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Enron Mail |
Miyung,
You seem to be finding these okay by yourself so I guess I don't need to be= =20 forwarding the articles I find to you anymore? I don't mind doing it, but I can't see duplicating effort, either! :--) Either way...let me know,=20 Thanks! Joseph Miyung Buster@ENRON_DEVELOPMENT 04/25/2001 08:25 AM To: Ann M Schmidt/Corp/Enron@ENRON, Bryan Seyfried/LON/ECT@ECT,=20 dg27@pacbell.net, Elizabeth Linnell/NA/Enron@Enron, filuntz@aol.com, James = D=20 Steffes/NA/Enron@Enron, Janet Butler/ET&S/Enron@ENRON, Jeannie=20 Mandelker/HOU/ECT@ECT, Jeff Dasovich/NA/Enron@Enron, Joe=20 Hartsoe/Corp/Enron@ENRON, John Neslage/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT,= =20 John Sherriff/LON/ECT@ECT, Joseph Alamo/NA/Enron@Enron, Karen=20 Denne/Corp/Enron@ENRON, Lysa Akin/PDX/ECT@ECT, Margaret=20 Carson/Corp/Enron@ENRON, Mark Palmer/Corp/Enron@ENRON, Mark=20 Schroeder/Enron@EnronXGate, Markus Fiala/LON/ECT@ECT, Michael R=20 Brown/LON/ECT@ECT, Mike Dahlke/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Mona L= =20 Petrochko/NA/Enron@Enron, Nicholas O'Day/AP/Enron@Enron, Peggy=20 Mahoney/HOU/EES@EES, Peter Styles/LON/ECT@ECT, Richard=20 Shapiro/NA/Enron@Enron, Rob Bradley/Corp/Enron@ENRON, Sandra=20 McCubbin/NA/Enron@Enron, Shelley Corman/ET&S/Enron@ENRON, Stella=20 Chan/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Steven J Kean/NA/Enron@Enron, Sus= an=20 J Mara/NA/Enron@Enron, Mike Roan/ENRON@enronXgate, Alex=20 Parsons/EU/Enron@Enron, Andrew Morrison/LON/ECT@ECT, lipsen@cisco.com, Jane= l=20 Guerrero/Corp/Enron@Enron, Shirley A Hudler/HOU/ECT@ECT, Kathleen=20 Sullivan/NA/Enron@ENRON, Tom Briggs/NA/Enron@Enron, Linda=20 Robertson/NA/Enron@ENRON, Lora Sullivan/Corp/Enron@ENRON, Jennifer=20 Thome/NA/Enron@Enron, jkradin@marathon-com.com,=20 rlichtenstein@marathon-com.com, syamane@marathon-com.com,=20 ken@kdscommunications.com, hgovenar@govadv.com, sgovenar@govadv.com,=20 bhansen@lhom.com, Carin Nersesian/NA/Enron@Enron cc: =20 Subject: Energy Issues Please see the following articles: Sac Bee, Wed, 4/25: "State's credit takes hit" Sac Bee, Wed, 4/25: "Top energy adviser to quit as Davis pushes for plants= " Sac Bee, Wed, 4/25: "Senators offer bill to put a lid on power prices: Sen= .=20 Dianne Feinstein says there's a good chance the proposal can get out of committee" Sac Bee, Wed, 4/25: "Energy price gouging might end up felony" Sac Bee, Wed, 4/25: "Dan Walters: It's time for politicians to be honest= =20 about the energy crisis" SD Union, Wed, 4/25: "Bond-rating agency delivers reprimand, downgrade" SD Union, Wed, 4/25: "FERC to weigh limited curbs on electricity prices" SD Union, Tues, 4/24: "Grid officials declare a Stage 2 alert" SD Union (AP), Tues, 4/24: "Top credit agency lowers California's bond=20 rating" LA Times,Wed, 4/25: "State's Bond Rating Downgraded to A+" LA Times, Wed, 4/25: "Price Controls Spark Deja Vu" LA Times, Wed, 4/25: "Davis Names Executive to Speed Construction of Power= =20 Plants in State" LA Times, Wed, 4/25: "Power Plant Emits Tons of Fumes" LA Times,Wed, 4/25: "Power Plant Plan Worries Neighbors" SF Chron, Wed, 4/25: "Federal plan called 'too little, too late'=20 Limited price control seen as step in right direction, but officials renew= =20 call for price ceiling" SF Chron, Wed, 4/25: "S&P lowers California's bond rating=20 First cut since '94 could cost taxpayers millions" SF Chron, Wed, 4/25: "Richard Sklar=20 Ex-Muni boss becomes energy czar=20 Davis' pick to oversee power plant construction" SF Chron (AP), Wed, 4/25: "Will price caps deter investment, as federal=20 regulators say?" SF Chron (AP), Wed, 4/25: "Credit agency cites power troubles; lowers=20 state's bond rating"=20 SF Chron (AP), Wed, 4/25: "S&P downgrades California's bonds citing energy= =20 troubles"=20 Mercury News, Wed, 4/25: "State bond rating lowered" Mercury News, Wed, 4/25: "Q&A with Gov. Gray Davis on energy issues" =20 (Opinions/Commentary) Mercury News (AP), Wed, 4/25: "Davis: Power surplus by 2003" Mercury News (AP), Wed, 4/25: "Great America to avoid blackouts" OC Register, Wed, 4/25: "State's bond rating is lowered The energy crisis brings an A+ designation, which likely will mean higher= =20 borrowing costs" =20 OC Register, Wed, 4/25: "Fire stokes wholesale gas cost" Individual.com (Business wire), Wed, 4/25: "Power Companies and Regulators= =20 Must Take=20 Steps To Avoid Spread of California Power Virus/ Andersen Analysis" Individual.com(Business wire), Wed, 4/25: "Soaring Temperatures Produce Ca= ll=20 for Conservation; California ISO Also Announces New Outage Notification System and On-call=20 Number" ---------------------------------------------------------------------------= --- --------------------------------------------------------------------------- State's credit takes hit=20 By Dale Kasler and John Hill Bee Staff Writers (Published April 25, 2001)=20 Alarmed by the drain on California's treasury from more than $5 billion of= =20 electricity purchases, a leading Wall Street credit agency lowered its rati= ng=20 on state bonds Tuesday.=20 Standard & Poor's downgraded California's credit rating by two notches, a= =20 move that will increase the state's borrowing costs and illustrates a growi= ng=20 fear that the state's power expenditures could mushroom during a summer of= =20 blackouts and price spikes.=20 Although the state remains creditworthy, S&P said it has less confidence in= =20 California's ability to repay its debts. It said the state could be=20 downgraded further if electricity purchases spiral out of control and the= =20 economy suffers because of blackouts.=20 "This reflects the mounting uncertainty and the cost to the state of the=20 power purchases," said S&P analyst Steven Zimmermann. "The state is still= =20 strong -- it's just not as strong going forward."=20 Bond ratings are a benchmark of a state's finances, and California official= s=20 have been proud of their ability to restore the state's ratings since they= =20 bottomed out during the recession and budget deficits of the mid-1990s. S&P= 's=20 downgrade is the first for California since July 1994 and comes as a slowdo= wn=20 in the high-tech industry adds to the budgetary anxiety caused by electrici= ty=20 costs.=20 Still, Gov. Gray Davis' office downplayed the significance of S&P's decisio= n.=20 "California's economy is still fundamentally strong, period," said Davis=20 spokesman Roger Salazar. "We expect that in 2001 California will continue t= o=20 lead the nation in economic growth and job creation."=20 S&P lowered California from "AA" to "A-plus" status. That means California'= s=20 debt-payment ability has been reduced from "very strong" to "still strong"= =20 but "somewhat more susceptible to the adverse effects of the changes in=20 circumstances and economic conditions."=20 While it won't directly hamper Davis' plan for solving the energy crisis, t= he=20 downgrade increases the pressure on Davis to issue $10 billion to $15 billi= on=20 worth of bonds this summer as part of his rescue package.=20 The bonds are intended to replenish the state treasury as well as finance= =20 future power purchases. Since mid-January the state has committed $5.7=20 billion to buy electricity for troubled Pacific Gas and Electric Co. and=20 Southern California Edison. The commitment has chewed up a significant=20 portion of a budget surplus estimated by state Treasurer Phil Angelides at= =20 nearly $6 billion; Davis and other state officials have pegged the surplus = at=20 $8 billion.=20 Either way, it's clear that the power expenditures have left Wall Street an= d=20 many state officials nervous. S&P and other rating agencies have had=20 California on a ratings "watch" for some time, signifying that a downgrade= =20 was possible.=20 "The fact is that the state's credit rating and financial strength will=20 continue to be in jeopardy until the state's general fund is repaid for=20 energy costs," said Angelides, who's responsible for selling the bonds.=20 "We have to get the general fund out of the business of purchasing energy.= =20 (The budgetary drain) will begin to affect very dramatically the ability of= =20 the state to provide for core programs, from education to health care to=20 public safety."=20 Angelides spent much of the day urging legislators to pass legislation to g= et=20 the bond offering rolling.=20 The Legislature already authorized the bonds, but Angelides said it must do= =20 so again because PG&E and Edison are challenging the formula the state has= =20 developed for bond repayment. The bond will be repaid with money from a rat= e=20 hike passed by state regulators, but PG&E and Edison say the repayment=20 formula will siphon too much money from their coffers.=20 Angelides said lawmakers must quickly pass the new bill -- which requires a= =20 two-thirds majority -- or he might miss a make-or-break May 8 deadline for= =20 closing on a crucial $4.1 billion bridge loan. That loan is designed to tid= e=20 the state over until the bonds are sold later this summer. But the lenders= =20 won't fork over the funds until they're assured the bonds will be sold,=20 because the state will use the bond proceeds in part to pay off that loan, = he=20 said.=20 Ironically, the sale of those bonds won't be hurt by the S&P downgrade=20 because customer revenue instead of taxpayer dollars are being used to pay= =20 them off, analysts said.=20 "What's important for the bonds is how the (utility) rates are structured t= o=20 pay them off," said analyst Susan Abbott of Moody's Inc. in New York.=20 But the downgrade will raise the interest rate on a host of other bonds=20 issued by the state in the coming months. The likely increase is as much as= =20 one-quarter of 1 percent, said chief economist Ted Gibson of the state=20 Department of Finance.=20 With the state authorized to sell $12 billion worth of general obligation= =20 bonds, the downgrade could add $50 million to $100 million in borrowing cos= ts=20 over the life of those bonds, Angelides said.=20 The S&P action also could raise a red flag to anyone thinking of investing = in=20 a public or private-sector project in California.=20 It "will create perception issues about who we are and where we are in term= s=20 of the economy of the state," Angelides said. "The real issue here is the= =20 reputational damage to the state of California."=20 The two other leading credit agencies, Moody's and Fitch Investors Service,= =20 still have California on a credit watch but haven't issued downgrades.=20 S&P acted the same day the Independent System Operator, which manages=20 California's power grid, declared a Stage 2 power alert. Warm weather and t= he=20 unexpected shutdown of two key power plants caused electricity reserves to= =20 fall below 5 percent.=20 The Bee's Dale Kasler can be reached at (916) 321-1066 or dkasler@sacbee.co= m.=20 Bee Deputy Capitol Bureau Chief Dan Smith contributed to this report. ---------------------------------------------------------------------------= --- ------------------------ Top energy adviser to quit as Davis pushes for plants Bee Capitol Bureau (Published April 25, 2001)=20 John Stevens, Gov. Gray Davis' staff director and top energy adviser, is=20 leaving the governor's office at the end of the week, Davis announced=20 Tuesday.=20 Stevens, of Carmichael, joined the administration a year ago as staff=20 director after working 13 years as a top staffer in the Legislature,=20 including a stint as chief of staff to former Assembly Speaker Antonio=20 Villaraigosa.=20 He is the second top Davis adviser to leave in the past two weeks as the=20 Democratic governor struggles to deal with California's energy woes.=20 Like Phil Trounstine, the governor's communications director who announced= =20 his resignation two weeks ago, Stevens said he needed more time with his=20 family.=20 "It's an immense issue," he said of the energy crisis. "I've given what I c= an=20 to it, and I need to take a break."=20 Davis called Stevens, 54, "one of the most dedicated and loyal people that= =20 I've ever had working for me," but acknowledged long hours and intensity to= ok=20 its toll.=20 "This is tough work. This wears people out," Davis said. "He's so self-driv= en=20 that he needs a break, but I venture a guess that down the road, he'll be= =20 willing to come back and help us in some meaningful way on this energy=20 situation."=20 Davis also announced the appointment of Richard Sklar to head a Generation= =20 Implementation Task Force intended to speed up permitting and constructing= =20 power plants.=20 Sklar was the Clinton administration's representative in southeast Europe= =20 helping to rebuild war-torn Bosnia and Kosovo. ---------------------------------------------------------------------------= --- ------------------------ Senators offer bill to put a lid on power prices: Sen. Dianne Feinstein say= s=20 there's a good chance the proposal can get out of committee. By Les Blumenthal Bee Washington Bureau (Published April 25, 2001)=20 WASHINGTON -- West Coast senators formally introduced legislation Tuesday t= o=20 temporarily cap wholesale electric rates and expressed hope that their=20 proposal to ease the huge run-up in energy prices might clear the committee= =20 and make it to a vote on the Senate floor.=20 "I think we are very close to having the votes in committee," Sen. Dianne= =20 Feinstein, D-Calif., said of the Energy and Natural Resources Committee tha= t=20 has jurisdiction over the bill. "I am taking nothing for granted, but the= =20 committee is 50-50."=20 There are 11 Democrats and 11 Republicans on the committee, including=20 Feinstein and the other primary sponsor of the bill, Oregon Sen. Gordon=20 Smith.=20 Smith, a Republican, is the swing vote.=20 Feinstein said the committee chairman, Sen. Frank Murkowski, R-Alaska, has= =20 shown an increasing willingness to help her and Smith move the legislation,= =20 though some differences remain.=20 "He (Murkowski) has told me he'd like to help," Feinstein said. "I think we= =20 are very close to a markup and this could move quickly."=20 Murkowski did not rule out price caps but said he thought the bill sacrific= ed=20 long-term solutions for short-term gains.=20 "I have concerns about the proposal put forward today and the impact it may= =20 have in distorting the market," he said. "It is time to address the=20 underlying causes -- not just the symptoms."=20 Feinstein's comments came at a news conference during which she, Smith,=20 Washington state Democratic Sens. Patty Murray and Maria Cantwell, and New= =20 Mexico Sen. Jeff Bingaman, the ranking Democrat on the Senate Energy=20 Committee, unveiled details of the bill and criticized the Bush=20 administration and federal regulators for failing to take action to cap=20 rates.=20 If approved by Congress and signed by President Bush, the bill would give t= he=20 Federal Energy Regulatory Commission 60 days to impose price caps or set up= a=20 cost-based rate structure that would allow electricity generators to recove= r=20 their costs and earn a fair return.=20 The controls would apply in 11 Western states, including California, Oregon= =20 and Washington. Similar legislation has been introduced in the House of=20 Representatives.=20 The lawmakers said the price controls would remain in effect until March=20 2003, when, they said, enough new generating plants will have come on line = to=20 overcome the West's current electricity shortage.=20 Under federal law, FERC has the authority to ensure wholesale rates are jus= t=20 and reasonable.=20 Feinstein said that during a warm day this summer California may fall 2,000= =20 megawatts short of meeting demand and on a hot day with air conditioners=20 cranked up, there could be a 10,000-megawatt shortfall.=20 Feinstein said that in 1999 California utilities paid $7 billion for=20 electricity, in 2000 more than $32 billion and, according to some estimates= ,=20 the price tag could reach $65 billion this year.=20 "There has been a very strong element of price gouging in this," Feinstein= =20 said.=20 "We should not have to pass legislation to compensate for a federal agency= =20 not doing its job," Murray said, adding that Northwest utilities were payin= g=20 the highest prices in the country for next-day delivery of wholesale power.= =20 "This (bill) will bring the market under control until new generation comes= =20 on line."=20 Cantwell, who is also a committee member, said wholesale rates have risen= =20 11-fold over the past several months, resulting in thousands of layoffs in= =20 the region and the shutdown of the aluminum industry.=20 "We cannot allow our government to sit idly by and allow a tragically flawe= d=20 and easily manipulated power market to wreak havoc on our economy and quali= ty=20 of life," Cantwell said.=20 The Bonneville Power Administration has indicated it may have to raise its= =20 wholesale rates by 250 percent this fall as it is forced to buy power on=20 expensive spot markets because a severe drought in the Pacific Northwest ha= s=20 reduced electricity production at the region's vast hydropower system. BPA= =20 supplies 45 percent of the Northwest's wholesale electricity.=20 Smith said that, as a Republican, he was initially reluctant to support pri= ce=20 control and would have preferred the market sort out its own problems.=20 But, he said, "Hard-nosed business practices that generate big profits are= =20 not always good politics. It's a mistake to defend a system that some can= =20 game to make incredible profits."=20 The Oregon senator said he knew his decision to sponsor the bill was not=20 well-received at the White House.=20 "I know I'm not making any friends down the street," he said. "It's importa= nt=20 to keep this bipartisan, and I'm not going to attack the Bush=20 administration."=20 Both Smith and Feinstein said a FERC staff proposal to cap wholesale electr= ic=20 rates in California when rolling blackouts are imminent falls well short of= =20 what's needed. FERC will consider the proposal at a meeting today.=20 "California is not the only state affected," said Smith. "This is not a=20 California problem alone."=20 Feinstein said the proposal was inadequate.=20 "I'm not sure that is the right way to go," she said. "The only reason they= =20 are considering action is we are putting the heat on them."=20 The Bee's Les Blumenthal can be reached at (202) 383-0008 or=20 lblumenthal@mcclatchydc.com. ---------------------------------------------------------------------------= --- ------------------------ Energy price gouging might end up felony By Emily Bazar Bee Capitol Bureau (Published April 25, 2001)=20 Democratic lawmakers this week will unveil a proposal to make energy price= =20 gouging a felony -- punishable by stiff fines and possible jail time -- tha= t=20 could be subject to the state's controversial "three strikes" law.=20 The measure, sponsored by Lt. Gov. Cruz Bustamante, would punish companies= =20 that sell electricity or natural gas in California at "unjust or unreasonab= le=20 rates."=20 "There is a tremendous amount of wealth that is being transferred from=20 California to five companies, mostly in Texas," Bustamante said. "If what= =20 they're doing isn't illegal, it ought to be."=20 Though lawmakers are expected to introduce the measure Thursday, it already= =20 has generated opposition from Republican lawmakers and constitutional=20 questions from legal experts.=20 Several aspects of the bill, AB 67x, are unresolved and could change.=20 But the intent will remain the same, and energy companies that take advanta= ge=20 of Californians will still face significant penalties, said the bill's=20 author, Assemblyman Dennis Cardoza, D-Merced.=20 According to a draft version of the bill and some proposed amendments, a=20 corporation, or a person with decision-making authority at the corporation,= =20 would be found guilty of a felony if "they collude or conspire to manipulat= e=20 the market to achieve unjust or unreasonable rates for electricity or natur= al=20 gas."=20 A state or federal regulatory agency -- such as the Federal Energy Regulato= ry=20 Commission -- would determine whether rates were unjust or unreasonable. If= =20 that happened, the bill would open the door for prosecution by the state=20 attorney general or local district attorneys.=20 In addition, if found guilty, companies would be forced to pay restitution= =20 and could face fines as high as 10 percent of their gross corporate assets.= =20 Lawmakers are debating whether to make the felony a "three strikes" offense= ,=20 which requires 25 years to life sentences for some people convicted of thre= e=20 felonies.=20 Though the provision was in an early draft of the bill, Cardoza said it's= =20 "not likely" to show up in the final version.=20 "While I think this crime is every bit as abhorrent as going in and stealin= g=20 money from a bank, we're going to have to figure out a little bit different= =20 way of dealing with it," he said.=20 Even without the three strikes provision, the bill raises certain=20 constitutional issues, said Clark Kelso, a professor at the McGeorge School= =20 of Law in Sacramento.=20 For instance, he said, it's not clear whether the state can legally base a= =20 fine on an out-of-state company's gross assets.=20 And the measure, which requires a two-thirds vote for passage, already has= =20 generated Republican opposition.=20 "To the extent this bill is onerous toward power producers, it may deter th= em=20 from selling here rather than risk fines and prison," said James Fisfis, a= =20 spokesman for the Assembly Republican Caucus. "We haven't seen the details,= =20 but it sounds like it may be a piece of legislation that goes too far."=20 The Bee's Emily Bazar can be reached at (916) 326-5540 or ebazar@sacbee.com= . ---------------------------------------------------------------------------= --- ------------------------ Dan Walters: It's time for politicians to be honest about the energy crisis (Published April 25, 2001)=20 Gov. Gray Davis is continuing to tell Californians that he's on top of the= =20 state's energy crisis and, as he said at one gathering last week, "in three= =20 years, this problem will be a distant memory." Fat chance. All major aspect= s=20 of the situation are growing worse, not better, minute by minute.=20 Politicians took over the crisis in January as the state's major utilities= =20 exhausted their cash reserves and lines of credit. Davis began what he said= =20 then would be a short-term emergency program of power purchases to keep=20 electrons flowing into homes and businesses.=20 From that moment forward, the situation has steadily deteriorated, moving= =20 toward a three-pronged disaster: severe summer blackouts, the bankruptcy of= =20 the utilities and sharply escalating power bills. With the bankruptcy filin= g=20 by Pacific Gas and Electric Co. and decisions by Davis and the state Public= =20 Utilities Commission to begin ratcheting up utility rates, two of the three= =20 negative scenarios are now in place. And everyone involved in the crisis=20 expects blackouts this summer as demands for power soar and supplies dwindl= e.=20 The Davis strategy, if there is one, is to continue the state's massive pow= er=20 purchases while negotiating longer-term and presumably cheaper supply=20 contracts, encourage conservation, help utilities pay off their debts by=20 selling their intercity transmission system to the state and tapping=20 ratepayers, and build more power plants to ease the supply crunch.=20 Currently, the governor is touting his deal with Edison International, pare= nt=20 company of Southern California Edison, to sell its portion of the power gri= d=20 and is working on a similar deal with Sempra, the parent of San Diego Gas &= =20 and Electric. But PG&E's bankruptcy filing casts doubt on the viability of= =20 the cash-for-grid concept, and legislators, particularly Davis' fellow=20 Democrats, are very skeptical of the Edison deal.=20 Clearly, Davis rushed into the Edison deal just three days after PG&E made= =20 its bankruptcy filing, in hopes of erasing the political stain of the latte= r=20 action, but its provisions are being labeled a bailout by critics. It place= s=20 only a token financial burden on Edison International while guaranteeing th= e=20 profitability of its utility subsidiary by charging its customers whatever = is=20 required to cover its costs and past debts.=20 Meanwhile, the state is spending -- by Davis' own account -- about $70=20 million a day or $2 billion-plus a month on spot power purchases, paying=20 roughly five times what consumers are being charged at the retail level. An= d=20 the futures market for power indicates that wholesale power prices will jum= p=20 50 percent by midsummer; higher prices and greater purchases could increase= =20 the drain on the state treasury to as much as $5 billion a month.=20 State Treasurer Phil Angelides is desperately trying to arrange a bridge lo= an=20 to relieve pressure on the state's rapidly vanishing reserves, but Wall=20 Street is reluctant to lend without a fuller explanation of what's happenin= g=20 and a specific authorization from a suspicious Legislature. Meanwhile,=20 bankers are sending strong signals that the state government is becoming as= =20 poor a lending risk as the utilities.=20 Davis, for some reason, is unwilling to declare this situation the emergenc= y=20 that it is truly becoming -- one that could take a toll on human life if=20 major blackouts shut down air conditioners, respirators and traffic lights.= =20 He insists on issuing his periodic -- and wholly unrealistic -- assurances= =20 that things will turn out all right, even declaring to reporters on Tuesday= ,=20 "We think we'll have this thing licked by the end of fall."=20 It's time for someone -- the governor, preferably, but someone -- to lay ou= t=20 for Californians exactly what's happening, the downside financial and power= =20 supply risks, and what's being done to deal with the looming disaster facin= g=20 this state. It's time for politicians to treat us as adults who can face=20 reality, not as children to be fed sugar-coated sound bites and slogans.=20 The Bee's Dan Walters can be reached at (916) 321-1195 or dwalters@sacbee.c= om . ---------------------------------------------------------------------------= --- ------------------------ Bond-rating agency delivers reprimand, downgrade=20 By Ed Mendel=20 UNION-TRIBUNE STAFF WRITER=20 April 25, 2001=20 SACRAMENTO -- An influential Wall Street firm yesterday gave Gov. Gray Davi= s=20 and the Legislature poor marks for handling the electricity crisis,=20 downgrading state bonds because of the drain on the state treasury and=20 warning of long-term damage to the state economy.=20 The bad news from Standard & Poor's came as state Treasurer Phil Angelides= =20 urged the Legislature to pass a bill this week needed to begin repaying the= =20 state general fund with a bond of $10 billion or more.=20 The bond would be paid off by ratepayers over 15 years. "From a small problem that could have been solved in a short period of time= =20 this is escalating into a big problem," said David Hitchcock of Standard &= =20 Poor's. "Even if they issue revenue bonds, it could stay with them for a lo= ng=20 period of time."=20 Standard & Poor's lowered its rating on state of California general=20 obligation bonds from AA to A+, which means it will cost the state more to= =20 borrow money.=20 The firm left California on credit watch with a negative outlook, a ranking= =20 applied after the state began buying power for utility customers in January= .=20 The state general fund has spent more than $5 billion buying power so far.= =20 There are predictions that spending will sharply increase this summer as he= at=20 drives up the demand for electricity.=20 "The fact is, we can't allow the general fund to be depleted," Angelides=20 said. "There are limits to it. It will begin to affect very dramatically th= e=20 ability of the state to provide core programs for education, health care,= =20 public safety."=20 Developments:=20 WEDNESDAY:=20 =01) No power alerts are called in the early morning, as electricity reserv= es=20 stay above 7 percent.=20 =01) The state Public Utilities Commission continues hearing energy experts= =20 evaluate ideas for implementing a recent rate increase. The panel includes= =20 George Sterzinger, a Washington-based renewable energy consultant; Peter=20 Bradford, an energy and regulatory adviser; and Severin Borenstein, directo= r=20 of the University of California, Berkeley's energy institute.=20 =01) Assembly Energy Committee holds a hearing on Gov. Gray Davis' proposal= to=20 keep Southern California Edison out of bankruptcy.=20 TUESDAY:=20 =01) Gov. Gray Davis says California will build enough power plants by 2003= to=20 end the state's power crisis, and have a 15 percent supply surplus by 2004.= =20 He names former U.S. diplomat Richard Sklar to be the state's new energy cz= ar=20 and head a Generation Implementation Task Force to speed up power plant=20 siting and construction.=20 =01) The Independent System Operator, which runs the state's power grid,=20 declares a Stage 2 alert, meaning the state is within 5 percent of running= =20 out of power. It warns rising temperatures could create problems later this= =20 week unless Californians conserve electricity.=20 =01) Standard and Poors lowers its rating on California state bonds, citing= the=20 growing financial drain from the continuing energy emergency. The state mus= t=20 quickly replenish its coffers if it is to avoid further damage, the rating= =20 agency says.=20 WHAT'S NEXT:=20 =01) Davis' representatives continue negotiating with Sempra, the parent co= mpany=20 of San Diego Gas and Electric Co., to buy the utility's transmission lines.= =20 Davis says he expects to have an agreement within two weeks.=20 =01) Senate Select Committee to Investigate Price Manipulation of the Whole= sale=20 Energy Market continues its investigation Thursday.=20 Standard & Poor's said that if the sale of a state revenue bond is delayed,= =20 the potential impact on the state general fund could be "severe" without a= =20 rate hike much larger than the increase of more than 40 percent approved by= =20 the state Public Utilities Commission last month.=20 "Rate increases appear difficult in the present political environment, and= =20 related voter initiatives, although none are currently on the ballot, remai= n=20 a possibility," said Standard & Poor's.=20 The state began buying power after the two largest utilities, Pacific Gas a= nd=20 Electric and Southern California Edison, were nearly bankrupt. The rates th= ey=20 could charge customers were frozen under deregulation as the cost of=20 wholesale power soared, producing a debt of $13 billion.=20 Standard & Poor's said the state expected in January to spend less than $1= =20 billion and resolve the problem in a few months with long-term power=20 contracts at lower prices. But most of the contracts do not begin until thi= s=20 fall or later.=20 "In addition," said Standard & Poor's, "it is not unreasonable to expect pa= st=20 and future blackouts to affect business location decisions, and hence the= =20 ultimate direction of the state's economy."=20 A spokesman for the governor said that Standard & Poor's view of how the=20 California economy will fare during the electricity crisis is far too dim.= =20 "California's economy is still fundamentally strong," said spokesman Roger= =20 Salazar. "We expect that in 2001 we will continue to lead the nation in=20 economic growth and job creation."=20 Another Wall Street credit-rating firm, Moody's, has a more positive view o= f=20 how the governor and the Legislature have handled the crisis and expects th= e=20 state general fund to be repaid by the ratepayer bond.=20 "We are still at our AA2 with a negative outlook," said Ray Murphy, Moody's= =20 vice president. "Nothing that we have learned over the last week or so has= =20 led us to change that opinion."=20 Angelides said legislation is needed because PG&E and Edison are challengin= g=20 a PUC action last month that gives the state some revenue from monthly=20 ratepayer bills, which is needed to finance the bond to repay the state=20 general fund.=20 The utilities say they need more of the ratepayer revenue.=20 The treasurer said the legislation would bypass the lengthy PUC process and= =20 authorize the state to issue a ratepayer bond of $10 billion or more. The= =20 governor said again yesterday that he believes a bond of $12.4 billion will= =20 cover state power costs this year.=20 Angelides said legislation is urgent because a commitment from three lender= s=20 to give the state a $4.1 billion short-term loan expires May 8.=20 He said the short-term bridge loan would ease the strain on the state gener= al=20 fund until the main bond can be issued, probably in late June.=20 The treasurer said that failure to obtain the short-term loan could lead to= =20 more credit downgrades and "create perception issues about who we are and= =20 where we are in terms of the economy of this state."=20 Davis has been criticized on Wall Street for not pushing for an early rate= =20 hike to stabilize the utilities and avoid the need for the state to begin= =20 buying power.=20 The governor said earlier this year that he could have solved the problem i= n=20 "20 minutes" with a rate hike, but refused to do so.=20 While addressing the California Chamber of Commerce yesterday, Davis said= =20 that the long-term contracts will spread the cost of buying power over a=20 decade, causing ratepayers to pay less than market rates in the early years= =20 and a little above the market rate in later years.=20 "I do not want to shock this economy into recession," Davis said. "I do not= =20 want to burden small business with more than they can sustain."=20 Davis wants the state to purchase the transmission systems of the utilities= =20 in exchange for giving them part of the ratepayer revenue to finance a bond= =20 to pay off their debts. That would enable the utilities to resume buying=20 power by the end of next year.=20 But negotiations to buy the transmission systems has taken much longer than= =20 expected. PG&E filed for bankruptcy earlier this month, and an agreement to= =20 buy the Edison transmission system announced a few days later faces=20 opposition in the Legislature.=20 Some legislators, who think Edison receives too much under the complex=20 agreement, have suggested that Edison join PG&E in bankruptcy, where=20 generators accused of price-gouging may not have all of their bills paid.= =20 "If they go into bankruptcy, the state will be buying power for three or fo= ur=20 years," Davis told the Chamber yesterday. "That is all we will be doing up= =20 here."=20 A Stage 2 emergency alert was called yesterday when two power plants=20 unexpectedly stopped operating with temperatures around the state rising.= =20 Meanwhile, Davis announced that Richard Sklar, a former ambassador to the= =20 war-torn Balkans, will lead a task force to speed up the construction of ne= w=20 power plants.=20 The governor acknowledged while speaking to reporters that he has not met h= is=20 earlier goals of avoiding blackouts, rate increases and keeping the utiliti= es=20 out of bankruptcy.=20 "This is probably the most complicated challenge the state has faced in 50= =20 years," Davis said. "But we are providing steady and reliable leadership, a= nd=20 I believe we will have this thing behind us by the end of this fall."=20 ---------------------------------------------------------------------------= --- --------------- FERC to weigh limited curbs on electricity prices=20 Caps would apply in Stage 3 shortages By Toby Eckert=20 COPLEY NEWS SERVICE=20 April 25, 2001=20 CALIFORNIA'S POWER CRISIS=20 WASHINGTON -- Federal regulators are expected to consider limited wholesale= =20 price curbs for California's chaotic electricity market today, but the=20 approach falls far short of the controls sought by many state officials.=20 Federal Energy Regulatory Commission staffers have proposed limiting the=20 price that power sellers can charge for wholesale electricity in California= =20 only during the most severe shortages, known as Stage 3 emergencies. The=20 "price mitigation" would be pegged to "the marginal cost of the=20 highest-priced (generating) unit called upon to run," according to a staff= =20 report.=20 Producers also would be required to sell their excess power to the state's= =20 grid operator.=20 The price controls would last one year and would not apply to other Western= =20 states suffering from gyrations in power costs and electricity shortages.= =20 FERC Chairman Curtis Hebert has been an implacable foe of price controls, b= ut=20 is under considerable political pressure to do more to help California as t= he=20 peak power-consuming summer months approach. Commissioner William Massey ha= s=20 advocated far-reaching price limits, while Commissioner Linda Breathitt has= =20 wavered on the issue.=20 Gov. Gray Davis and other California officials have called for broad price= =20 controls that also would include 10 other Western states. Yesterday, Sen.= =20 Dianne Feinstein, D-Calif., formally introduced legislation that would=20 require FERC to impose regional price limits through March 1, 2003.=20 Feinstein said the FERC staff proposal was inadequate.=20 "Once you put the cap just on Stage 3, you force the heavier pricing on=20 stages 1 and 2," she said.=20 Other critics have noted that wholesale power prices in California are=20 abnormally high during periods other than Stage 3 emergencies.=20 Feinstein's legislation, first outlined in March, would require FERC to set= =20 price caps or impose "cost-based" rates that would limit prices to the cost= =20 of producing the power, plus a set profit margin. New generating plants and= =20 power bought through long-term contracts would be exempt.=20 However, any state covered by the price controls would have to allow=20 utilities to recover their wholesale power costs from consumers. The clause= =20 helped draw a Republican co-sponsor to the bill, Sen. Gordon Smith of Orego= n.=20 Smith and other Western lawmakers have complained about the reluctance of= =20 California officials to raise retail rates while consumers in neighboring= =20 states have seen their power bills soar. In recent months, the California= =20 Public Utilities Commission twice has increased rates for customers of=20 Southern California Edison and Pacific Gas and Electric, the utilities hit= =20 hardest by skyrocketing wholesale power prices.=20 The FERC staff proposal rejected price caps or cost-based rates.=20 It would be hard to devise price caps that are low enough to provide price= =20 relief, but high enough to adequately compensate generators, the proposal= =20 said.=20 The Bush administration and top congressional Republicans are opposed to=20 price controls, so it is uncertain how far Feinstein's legislation will get= .=20 ---------------------------------------------------------------------------= --- ------------------------------- Grid officials declare a Stage 2 alert=20 ASSOCIATED PRESS=20 April 24, 2001=20 SACRAMENTO =01) The state's electric grid operator declared a Stage 2 power= =20 alert Tuesday after two power plants suddenly went offline.=20 Higher-than-forecasted temperatures in Southern California also caused dema= nd=20 to increase, said Lorie O'Donley, spokeswoman for the Independent System=20 Operator, keeper of the state power grid.=20 A Stage 2 alert is declared when electricity reserves fall or are expected = to=20 fall below 5 percent.=20 The two power plants that went offline had been producing about 1,080=20 megawatts, or roughly enough power for 810,000 homes.=20 "We think we may need to request interruptible customers, but barring any= =20 other big problems, we probably won't need to go to a Stage 3," said=20 O'Donley. Stage 3 alerts are called when the reserves drop below 1.5 percen= t=20 and could result in rolling blackouts like the state has seen on four days= =20 since January.=20 The ISO said 9,900 megawatts were unavailable Tuesday morning because of=20 power plants that were down for scheduled or unplanned maintenance. Another= =20 3,000 megawatts from alternative generators, such as solar, wind and=20 geothermal, was also not available, O'Donley said.=20 About half of the alternative generators say they can't afford to keep=20 operating because they are owed about $1 billion by Pacific Gas and Electri= c=20 Co. and Southern California Edison.=20 ---------------------------------------------------------------------------= --- -------------------------------------------------------------------- Top credit agency lowers California's bond rating=20 ASSOCIATED PRESS=20 April 24, 2001=20 SACRAMENTO =01) A top credit agency lowered its rating on California state = bonds=20 Tuesday, citing the growing financial drain from the continuing energy=20 emergency.=20 "The downgrade reflects the mounting and uncertain cost to the state of the= =20 current electrical power crisis, as well as its likely long-term detrimenta= l=20 effect on the state's economy," Standard and Poors said.=20 The state's ability to repay is debts has been reduced, though it is still= =20 adequate, S&P said.=20 It dropped the rating on general obligation bonds from double-A to=20 single-A-plus. It similarly revised other lease ratings, and ratings for th= e=20 California Health Facilities Construction Loan Insurance Fund, known as Cal= =20 Mortgage.=20 S&P said it didn't drop the rating farther because the state still has mone= y,=20 because of California's diverse economy, and because a proposed revenue bon= d=20 is slated to reimburse the state's treasury for money California is current= ly=20 using to buy power for two financially strapped utilities.=20 If the state can't quickly sell its revenue bond, the impact on the treasur= y=20 could be severe unless electricity rates are substantially increased beyond= =20 the large increases already scheduled to kick in, S&P warned.=20 S&P has had the state's general obligation bonds on a credit-watch "with=20 negative implications" since January, when the state began buying power for= =20 Southern California Edison and Pacific Gas and Electric.=20 ---------------------------------------------------------------------------= --- ------------------------------------------------------------------------- State's Bond Rating Downgraded to A+=20 Finance: Reduction of 2 notches puts it among states with the lowest credit= =20 ratings. Move could cost California hundreds of millions in borrowing fees.= =20 By LIZ PULLIAM WESTON and MIGUEL BUSTILLO, Times Staff Writers=20 ?????A major credit rating agency downgraded $25 billion of California bond= s=20 Tuesday in a move that could add hundreds of millions of dollars to the=20 state's borrowing costs and saddles California with one of the lowest state= =20 credit ratings in the nation. ?????Standard & Poor's Corp. cut California's bond rating by two notches,= =20 from AA to A-plus, citing "the mounting and uncertain cost . . . of the=20 current electrical power crisis," which has forced the state to spend=20 billions on electricity to keep the lights on. ?????S&P, one of three major rating agencies monitoring California's=20 financial health, said a further downgrade could occur if the state fails t= o=20 follow through on plans to issue at least $10 billion in revenue bonds to= =20 help pay off energy-related debts. ?????"S&P is saying, 'We don't have any faith that what you say you're goin= g=20 to do, you're going to do,' " said Zane Mann, publisher of the California= =20 Municipal Bond Advisor, a newsletter that tracks government debt. ?????Wall Street is concerned by delays surrounding the electricity bond=20 issue, but lawmakers hope to pass legislation this week to put the bond iss= ue=20 on a fast track and speed up return of the money to the state's general fun= d. ?????Credit ratings help determine how much states and other borrowers have= =20 to pay when issuing bonds. The lower the rating, the higher the interest ra= te=20 the state must pay to entice investors to buy. ?????The state Treasurer's Office concluded in a preliminary estimate that = as=20 a result of the downgrade, California could have to pay $190 million to $57= 0=20 million more on the $12 billion in general obligation bonds the state has= =20 authorized to pay for ongoing expenses such as school and road-building=20 projects, but has yet to issue.=20 ?????State revenue bonds should not be affected by the downgrade, the=20 officials said. However, some bond experts disagree. ?????California's energy crisis already has driven down prices of a wide=20 range of the state's bonds, from general obligation issues that depend on t= he=20 state's ability to repay to small issues by school districts and cities tha= t=20 could be hurt by rising electricity prices. Bond traders said S&P's downgra= de=20 probably would cause prices to fall further. ?????"All California bond holders are going to lose value in their bonds=20 because the state's credit has been downgraded," said John Fitzgerald,=20 managing partner of Seidler-Fitzgerald, a Los Angeles municipal debt=20 underwriter. ?????The downgrade most affects investors who want to sell their bonds now,= =20 before the issues mature. Investors who hold onto their bonds are still=20 almost certain to get the face value when their securities reach maturity,= =20 because the state is unlikely to miss any interest payments or otherwise=20 default on its bonds, traders said. ?????S&P analysts said the state's continuing surplus and "deep and diverse= "=20 economy helped prevent a further downgrade. ?????Still, the downgrade places California below most other states on S&P'= s=20 rating scale and on par with Hawaii. Among states rated by S&P, only=20 Louisiana has a lower rating, at A-minus, according to Bloomberg News.=20 ?????In addition, the two other major credit rating agencies have indicated= =20 they may downgrade California's bonds. Fitch Inc. said last week that it wa= s=20 contemplating such a move, and Moody's Investors Service earlier this month= =20 changed its outlook on California bonds to "negative" from "stable." ?????Some politicians Tuesday accused S&P of overreacting. ?????"It's just unfair, premature and inappropriate for them to do that. We= =20 do have reserves, we do have good revenue projections, we do have a plan to= =20 get us out of this," said Assemblyman Gil Cedillo (D-Los Angeles). ?????In a statement, Gov. Gray Davis said California's economy "is still=20 fundamentally strong, period. We expect that in 2001 we will continue to le= ad=20 the nation in economic growth and job creation." ?????State Treasurer Phil Angelides has been pleading with lawmakers to pas= s=20 legislation to speed up repayment of $5 billion drained from the state's=20 general fund to buy electricity this year. That figure is expected to reach= =20 $15 billion by year's end, according to the governor. ?????The consequences of a downgrade are profound, Angelides said, noting= =20 that it took California years to overcome the downgrades spurred by the=20 recession of the early 1990s. ?????"It is critical that the Legislature act immediately to clearly=20 establish our legal authority to sell bonds and replenish the state's gener= al=20 fund," Angelides said. ?????California began buying massive quantities of electricity in January= =20 because the state's three major investor-owned utilities could no longer=20 afford to do so. Since then, the state has been purchasing roughly one-thir= d=20 of the electricity the utilities need to service their customers, according= =20 to state officials. ?????Under a plan approved by the Legislature and signed into law by Davis,= =20 the general fund is supposed to be reimbursed for the power purchases with= =20 what is expected to be the largest municipal bond issue in U.S. history. Th= e=20 bond issue is to be repaid by utility ratepayers through a monthly charge o= n=20 their electricity bills. ?????However, obstacles that threaten timely repayment of the fund are=20 causing consternation among Wall Street analysts about California's financi= al=20 status. ?????The bankruptcy filing of Pacific Gas & Electric Co., the state's large= st=20 investor-owned utility, has thwarted the state's plan to restore the=20 utilities to financial health. ?????But it is a dispute over the state's formula for repaying the bonds th= at=20 has raised the most concern among state officials. The state and the=20 utilities are at odds over how much of consumers' electricity payments shou= ld=20 go to reimburse the state for its power purchases. ?????The state's two major utilities, Pacific Gas & Electric and Southern= =20 California Edison, have challenged the Public Utilities Commission's plan f= or=20 splitting up the money--a legal move that threatens to delay issuance of th= e=20 bonds. The firms contend the allotment granted to the state is too generous= =20 and could make it harder for them to recover from the energy crisis. ?????Hoping to sidestep the controversy, Angelides is urging state lawmaker= s=20 to pass an emergency measure this week that sets the bond amount and the=20 amount the state will receive from utility payments. The revenue bond was= =20 initially expected to be $10 billion, but the Davis administration has sinc= e=20 proposed a $12.4-billion issue. ---=20 ?????Times staff writers James Flanigan, Jenifer Warren and Julie Tamaki=20 contributed to this report. Copyright 2001 Los Angeles Times=20 ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ----------------------- Price Controls Spark Deja Vu=20 Energy: The specter of Richard Nixon's actions 30 years ago hangs over=20 current debate on how to check the state's surging power costs.=20 By JAMES F. PELTZ, Times Staff Writer=20 ?????A debate now rages in California over whether price controls should be= =20 adopted to stem the state's soaring power costs and help consumers who are= =20 bracing for huge spikes in their electric bills. ?????But price controls are one of the most controversial actions in=20 economics--and in politics, for that matter. And now the caps are more in= =20 dispute than ever because they run counter to the nation's move over the la= st=20 two decades to deregulate more and more industries, from airlines to=20 railroads to energy. ?????Yet California is a good example of deregulation gone haywire, so=20 controls are again being demanded by lawmakers, consumer advocates and othe= rs=20 as a way to check surging prices. On the other side is a chorus of critics= =20 who ridicule price caps as being ineffective and, at times, making matters= =20 worse for consumers. ?????Case in point: the Golden State itself, which tried last summer to use= =20 temporary price caps to keep a lid on skyrocketing wholesale electricity=20 prices. ?????Critics claim that the caps drove power sales out of state, thus=20 widening the imbalance between supply and demand, reinforcing the existing= =20 shortages and contributing to this winter's rolling blackouts. ?????But defenders of the caps note that the dysfunctional California marke= t=20 had no way to self-correct. The utilities couldn't simply refuse to buy=20 electricity in the face of higher prices, and with no price ceiling in sigh= t,=20 something had to be done. ?????And now Gov. Gray Davis and others are again calling for temporary=20 controls until more electricity supplies can be added, especially as the=20 state enters the peak-power summer season. On Tuesday, Sens. Dianne Feinste= in=20 (D-Calif.) and Gordon Smith (R-Ore.) introduced legislation that would impo= se=20 price controls on wholesale energy throughout 11 Western states. ?????Mindful of the controversial history of controls, Feinstein and Smith= =20 stressed that the caps would last only through March 1, 2003. But they also= =20 argued that the economic damage to industries and consumers from escalating= =20 power costs would exceed any harm caused by price controls. ?????"I have a strong preference for markets, but it's a mistake to believe= =20 that we have a free market when it comes to energy," said Smith, the only G= OP=20 co-sponsor of the legislation. ?????Their bill would require the Federal Energy Regulatory Commission, whi= ch=20 regulates U.S. wholesale electricity prices, either to impose a regional=20 price cap or institute a rate schedule for each power generator, tying the= =20 price of electricity to the cost of producing it. ?????Coincidentally, FERC today is expected to decide on various other=20 proposals to again limit California's power costs--but without explicitly= =20 stating that the plans include price controls. Why? Because the Bush=20 administration and FERC Chairman Curt Hebert Jr., among others, are on the= =20 record as adamantly opposing price caps. ?????That's not surprising. Price controls often are tagged as a liberal=20 maneuver that flies in the face of conservatives' free-market ideology. Yet= ,=20 ironically, hanging over the California debate is the legacy of a Republica= n=20 president who was the last one to mandate price controls on a nationwide=20 level: Richard M. Nixon. ?????The late president took that rare step 30 years ago this August to try= =20 to quell inflation and spark an economic rebound. His actions were so=20 dramatic that they are still invoked by those wanting to criticize or, in= =20 some cases, endorse setting limits on prices. ?????"What he did is almost larger than life now," said Shannon Burchett,= =20 chief executive of RiskLimited Corp., a strategic consulting firm in Dallas= . ?????Nixon's controls were the most far-reaching since World War II, when= =20 prices were capped so that profiteers couldn't reap huge sums for scarce=20 commodities being used for the war and simultaneously rationed at home. ?????In most cases, price controls have been much less sweeping and targete= d=20 at specific products or services. They don't always involve changing the la= w,=20 either. In 1962, President Kennedy publicly rebuked the then-U.S. Steel Cor= p.=20 and its chairman, Roger Blough, for starting an industrywide move to raise= =20 steel prices. The price hikes were rolled back a few days later. ?????Since Nixon, price controls have become rarer as industries that were= =20 once regulated--which means their prices were government-controlled--have= =20 been deregulated. ?????So it is in California, where electric utilities' prices were controll= ed=20 for decades until the state's deregulation law in 1996. But now that the la= w=20 has been blamed for the soaring wholesale prices, power shortages, crippled= =20 utilities and the need for a huge jump in ratepayers' costs, some again wan= t=20 price controls on electricity until the crisis eases. ?????Which brings everyone back to Nixon. ?????Some Nixon Controls Were Lifted by Reagan ?????"I've heard people make the analogy to what happened . . . when Nixon= =20 put on controls," but in California "this is fundamentally different," said= =20 Mike Florio, a board member of the California Independent System Operator,= =20 which oversees most of the state's electricity grid. ?????"When you get into a situation of shortage [of supplies], there is=20 really no restraint at all on prices," said Florio, who said he normally=20 prefers unfettered markets but also defended the state's caps last summer.= =20 Such government intervention "on a temporary basis is better than nothing,= =20 but I don't think it's ideal." ?????The reverberations from Nixon's fiat aren't just felt in California=20 either. When New York Mayor Rudolph Giuliani recently proposed more stringe= nt=20 controls on wholesale electricity costs in New York state, critics promptly= =20 pointed to Nixon's controls. "They were a disaster," one columnist wrote. ?????Even Federal Reserve Chairman Alan Greenspan, who was in the private= =20 sector in the early 1970s, turned down several requests to take high-level= =20 White House jobs in part because he was disgusted with Nixon's price contro= ls. ?????Many economists and historians also judge Nixon's controls as a mistak= e.=20 But some maintain that his decision--which began with a 90-day freeze on=20 prices, wages and rents--wasn't entirely a failure and even provided "shock= =20 value" that, for a while at least, arrested higher inflation. ?????In addition, part of Nixon's move involved taking the dollar off the= =20 gold standard--which in effect meant its price was controlled--and letting = it=20 float in value against other major currencies. And that, many believe, is t= he=20 base upon which today's global financial markets operate. ?????Others disagree. ?????"There really isn't an example of where they've [price controls]=20 worked," said Robert Goldberg, a senior fellow at the National Center for= =20 Policy Analysis, a nonpartisan think tank in New York. ?????"Controls always lead to an underproduction" of the commodity involved= =20 because producers don't have any incentive to spend more on additional=20 output, he said. When the caps ultimately are lifted, prices typically soar= =20 anyway as producers move to quickly recoup the profit they lost when the=20 controls were in place, Goldberg added. ?????Others note that although most of Nixon's price controls lasted only a= =20 couple of years, various forms of controls over crude oil and natural gas= =20 lasted for another decade until they were removed by President Ronald Reaga= n. ?????In the meantime, the controls--aggravated by embargoes and other suppl= y=20 cuts by the Organization of Petroleum Exporting Countries--distorted the fr= ee=20 market for energy, critics say. The controls kept U.S. oil prices=20 artificially low, which in turn kept demand for oil high, giving OPEC more= =20 power over world production and prices in the 1970s, they contend. ?????Nonetheless, proponents keep calling for controls when prices for=20 certain items seem to be spiraling out of control. ?????Critics Say Controls Worsen the Problems ?????President Clinton's massive health-reform proposal in the early 1990s= =20 included price controls on drugs. But the idea set off howls of protest fro= m=20 the pharmaceutical and biotechnology industries, and ultimately the entire= =20 proposal was shelved. Consumer advocates and others also demanded federal= =20 controls on rising cable TV rates in 1997 and 1998, again contending that t= he=20 cable operators were hiking prices at a much faster rate than inflation.=20 Cable firms were allowed to keep passing certain costs on to their=20 subscribers, but specific price caps weren't enacted. ?????But proponents of temporary price controls on California power emphasi= ze=20 that electricity isn't in the same category as an airplane seat, steel or= =20 other commodities that don't have to be bought if the price soars too high. ?????"In soybeans maybe the market can adjust quickly" to changes in supply= =20 and demand, "but in electric generation in California it can't," said Flori= o,=20 who also serves as an attorney for the Utility Reform Network, a consumer= =20 group. "For most products, one of the ways prices get determined is if buye= rs=20 refuse to buy when the price gets too high. But that's generally not an=20 option for people when it comes to electricity." ?????Critics of California's attempt to cap prices last summer said the=20 controls instead prompted many power suppliers to sell their electricity to= =20 other states. That "actually made the tight-supply problem worse [in=20 California] by driving imports out of the state," the Bay Area Economic=20 Forum, a research group funded by regional business and government agencies= ,=20 said in a report last week. ?????Indeed, the temporary caps were basically abandoned by year's end to= =20 keep enough electricity in the state. ?????Frank Wolak, a Stanford University economics professor who heads the= =20 Independent System Operator's market surveillance committee, said there are= =20 ways to mitigate the state's power prices without having to set rigid=20 controls. One proposal: Have FERC require that generators supply 75% of the= ir=20 expected future sales to California under long-term contracts at "just and= =20 reasonable" prices set by the federal agency, he said. ?????That would "send the right [price] signal to suppliers to come into th= e=20 state," Wolak said. ?????And because it will take time for California to get more of its own=20 power-generating plants up and running, the state's electricity crisis isn'= t=20 unlike a natural disaster in which "normal public service is disrupted" and= =20 short-term controls serve a purpose, Florio said. ?????"Over time, market forces will work" and controls shouldn't be need, h= e=20 said. "But does that mean we're supposed to pay $10,000 per kilowatt-hour= =20 until something gets done?" ---=20 ?????Times staff writer Ricardo Alonso-Zaldivar in Washington contributed t= o=20 this report. Copyright 2001 Los Angeles Times=20 ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ------------ Davis Names Executive to Speed Construction of Power Plants in State=20 Energy: Richard Sklar headed a building firm and worked for Clinton in=20 Bosnia. Governor sees the crisis abating by fall.=20 By DAN MORAIN, Times Staff Writer=20 ?????SACRAMENTO--With temperatures rising and electrical supplies strained,= =20 Gov. Gray Davis on Tuesday tapped a former Clinton administration official= =20 and executives from major construction firms to help speed completion of=20 power plants. ?????Davis, who predicted that the worst of the energy crisis will abate by= =20 the fall, announced that he has retained Richard Sklar, 67, former presiden= t=20 of a construction firm, to head a team that will help accelerate the buildi= ng=20 of power plants. ?????Speaking to business leaders at a California Chamber of Commerce=20 convention in Sacramento, Davis said Sklar's job will be "to make sure ther= e=20 are no hurdles [and] to cut red tape." ?????"Richard Sklar knows electricity," Davis said. "He knows how to find= =20 megawatts." ?????Former President Bill Clinton sent Sklar to the Balkans in 1996 to try= =20 to help resolve the war in Bosnia-Herzegovina. Sklar arrived in Sarajevo to= =20 find that power was on for only two hours a day and set about expanding=20 electricity generation. ?????In an interview, Sklar said his father was a mechanical engineer who= =20 designed power stations. ?????"This power world is my world," Sklar said, adding that he had an=20 electric car and solar panels in the mid-1970s. ?????This Feb. 8, Davis announced at a news conference that he was appointi= ng=20 Larry Hamlin, a vice president of Southern California Edison, as his=20 "construction czar." Hamlin's job was to speed power plant construction. ?????Davis spokesman Roger Salazar said that Hamlin's stint was temporary a= nd=20 that the executive must return to Edison. Sklar's contract is for a longer= =20 period, Salazar said, but it is unclear how long. ?????Sklar is being retained as a consultant, paid $100,000 initially. Othe= r=20 firms, Salazar said, are loaning employees as volunteers. Joining Sklar wil= l=20 be representatives of the engineering
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