengthy debate, "not years of debt."=20
The partisan clash reflected a sense in the Capitol that the energy crisis =
is=20
growing steadily worse, that Monday's blackouts are just a taste of hours o=
f=20
power outages to follow this summer, that utility rates are spiking upwards=
=20
as well, and that voters may look for scapegoats at the polls next year.=20
Even before the Assembly vote, Davis issued his sharpest partisan rebuke=20
since the crisis erupted, indicating that he, too, is repositioning himself=
=20
in anticipation of a voter backlash.=20
"The Republican Party that brought us this disastrous energy deregulation=
=20
scheme is now obstructing its solution," Davis said in a statement several=
=20
hours before the debate began. "Their decision to play partisan politics wi=
th=20
this energy crisis seriously complicates the budget process and could=20
ultimately threaten our economy."=20
Davis and other Democrats had enlisted various interest groups -- including=
=20
law enforcement officials -- to pressure Republicans on the bond issue,=20
arguing that without the new loan, the state would have to eat the general=
=20
fund advances and reduce spending on a variety of programs to make up the=
=20
difference. Democrats echoed that line in the floor debate while Republican=
s=20
depicted the bond bill as a long-term debt and a sharp increase in utility=
=20
rates to repay it.=20
The immediate politics of the situation notwithstanding, there's ample reas=
on=20
to be skeptical of the governor's scheme of borrowing heavily not only to=
=20
repay the general fund but to finance power purchases this summer. When Dav=
is=20
proposed the first draft of the plan in January, direct state power purchas=
es=20
were to last only a few weeks and cost only a few hundred million dollars=
=20
while long-term supply contracts were negotiated. Instead, the state has=20
embarked on an open-ended program of buying power, spending up to $2 billio=
n=20
a month, while long-term contracts have proved elusive.=20
The current version of the plan, moreover, is based on a series of=20
assumptions that fly in the face of past and current experience, such as a=
=20
sharp reduction in demand, an equally sharp increase in summer supply and,=
=20
most of all, a steep drop in the prices being charged by generators. If tho=
se=20
assumptions don't pan out, the state could be spending as much as $5 billio=
n=20
a month by midsummer, and even the proposed bond issue, the largest in the=
=20
history of any state, would be consumed within a few weeks.=20
Republicans said Monday that they wouldn't vote for a bond issue until they=
=20
had received some reliable assurances that there was an end game. Their=20
motives may have been partisan, but their wariness about where California i=
s=20
headed is well-founded. No one, including the governor, appears to know=20
what's going to happen over the next few months and the governor's figurati=
ve=20
plea to "trust me" is not reassuring.=20

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

Special report
How Californians got burned
The state electricity system is in a shambles, and the worst may be ahead.=
=20
How did things get to this point?

(Published May 6, 2001)

It isn't like California's political and business leaders got together and=
=20
decided to wreck the state's electricity system. It just worked out that wa=
y.=20
From the very start, a series of critical miscalculations and=20
behind-the-scenes efforts of energy brokers, politicians and utilities=20
dovetailed almost perfectly to create a new era in California.=20
But a months-long review by The Bee of what led to the current fiasco revea=
ls=20
that state leaders ignored warnings -- in public testimony, insider memos a=
nd=20
trade journals -- that their new system would be prone to manipulation and=
=20
price gouging.=20
State officials were so eager to move deregulation forward that they even=
=20
kept some warnings from landing in the hands of federal authorities who=20
rubber-stamped California's plans.=20
Today, the results are well-known: California is drawing down its budget=20
surplus at a rate of $50 million or more a day to pay for electricity,=20
utilities are broke, rates are going up and summer blackouts are looming.=
=20
But the juggernaut that led to deregulation began a decade ago with the bes=
t=20
of intentions.=20
Part of it stemmed from a warning by former Major League Baseball=20
Commissioner Peter Ueberroth. Part of it came from the perilous state of=20
California's economy at the time.=20
And part of it began with O.J. Simpson.=20
The first days
The deck was stacked against Robert Levin from the beginning.=20
The expert on energy pricing flew to Los Angeles to warn that California's=
=20
Public Utilities Commission was making a huge mistake.=20
An executive with the New York Mercantile Exchange, Levin believed in the=
=20
increased competition the plan was intended to provide, but he thought=20
California was tilting toward a system that would actually produce less=20
competition -- and higher costs.=20

Special report
This special report on California's energy crisis was written by Bee staff=
=20
writer Sam Stanton, with reporting from John Hill of The Bee's Capitol=20
Bureau, staff writers Dale Kasler and Stuart Leavenworth and David Whitney =
of=20
The Bee's Washington Bureau.=20

Few were listening.=20
"I'm not getting through," he told himself at the time.=20
It was June 14, 1994, and even though the PUC convened a daylong hearing at=
=20
the Los Angeles Civic Center, there were more important things going on in=
=20
the world.=20
Composer Henry Mancini died that day from cancer. President Clinton had jus=
t=20
unveiled his welfare reform proposal. And Los Angeles police detectives wer=
e=20
starting their probe of the mysterious slaying two days earlier of O.J.=20
Simpson's ex-wife and a friend.=20
"That was kind of the buzz," Levin said of Nicole Brown Simpson's and Ron=
=20
Goldman's murders. "More than electricity deregulation."=20
O.J. Simpson's influence ended there, but the incident was indicative of ho=
w=20
little attention people were paying to the deregulation process at the time=
.=20
Today, nearly seven years later, Levin's futile warning stands as one of ma=
ny=20
that were leveled -- and blithely ignored -- as a consortium of elected=20
officials, utility executives and energy traders marched California into on=
e=20
of the greatest policy blunders of the past century.=20
The perfect storm
Some now blame California's current predicament on a series of unavoidable=
=20
acts of nature, the so-called "Perfect Storm" scenario:=20
A hot summer last year in California that sent demand for power soaring.=20
A cold snap last winter in the East that drove up prices for natural gas,=
=20
widely used in plants that generate electricity.=20
A 50 percent cut in the amount of power received from the Northwest because=
=20
of drought, environmental concerns and increased demand there.=20
"It's only because of those three acts of God that we got screwed up," said=
=20
P. Gregory Conlon, a former PUC president.=20
Power generators insist the price spikes that began in 2000 resulted from=
=20
genuine supply and demand imbalances.=20
But scores of market analysts, including officials at the Federal Energy=20
Regulatory Commission, suggest that generators were able to ratchet up pric=
es=20
through various trading strategies, including the simplest: throttling back=
=20
on production until prices increased.=20
And ample evidence indicates that policy-makers should have known years ago=
=20
that the system they set up was ripe for such manipulation.=20
San Diego Gas & Electric figured it out early.=20

How it happened
Here's a look at key actions taken on the road to power deregulation in=20
California:=20
The PUC
The California Public Utilities Commission approved the state's deregulatio=
n=20
plan on Dec. 20, 1995, by a 3-2 vote. Voting yes were Daniel W. Fessler, P.=
=20
Gregory Conlon and Henry Duque. Voting no were Jessie Knight Jr. and Josiah=
=20
Neeper. All five were appointees of Gov. Pete Wilson.=20
WEPEX
Following the PUC vote, a revolving set of the dozen or so members of the=
=20
Western Power Exchange Steering Committee met at airport hotels up and down=
=20
the state to discuss the logistics of deregulation. Members included=20
representatives of the major utilities, such as PG&E, San Diego Gas &=20
Electric, Southern California Edison and SMUD. Also represented were power=
=20
regulators, such as the PUC and the Energy Commission, and a number of ener=
gy=20
providers, marketers and users, ranging from the Independent Energy Produce=
rs=20
to the California Large Energy Consumers Association (CLECA).=20
California Legislature
On Aug. 30, 1996, the state Assembly took the first vote on AB 1890, the=20
deregulation bill. Approval was unanimous, 77-0. The state Senate voted 39-=
0=20
the following day. The bill was signed by Wilson on Sept. 23.=20
FERC
A key vote by the Federal Energy Regulatory Commission was interim approval=
=20
for operation of California's bifurcated grid operation - the Power Exchang=
e=20
and the Independent System Operator - taken on Oct. 29, 1997. The three=20
members at that time, who approved it unanimously, were Vicky A. Bailey, a=
=20
Republican, and Democrats James J. Hoecker and William L. Massey.=20
In their words
"Competition will work to drive costs down."
- John Bryson, head of Southern California Edison. From June 14, 1994, PUC=
=20
hearing in Los Angeles.=20
"A mandated pool structure would make it easier for big players to dominate=
=20
and manipulate the generation market."
- PUC Commissioner Jessie Knight Jr., warning that his colleagues were=20
creating an unworkable system, May 24, 1995.=20
"We've pulled the plug on another outdated monopoly and replaced it with th=
e=20
promise of a new era of competition."
- Gov. Pete Wilson, signing the Legislature's deregulation bill in San Dieg=
o,=20
Sept. 23, 1996.=20
"California is, as usual, in the vanguard of change. I believe it will not =
be=20
long before virtually all United States energy consumers will have this=20
opportunity."
- PG&E CEO Robert Glynn Jr., speaking about the benefits of deregulation to=
=20
the Commonwealth Club in San Francisco on Oct. 24, 1997.=20
"All of us saw those numbers and realized that =06? there was nothing to st=
op=20
someone from bidding infinity."
- Independent System Operator CEO Jeffrey Tranen, recounting a sudden spike=
=20
in one of ISO's side markets to $5,000 a megawatt hour, July 9, 1998.=20
--Bee metro staff=20

A consultant for the utility prepared a document describing how the new=20
electricity market would hamstring the people in charge of making sure the=
=20
state had enough electricity, and that the cumbersome system would drive up=
=20
electricity costs.=20
On June 28, 1996, the utility filed a 71-page statement with federal=20
officials explaining its opposition to the market structure supported by th=
e=20
state's other large, publicly traded utilities, Southern California Edison=
=20
and Pacific Gas and Electric Co.=20
But the FERC, which had to approve any change in California's market, never=
=20
considered the statement. SDG&E withdrew its comments under pressure from=
=20
then-Gov. Pete Wilson's office and others.=20
"Officially, (those comments) don't exist," said John Chandley, a 20-year=
=20
veteran of the California Energy Commission. "You read those comments, and=
=20
it's a roadmap of what happened."=20
It was hardly the only map available.=20
The California Municipal Utilities Association issued a similar warning in=
=20
1996. The Public Utilities Commission cautioned legislators that a power=20
shortage could drive prices up in the new market, although the PUC then=20
turned around and predicted that would never happen.=20
A 1998 utility industry journal outlined ways to manipulate or "game" the=
=20
markets; and only three months after deregulation began, someone was able t=
o=20
drive up the cost of a megawatt of electricity from $1 to $5,000 in a matte=
r=20
of hours.=20
The system was so flawed that a dentist on an airplane figured it out using=
a=20
pen and a cocktail napkin.=20
An unstoppable concept
Texas state Sen. David Sibley came to California in January 1998 to visit=
=20
with energy officials in preparation for moving his state toward=20
deregulation.=20
Yet something about California's new market perplexed him, and on the fligh=
t=20
home he started doodling.=20
"We got a napkin, and it looked like you could game the power exchange," sa=
id=20
Sibley. "We had our (PUC) guy and our staff and people just started talking=
=20
about how you could figure out how to withhold just enough electricity. We=
=20
were just kind of toying with it, kind of war games things on the airplane.=
"=20
"Now, I'm a dentist," Sibley said, "and if I could figure it out, it seemed=
=20
like someone else could, too."=20
Once California joined the rush to deregulate, however, it became=20
unstoppable.=20
The airlines had been deregulated, and airfares had gone down. The natural=
=20
gas industry had been freed up, and rates had dropped. Telephone deregulati=
on=20
had spawned entire new industries.=20
Electricity was the next obvious target, and California politicians were=20
under pressure from the state's largest manufacturers to do something --=20
anything -- to give them a break.=20
California was under siege in 1992. The recession and massive cutbacks in=
=20
military spending in California had hobbled the state's economy. The state'=
s=20
power troubles were noted in the 1992 Ueberroth Report, a study on the=20
state's economic competitiveness headed by millionaire Peter Ueberroth, the=
=20
former baseball commissioner and Olympics czar.=20
Energy costs were among the highest in the nation, and steel manufacturers=
=20
and other heavy industrial companies were clamoring for cheaper power.=20
Years of lobbying and millions of dollars in political contributions from=
=20
energy firms had softened resistance. Among those pushing was Enron Corp., =
a=20
Houston-based natural gas marketer nosing its way into the $200=20
billion-a-year electricity business.=20
In the mid-1990s, Enron was aggressively hopscotching from state to state,=
=20
urging deregulation and offering money and promises.=20
The company pushed for opening up markets in Iowa and Michigan, priming=20
politicians there with contributions. In 1997, it doled out more than=20
$858,000 in soft money and political-action contributions to members of=20
Congress, becoming the largest contributor from the energy industry. That=
=20
year it hired Ralph Reed, the former head of the Christian Coalition, to=20
preach its agenda.=20
At the time, Enron was a comparatively small ($8 billion a year in revenue)=
=20
marketer of natural gas. But it was on its way toward becoming one of the=
=20
world's most successful companies, a $100-billion-a-year giant that counts=
=20
President Bush among its friends.=20
Enron had qualms about the system California was leaning toward. In testimo=
ny=20
before the PUC in June 1994, it warned that the highly centralized market=
=20
structure could lead to higher prices.=20
But ultimately the company joined the chorus urging California to plunge=20
ahead. Enron executive Jeffrey Skilling told the PUC in 1994 that Californi=
a=20
could lower its $23 billion-a-year energy bills by as much as $9 billion --=
=20
enough money to triple the police forces of its largest cities.=20
"Commissioners, the patient is on the ground bleeding," Skilling testified.=
=20
"Delay kills."=20
The color books
As California's recession deepened, Wilson's approval rating plummeted, and=
=20
aides fretted about an economic snowball effect.=20
Wilson settled on a rescue plan -- full deregulation -- and appointed membe=
rs=20
to the PUC who shared his free-market leanings. Three PUC staffers set thin=
gs=20
into motion in February 1993 with the release of a 200-page report declarin=
g=20
that change was needed.=20
That report, nicknamed the "Yellow Book" for its cover, declared that the=
=20
century-old system was "ill-suited to govern today's electric industry."=20
Consumers would benefit from a change, the report concluded. Slightly more=
=20
than a year later, the PUC commissioners formalized their staffers'=20
conclusions in a report dubbed the "Blue Book."=20
The Blue Book outlined a tentative plan for opening up the energy=20
marketplace. Instead of guaranteeing the utilities a monopoly and capping=
=20
their rates, California would become one of the first states to let custome=
rs=20
choose their electricity provider while letting rates float.=20
By January 2002, the PUC envisioned, every Californian would shop for=20
electricity the way people shop for long distance telephone service.=20
The book hit with the force of an earthquake, according to one consultant.=
=20
Markets tanked as investors dumped energy stocks out of fear that competiti=
on=20
meant the staid but stable utilities would be shredded by nimble new=20
competitors.=20
"The barbarians were at the gates," said Tom Willoughby, a retired PG&E=20
lobbyist.=20
Those barbarians wanted more. Enron and other out-of-state power companies,=
=20
backed by consumer groups, told policy-makers that in order for everyone to=
=20
have a fair chance at attracting customers, the three big utilities had to =
be=20
defanged.=20
Their proposed remedy: Make them sell off most of their power plants.=20
Faced with this assault, the utilities set their own ground rules. They wou=
ld=20
break up their monopolies if the state let them charge customers for=20
"stranded costs" -- debts from nuclear power projects and other costs they=
=20
believed they'd eat in a competitive market. Wilson, who'd collected $120,0=
00=20
in campaign contributions from the utilities, agreed that the utilities=20
should collect $16 billion in stranded costs from ratepayers.=20
With that, the utilities became enthusiastic backers of deregulation.=20
"Competition will work to drive costs down," John Bryson, Edison's chairman=
,=20
told commissioners at their June 1994 hearing.=20
Behind the scenes, Edison was working to make sure it was the right kind of=
=20
competition.=20
Edison and the San Diego utility settled on a system where utilities would=
=20
buy their power from a centralized "pool" of electricity. They and others h=
it=20
upon the idea of a high-powered field trip.=20
In March 1994, the California Foundation for the Environment and the Econom=
y,=20
a utility-backed group, sent PUC members, lawmakers and utility executives =
to=20
the United Kingdom to see a pool in action.=20
During a weeklong, dawn-to-dusk blitz, the Californians toured power plants=
=20
and utility offices and visited the crown jewel of the U.K. system: the=20
National Grid, a kind of stock exchange through which every electron in=20
England and Wales was bought and sold.=20
The Californians came away impressed by the Grid and its disciplined tradin=
g=20
system.=20
"You just wring out the inefficiencies through the bidding," Conlon recalle=
d.=20
"It just kept driving the rates down."=20
The compromise
Gov. Pete Wilson was puffed up with pride on Sept. 23, 1996. It was a sunny=
=20
San Diego day, and Wilson was there to baptize one of his offspring: a bill=
=20
to deregulate California's electricity markets.=20
"What we are doing is more than signing a new law," Wilson said at the=20
signing ceremony. "We are shifting the balance of power in California."=20
That balance had begun to tip a year earlier, when Wilson and his top aides=
=20
stepped in to speed things up.=20
Edison and PG&E were squabbling over details of the new market, and=20
deregulation seemed to be stalled. PG&E was objecting to the "pool" system,=
=20
which it thought would stifle competition. Instead, PG&E favored a more=20
free-market approach that would let the utilities buy power from whomever=
=20
they wanted.=20
Wilson's own attention was more focused on the possibility of running for=
=20
president and the throat problems that temporarily stole his speaking voice=
=20
-- and his ability to campaign.=20
But his staff worked to hammer out an agreement with the utilities, the=20
California Manufacturers Association, energy marketers and others.=20
"CMA had access to the governor's office day-to-day," recalled Eric Woychik=
,=20
who was acting as an adviser to consumer groups. "We made jokes about how=
=20
they had their own office in the governor's office."=20
In the end, Wilson and his aides made a Solomon-like decision. They cut the=
=20
baby in half. Instead of a completely free-market system, they agreed to a=
=20
centralized pool for buying and selling power but also allowed buyers and=
=20
sellers to cut their own, independent power deals.=20
The pool would be further split in two: Most of the state's electricity wou=
ld=20
be traded on something called the California Power Exchange. Another entity=
,=20
called the Independent System Operator, would manage the state's transmissi=
on=20
grid and buy last-minute power to balance supply and demand.=20
Divvying up the pool was crucial to the deal, said George Dunn, then Wilson=
's=20
chief of staff, because it lessened the utilities' clout by ending their=20
stranglehold on the grid.=20
Nowadays, Wilson concedes the setup "was not a perfect free-market=20
institution," but at the time it seemed like the only workable compromise. =
In=20
December 1995, the PUC approved deregulation by a 3-2 vote, putting most of=
=20
the major elements into place.=20
The state's big utilities would be directed to sell off many of their power=
=20
plants. Individual customers, ranging from businesses to homeowners, could =
go=20
outside the Power Exchange to buy their electricity. But the three big=20
utilities had to rely on the exchange to purchase their electricity.=20
Most of the commissioners, all Wilson appointees, were sure that having the=
=20
utilities buy electricity on a daily basis would produce panic selling by t=
he=20
power generators.=20
And prices would drop like stones in a lake.=20
No dissent allowed
Not everyone was so sure. Officials with San Diego Gas & Electric believed=
=20
that the rules governing the pool were cumbersome, prone to secrecy and=20
inefficiency.=20
Some analysts even suggested the power generators and energy marketing firm=
s=20
would be able to play one organization off the other -- holding back=20
electricity from the Power Exchange, then selling to the ISO at the last=20
minute, when prices peaked.=20
But they were having trouble making themselves heard.=20
For months following the PUC's December 1995 vote, a group consisting of=20
utilities, government regulators, energy marketers and industrial and=20
commercial users had participated in a series of talks aimed at ironing out=
=20
the details of deregulation.=20
These coffee-and-doughnut sessions of the Western Power Exchange Steering=
=20
Committee were theoretically open to the public, but keeping track of them=
=20
was complicated because they rotated among airport hotels from San Francisc=
o=20
to Riverside.=20
At one of the first meetings, Woychik, who had been sent by consumer groups=
,=20
says he was told by the chairman that he was not welcome: The other members=
=20
had voted against seating him. Others involved confirmed the recollections =
of=20
Woychik, who was already known as a critic of the proposed electricity=20
market.=20
The pressure was on to present a united front. But Woychik still struggled =
to=20
air his concerns.=20
In January 1996, he told a conference of federal regulators that some parts=
=20
of the proposed electricity market "are invitations to classic gaming."=20
He elaborated the next month, writing to the Western Power Exchange that, f=
or=20
savvy operators, gaming the market "should be like shooting fish in a barre=
l=20
-- not great sport, but lucrative."=20
Later, in a January 1998 trade journal article, Woychik described in detail=
=20
four major "games" that could be played in the newly minted California=20
electricity market. One involved generators saying their plants were down=
=20
during times of peak demand to drive up prices -- a prophecy many believe=
=20
came true last year.=20
Deregulation had lots of cheerleaders. But Woychik was not the only one=20
raising red flags.=20
In a July 2, 1996, letter to the Legislature, even the PUC acknowledged tha=
t=20
in times of shortage, market manipulation would be a danger. But the PUC=20
predicted that such shortages wouldn't occur, and excess power would keep=
=20
prices down.=20
Chandley, meanwhile, had taken up the charge of criticizing the market rule=
s=20
at the Western Power Exchange meetings, speaking on behalf of the Californi=
a=20
Energy Commission.=20
The Governor's Office was considering whether to let the Energy Commission=
=20
file an official dissent with federal regulators, who had to OK the plan,=
=20
when Chandley set off on a business trip to Massachusetts. Changing planes =
in=20
Dallas, he stopped at a pay phone to check in with his office and got the=
=20
word: Wilson's office had ruled there would be no dissent.=20
Within a week, Chandley quit.=20
Federal regulators later accepted the California plan. As William Massey, a=
=20
member of the Federal Energy Regulatory Commission, recalls: "Essentially, =
we=20
deferred to the market plan that was handed us."=20
Death march
State lawmakers began taking up deregulation in summer 1996, and a bright,=
=20
ambitious and abrasive Democratic senator from El Cajon named Steve Peace=
=20
found himself at the forefront. Peace announced plans to scrap the PUC plan=
=20
in favor of something better and cheaper.=20
Then Wilson stepped in.=20
In a letter, the governor made it clear that no tinkering would be tolerate=
d,=20
saying he would "oppose any legislation which seeks to alter the decision's=
=20
basic framework or timeline."=20
The lawmakers backed off.=20
For months they labored over deregulation in a series of late-night=20
negotiating sessions that became known as "the Steve Peace death march" --=
=20
focused almost exclusively on side issues of deregulation.=20
Unions made sure that power plant employees got treated fairly.=20
Environmentalists got millions in eco-subsidies. Utilities saw to it that=
=20
billions in "stranded costs" would indeed be paid by ratepayers. Ordinary=
=20
consumers got a 10 percent rate cut, and consumer groups largely kept quiet=
.=20
Even Mother Nature nudged lawmakers forward.=20
At 2:06 p.m. on a blazing summer day in August 1996, a power line in an=20
Oregon forest began to sag until it touched a tree, shorting out the line.=
=20
Over the next two hours, four other lines came into contact with trees. By =
4=20
p.m. the shorts along the intricate web of power transmission lines caused =
a=20
blackout that affected 4 million people in nine U.S. states stretching from=
=20
Canada to Mexico.=20
Experts warned that the electricity system was too fragile, that there had =
to=20
be some sort of backup -- like the ISO -- to protect the grid, some kind of=
=20
independent organization standing ready to keep the lights on at all costs.=
=20
The legislation passed unanimously, Wilson signed it and deregulation was s=
et=20
in motion. The utilities, directed by the PUC to start selling their power=
=20
plants to establish a free market, went at it with gusto.=20
PG&E sold its plants for $1.5 billion, far more than the book value of $981=
=20
million. Southern California Edison got nearly $1.2 billion for plants valu=
ed=20
at $677 million.=20
Power generators ended up spending most of their capital buying those old=
=20
plants instead of building new ones. Dunn, Wilson's former chief of staff,=
=20
now sees that as an unanticipated flaw: "It was investment that didn't=20
generate new electrons."=20
Light-bulb cakes, free power
On March 31, 1998, more than seven years after the PUC started the process=
=20
with publication of the "Yellow Book," California's deregulated energy mark=
et=20
was open for business.=20
Alhambra was home to the new Power Exchange, the state-mandated market wher=
e=20
most electricity would be bought and sold.=20
Up north, in Folsom, was its partner: the Independent System Operator, whic=
h=20
was already buying extra power to make certain California had all the=20
electricity it needed.=20
On the first full day of deregulation, ISO officials celebrated with a=20
light-bulb shaped cake. Brochures boasted of "Securing Reliability" and=20
"Power to the people and by the people."=20
The system worked beautifully.=20
Competition among providers drove power prices so low that PG&E gave away=
=20
electricity for free between 1 a.m. and 2 a.m. that day. The biggest proble=
m=20
seen on the horizon was for consumers who would have to pick among a dizzyi=
ng=20
array of cut-rate power providers.=20
It would be three months before the party ended, when a worker inside the I=
SO=20
offices in Folsom noticed something terribly wrong.=20
The game
Tucked into a leafy office park in Folsom, the ISO consists of a labyrinth =
of=20
hallways and meeting rooms. Ground zero is a 15,000-square-foot control roo=
m=20
with a giant map board curving across one wall that charts the flow of=20
electrons around the state.=20
In the foreground, somber-looking people sit in front of computers, talking=
=20
on telephones. Their job is to buy enough power to keep California's needs=
=20
met.=20
On July 9, 1998, the price for reserve power needed by the ISO was running =
at=20
$1 a megawatt hour and was being tracked on computer screens in the market=
=20
operations department of the agency.=20
A staffer hurried up to ISO chief executive Jeffrey Tranen with a note. The=
=20
$1 price tag, set by the power generators, had shot up to $2,500. Then, jus=
t=20
as suddenly, it spiked again to $5,000, where it stayed for three hours.=20
After that, it mysteriously dropped again, all the way back to $1.=20
Four days later it happened again, but this time the price went to $9,999 a=
nd=20
stayed there for four hours. Then it dropped to a penny.=20
"All of us saw those numbers and realized ... there was nothing to stop=20
someone from bidding infinity," said Tranen, now a software executive.=20
Under the rules, the identities of power generators are kept secret. But=20
Levin, the New York businessman who'd warned of higher prices back in 1994,=
=20
said the price spikes were clear signs of someone probing for weak spots.=
=20
"They were experimenting from Year One," he said. "Early on, people learned=
=20
how to work the magic."=20
The ISO saw the problem, too, and moved to cap prices. But it was clear tha=
t=20
California markets were vulnerable to manipulation. The damage was done, an=
d=20
the gold rush was on.=20
The Bee's Sam Stanton can be reached at (916) 321-1091 or sstanton@sacbee.c=
om=20

Heat wave spawns statewide blackouts=20

Year's first scorcher drains system; plugs pulled on 225,000
By Karen Kucher=20
UNION-TRIBUNE STAFF WRITER=20
May 8, 2001=20
Despite conservation and voluntary shutdowns, the first heat of the season=
=20
meant blackouts for thousands across the state yesterday.=20
Power grid managers said the hot spell pushed demand beyond available power=
=20
supplies shortly before 5 p.m., requiring about 300 megawatts to be cut off=
=20
for about an hour.=20
The outages affected about 225,000 customers statewide, including about 8,6=
00=20
in San Diego and south Orange counties, and provided a glimpse of what the=
=20
next few months could be like in California. Yesterday's blackouts were the=
=20
first since March.=20

All day, the state's electricity grid had been stretched to the limit. Dema=
nd=20
jumped as consumers around the state switched on air conditioning, as=20
record-breaking temperatures were recorded in Northern California. The=20
temperature reached 93 degrees in San Francisco. More hot weather is foreca=
st=20
for today.=20
On a day when the peak demand was 33,300 megawatts, about 12,500 megawatts=
=20
were unavailable because of scheduled maintenance work or breakdowns at=20
generating plants. Repair work on a natural gas line in Ventura also put on=
e=20
power plant temporarily out of commission.=20
Around 11 a.m., grid operators came within 500 megawatts of ordering rollin=
g=20
blackouts in the state, but pulled back when usage dropped, said Jim=20
McIntosh, director of operations for the California Independent System=20
Operator, which manages most of the state power grid.=20
McIntosh said consumers and "interruptible" businesses allowed their power =
to=20
be shut off for part of the day, an agreement they have made in exchange fo=
r=20
cheaper power.=20
But under the contracts signed with utility companies, those businesses can=
=20
only be interrupted for up to six hours a day. So when those customers came=
=20
back on line in the afternoon, demand soared and outstripped supplies.=20
"When that load was restored, as far as I can tell, they were not able to=
=20
recover additional load to cover it," said Michelle Mueller, a San Diego Ga=
s=20
& Electric spokeswoman.=20
ISO spokeswoman Stephanie McCorkle said power demand was about 2,000=20
megawatts higher than grid managers had forecast because of the record-high=
=20
temperatures.=20
"With the interruptibles, we can only call on them for a certain length of=
=20
time," she said. "Those were being restored at the same time the temperatur=
es=20
continued to soar late in the day and people were coming home to warm house=
s=20
and switching on the air conditioning. We had higher demand the same time w=
e=20
had less generation."=20
At 4:36 p.m., the ISO ordered the megawatts to be dropped. SDG&E's portion=
=20
was 25 megawatts. Pacific Gas and Electric shed 125 megawatts in Northern a=
nd=20
Central California. Southern California Edison dropped 150 megawatts, while=
=20
the Sacramento Municipal Utility District cut 18 megawatts.=20
Within three minutes of the order, SDG&E cut power to parts of El Cajon, Mi=
ra=20
Mesa, Torrey Pines and La Jolla. Blackouts also affected SDG&E customers in=
=20
several south Orange County communities.=20
Early in the day, SDG&E staff had gathered in the company's emergency=20
operations center in Kearny Mesa and had called selected customers, such as=
=20
those on life-support equipment and police and fire agencies, to warn of=20
possible blackouts.=20
"It is such a dynamic situation," said SDG&E spokeswoman Laura Farmer. "It=
=20
didn't look as bad, and then as the afternoon progressed it started looking=
=20
more and more bleak, and then the ISO decided that they needed to call a=20
Stage 3."=20
The blackouts apparently created few problems in the region.=20
Power went out in the La Jolla Executive Tower, but the outage had little=
=20
impact on Barry Demchak, who runs Torrey Pines Software Inc.=20
He and his staff ran their computers on battery power and continued working=
,=20
designing software.=20
"The sun comes through the windows. We have no real power needs," he said.=
=20
"If the power goes off here for six or eight hours, we could care less."=20
El Cajon lost electricity at several intersections, but police received=20
reports of outages lasting only 10 to 15 minutes.=20
"Those blackouts did not last an hour," said El Cajon police Sgt. Chuck=20
Merino. "They can say what they want. By the time we showed up, it's like=
=20
everything's fine."=20
However, a SDG&E spokeswoman said the outages could not have ended that=20
quickly. She could not explain the discrepancy.=20
In Ramona, a Sizzler restaurant was forced to close its doors during one of=
=20
the busiest times of the day -- from 5 p.m. to 6 p.m.=20
"We count on that hour," said manager Amy Krueger. "It impacts us quite a=
=20
bit."=20
She posted a sign on the steakhouse doors saying it would reopen when the=
=20
power was restored. But several families arrived for dinner while the=20
restaurant was closed.=20
"We have a lot of regular customers that come on Monday nights and we had t=
o=20
turn them away," she said.=20
Staff writers Kristen Green and Matthew T. Hall contributed to this report.=
=20

Bond clears Assembly with a partisan twist=20

By Ed Mendel=20
UNION-TRIBUNE STAFF WRITER=20
May 8, 2001=20
SACRAMENTO -- The Assembly approved a $13.4 billion bond needed to repay th=
e=20
state general fund for power purchases yesterday, but Republicans who want =
to=20
use the state surplus to aid ratepayers prevented the measure from taking=
=20
effect until August.=20
Democrats said they are working on a backup plan to borrow money before the=
=20
new state fiscal year begins on July 1. But Republicans, whose approval als=
o=20
may be needed for the new plan, said the state budget and a solution to the=
=20
electricity crisis should be linked.=20
Gov. Gray Davis issued a statement sharply criticizing Republicans several=
=20
hours before the vote, when it became clear that the minority party would=
=20
continue to insist that the bond be lowered to $8 billion by using the stat=
e=20
surplus to pay for some of the power.=20
"The Republican Party that brought us this disastrous energy deregulation=
=20
scheme is now obstructing its solution," Davis said. "Their decision to pla=
y=20
partisan politics with the energy crisis seriously complicates the budget=
=20
process and could ultimately threaten our economy."=20
Democrats warned that failure to repay the general fund was a risky gamble=
=20
that could endanger programs and prevent the investments in education and=
=20
other public services needed to preserve a prosperous economy.=20
Republicans complained that the state general fund has soared from $45=20
billion to nearly $81 billion in the last six years and that Democrats want=
=20
to burden future generations with more debt.=20
"Let me tell you what our caucus philosophy is," said Tony Strickland,=20
R-Thousand Oaks. "If you have money today, you don't borrow against your=20
children and grandchildren's future."=20
Democrats passed the measure on a near party-line majority vote, 49-29, aft=
er=20
Republicans refused to provide the handful of votes needed for a 54-vote=20
urgency bill that would take effect immediately when passed by the Senate a=
nd=20
signed by the governor.=20
The measure, which was passed in a special session on energy, could not tak=
e=20
effect until 90 days after the special session is adjourned. Bills passed b=
y=20
a majority vote in a regular legislative session do not take effect until t=
he=20
following Jan. 1.=20
The current special session could be adjourned this week if the bill is=20
swiftly passed by the Senate and signed by Davis. Dozens of bills dealing=
=20
with conservation and obtaining more power would be stranded, but they coul=
d=20
be reintroduced if Davis called a new special session.=20
All five Republicans representing parts of San Diego County voted against t=
he=20
bill: Patricia Bates, Laguna Niguel; Dennis Hollingsworth, Temecula; Jay La=
=20
Suer, La Mesa; Mark Wyland, Escondido; and Charlene Zettel, San Diego. All=
=20
three San Diego Democrats voted for the bill: Christine Kehoe, Juan Vargas=
=20
and Howard Wayne.=20
In January, legislation was enacted that authorizes the state to issue a bo=
nd=20
to repay the state general fund for power purchases. The estimate then was=
=20
that the bond would be $10 billion, the largest municipal bond in the histo=
ry=20
of the nation.=20
Democrats said new legislation is needed because a state Public Utilities=
=20
Commission action giving the state part of the revenue from monthly ratepay=
er=20
bills was challenged by Pacific Gas and Electric and Southern California=20
Edison. The utilities say they need a larger share of the ratepayer revenue=
.=20
The state began buying power for utility customers in January after PG&E an=
d=20
Edison, whose rates were frozen under deregulation as wholesale power costs=
=20
soared, ran up a debt of $13 billion and were unable to borrow.=20
The state has spent about $6 billion so far, and some fear that spending=20
could sharply increase this summer as the demand for power increases. The=
=20
bond would repay the state general fund and also begin paying for some=20
long-term contracts that will lower the cost of power in the months ahead.=
=20
Assemblyman Fred Keeley, D-Boulder Creek, said the new legislation caps the=
=20
size of the bond at $13.4 billion, reflecting the formula in the January bi=
ll=20
that limited the size of the bond to four times the annual ratepayer revenu=
e=20
received by the state.=20
Keeley said a new provision in the bill also would prevent the state genera=
l=20
fund from paying for power after Nov. 15 this year, with the exception of a=
=20
$500 million loan if needed.=20
State Treasurer Phil Angelides had pushed for approval of the bond=20
legislation as an urgency measure by today, when commitments from lenders f=
or=20
a $4.1 billion short-term "bridge" loan expire. Angelides said the bridge=
=20
loan would help the state prepare a new budget and pave the way for the=20
larger bond later.=20
"There can't be a bridge loan under these circumstances," Keeley said after=
=20
the vote yesterday.=20
Some of the long-term power contracts obtained by the state have a provisio=
n=20
allowing generators to cancel the contracts if the bond to repay the state =
is=20
not issued by July 1.=20
Keeley said Democratic legislative leaders are working on a plan to solve t=
he=20
contract problem and allow the state to borrow money before August. He=20
refused to reveal details, but said that Republican votes may be needed for=
=20
the new plan.=20
Assembly GOP Leader Dave Cox of Fair Oaks said Democrats have not discussed=
=20
the new plan with him. He said any plan should involve the state budget and=
a=20
comprehensive solution that spells out a clear end to the electricity crisi=
s.=20
In other developments:=20
?Enron Corp., which was ordered last month to honor its contracts to supply=
=20
power to California's public universities, has won a key appellate ruling=
=20
that could cost taxpayers millions. A federal appeals panel in San Francisc=
o=20
said Enron could buy power for the universities from the state's=20
investor-owned utilities, rather than buying it on the expensive "spot" pow=
er=20
market. Enron says it would save $12 million a month. But it means the stat=
e=20
will have to spend more money.=20
?California would impose a 100 percent "windfall profits tax" on high-price=
d=20
electricity if a bill approved by the Senate yesterday becomes law. The bil=
l,=20
which now goes to the Assembly, would impose the tax on any power priced ov=
er=20
$80 per megawatt-hour -- a fraction of what electricity has sometimes sold=
=20
for in recent months.
The Associated Press contributed to this report.=20

Refinery merger could raise California gas prices=20

ASSOCIATED PRESS=20
May 8, 2001=20
SAN ANTONIO =01) Valero Energy Corp. is buying rival Ultramar Diamond Shamr=
ock=20
Corp. for about $4 billion in cash and stock in a deal that will make Valer=
o=20
the second-largest U.S. refiner of petroleum products.=20
The deal announced Monday was approved by both companies' boards over the=
=20
weekend. It still must be approved by company shareholders and regulators.=
=20
The new organization will have $32 billion in annual revenue, more than $10=
=20
billion in assets, 23,000 employees in the United States and Canada and 13=
=20
refineries. Valero will also be one of the nation's largest retailers with=
=20
more than 5,000 retail outlets in the United States and Canada.=20
Valero said acquiring Ultramar Diamond Shamrock will make it second only to=
=20
Irving, Texas-based Exxon Mobil Corp. in refining capacity.=20
"We're combining the two best independent refining and marketing companies =
to=20
make the premier refiner and marketer in the U.S.," Bill Greehey, Valero's=
=20
chairman of the board and CEO, said in a statement.=20
Both companies are based in San Antonio, and between them own three=20
California refineries that account for about 353,500 barrels per day of=20
processing capacity, or nearly 19 percent of the state's total.=20
Rob Schlichting, a spokesman with the California Energy Commission, said=20
either Valero or Ultramar likely will be required to sell one of the two Sa=
n=20
Francisco Bay area refineries =01) located in Martinez and Benicia =01) to =
win=20
regulatory approval. The third refinery is in Wilmington.=20
The merger makes California's refining market more concentrated, said Mark=
=20
Cooper, director of research with the Consumer Federation.=20
"You've got people complaining about rising gasoline prices," Cooper said.=
=20
"We think one of the reasons is not enough competition, and here you're=20
losing more competition. We got into this mess because people wouldn't stop=
=20
enough mergers."=20
Valero spokeswoman Joanna Weidman said the merger would actually encourage=
=20
competition. Cost-cutting measures should streamline operations and allow t=
he=20
companies to compete more effectively and benefit the consumer down the lin=
e,=20
Weidman said.=20
Valero will pay 1.228 shares of Valero common stock for about half of the=
=20
outstanding shares of Ultramar Di