Dan Walters' article from the Sacramento Bee, November 26, 2000.

----- Forwarded by Jeff Dasovich/NA/Enron on 11/29/2000 01:54 PM -----

Joseph Alamo
11/29/2000 01:11 PM

To: Sandra McCubbin/NA/Enron, Jeff Dasovich/NA/Enron
cc:
Subject: Dan Walters' article from the Sacramento Bee, November 26, 2000.

Copyright , The Sacramento Bee

Dan Walters: A power crisis imperils Davis
(Published Nov. 26, 2000)
Gov. Gray Davis would appear to be living a charmed political life.
California's economy is soaring, the state's tax coffers -- and Davis' own
re-election treasury -- are bulging, voters are in a complacent mood, and
there have been none of the devastating disasters that plagued the state
during the early 1990s.
There is, however, a very dark cloud casting a shadow over Davis'
governorship: the prospect of rolling blackouts as demand for electric power
exceeds supply, accompanied by tremendous increases in Californians' power
bills. And how Davis handles this incipient crisis could be the hallmark of
his first term -- and, potentially, a re-election issue in 2002.
San Diego utility customers were hit hard last summer as their local utility
emerged from the mandatory rate freeze imposed by the state's 1996 utility
deregulation scheme. Davis and the Legislature responded, in effect, by
buying some time. They enacted legislation rolling back power bills
temporarily, but leaving it unclear whether ratepayers, taxpayers, San Diego
Gas and Electric Co. or power suppliers would eventually eat the wholesale
costs that led to the spikes.
Clearly, Davis was hoping that the Federal Energy Regulatory Commission
(FERC) would step in and force the suppliers to refund hundreds of millions
of dollars to SDG&E and its ratepayers. And that, Davis and other politicians
hoped, would also forestall a similar, but much larger crisis looming for
customers of Southern California Edison and Pacific Gas and Electric Co., the
state's two largest private utilities. The two are still operating under the
rate freeze, but have acquired at least $5 billion in unanticipated wholesale
power costs that they want to pass on to their ratepayers.
Politically, FERC intervention would be the most palatable of the
alternatives because it would place the financial onus on mostly out-of-state
corporations that have little political standing. California politicians have
been demonizing the power suppliers, saying they took advantage of the
deregulation program's auction process to drive up costs far beyond reason.
The problem for Davis and others is that FERC is not cooperating, pointedly
refusing to intervene in a way that the governor wanted. Davis ripped into
the FERC response during a hearing earlier this month, accusing it of
"gutting (California's) ability to protect consumers" and proposing "new and
completely untried market rules, making guinea pigs of California consumers
in yet another reckless deregulation experiment."
Davis wants to appoint himself as the California utility customer's best
friend, hinting that he may lead a "ratepayer revolt" if FERC continues to
refuse to order refunds from suppliers and new price controls. But it's
unclear what he can do concretely, since he's on record as approving the
overall thrust of deregulation and since many of the business interests he
has cultivated to obtain his re-election funds have benefited from having
power suppliers compete for their business.
Doing nothing could mean that when Southern California Edison and PG&E emerge
from the rate freeze, they will raise rates dramatically, just as Davis is
seeking re-election in 2002.
The utilities seem to be offering Davis a deal: allow them to begin raising
rates now to recover their "stranded costs" for wholesale power and they will
avoid sticker-shock raises in 2002.
Another option would be for Davis to spend some of the state's billions of
surplus dollars to either ease the impact on ratepayers or put the state into
the power supply business itself.
The only certainty is that unless FERC reverses itself, Davis will remain on
the hook for whatever happens -- the sort of unpredictable situation that he
hates to encounter.
DAN WALTERS' column appears daily except Saturday. Mail: P.O. Box 15779,
Sacramento, 95852; phone: (916) 321-1195; fax: (916) 444-7838; e-mail:
dwalters@sacbee.com