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********************************************************************* Dear Subscriber, When we launched IssueAlert six months ago, we recognized that you, our readers, needed more than just news. We knew that the world had become a faster, more complicated place and that you needed same-day news and analysis. Today, events in the energy industry have accelerated to such a degree that only the best content and newest and fastest media are adequate to keep pace with our rapid fire business environment. Our mission is to help you succeed in making critical business decisions. That is why we are bringing you SourceBook Weekly, our new e-zine. SourceBook Weekly will give you the tools you need to identify competitive threats as well as business opportunities. Browse the hotlinked descriptions of the articles below and click through to our site to get a free pdf sample. Then take advantage of the special offer and get the information you need to move ahead of your competition. Sincerely, Jane Pelz Director of Marketing Communications PS: Today's IssueAlert follows these SourceBook Weekly links. ************************************************************************ SourceBook Weekly December 4, 2000 Issue:=20 http://www.consultrci.com/web/rciweb.nsf/Web+Pages/SBEntrance.html ************************************************************************ MISO: WHAT IS THE FUTURE OF THE MIDWESTERN TRANSMISSION GRID? The Midwest Independent Transmission System Operator (MISO) has been in a state of flux as of late, as its expansion efforts have taken some dramat= ic turns with major players announcing to withdraw from membership. http://www.consultrci.com/web/rciweb.nsf/Web+Pages/SBEntrance.html ************************************************************************ FERC UNDER FIRE: CALIFORNIA IOUS RESPOND TO PROPOSED ORDER WITH SHARP=20 CRITICISM The Federal Energy Regulatory Commission's (FERC's) concession that the market rules and structure for wholesale of electricity in California are "flawed" resulted in a 77-page proposal early in November to repair the situation. The reaction from California's three investor-owned utilities (IOUs) was immediate and overwhelmingly critical. http://www.consultrci.com/web/rciweb.nsf/Web+Pages/SBEntrance.html ************************************************************************ ESSENTIAL.COM PARTNERS WITH SHELL: ALLIANCE MAY PROVIDE EDGE OVER UTILITY.C= OM In a small step forward for its Internet energy services, Essential.com has partnered up with Shell Energy to offer a lower-cost natural-gas choice to customers of Atlanta Gas Light. It appears that both companies will benefit immensely from the partnership, but in very different ways. http://www.consultrci.com/web/rciweb.nsf/Web+Pages/SBEntrance.html ************************************************************************ ALLEGHENY ENERGY: FORGING AHEAD IN GENERATION DEAL WITH ENRON Allegheny Energy's recently announced purchase of three gas-fired merchant plants from Enron North America reaffirms its strategy of expanding its geographic footprint and strengthening its unregulated generation capabilit= y. From Enron's point of view, the sale confirms its stated policy of pursuing "contractual" rather than "physical" assets. http://www.consultrci.com/web/rciweb.nsf/Web+Pages/SBEntrance.html ************************************************************************ ENERGY PRIVATIZATION IN MEXICO: THE FUTURE RESTS IN THE HANDS OF A NEW ADMINISTRATION Energy privatization and the future of electric supply and demand are issue= s to be dealt with by Mexico's new president, Vicente Fox, as took over the helm of the country on Dec. 1. http://www.consultrci.com/web/rciweb.nsf/Web+Pages/SBEntrance.html ************************************************************************ WILLIAMS COMMUNICATIONS CONTINUES SPIN-OFF TREND Williams is planning a spin-off of its Williams Communications (NYSE: WCG) subsidiary, which should take effect the first part of next year. http://www.consultrci.com/web/rciweb.nsf/Web+Pages/SBEntrance.html ************************************************************************ =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D SCIENTECH IssueAlert, December 6, 2000 LADWP Continues to Shine Despite California's Dark Period By: Will McNamara, Director, Electric Industry Analysis =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D Reduced electricity supplies across the state forced the California=20 Independent System Operator (Cal-ISO) on Tuesday to declare a Stage One Power Emergency for the second consecutive day. The Cal-ISO is calling on all California electricity customers to increase their energy-conservation efforts, and urging them to delay turning on holiday lights until after 8 p.m. Responsib= le for the reliability of California's electricity grid, the Cal-ISO declares a Stage One emergency when the state's power reserves drop to 7 percent. In contrast, the Los Angeles Department of Water and Power (LADWP), the municipal utility that primarily serves the greater Los Angeles metro area, announced that its more than 3.7 million businesses and residences are enjoying stable electricity prices and a plentiful supply heading into the holiday season. ANALYSIS: What a sweet irony this must be for David Freeman, LADWP's genera= l manager. Just two years ago the municipal utility=01*the largest city-owned utility in the United States=01*was ridden with massive debts and faced an uncertain future. Now, LADWP in many ways can be seen as the only success story on a landscape that is marked by one IOU maelstrom after another. Let's take a step back and assess how LADWP was able to insulate itself from the California crisis. Back in 1997, Freeman was brought on board at LADWP (from the Cal-ISO, no less) to essentially save what was thought to be a sinking ship. Straddled with $7.9 billion in debt, the need to cut about 1,500 jobs and a likelihood of increasing rates for both resident= ial and industrial customers, Freeman's decision to take on the role of managin= g LADWP seemed like many to be a herculean task. Yet Freeman arrived at LADWP with an aggressive reorganization in mind, including the primary goal of lowering rates and becoming debt-free by 2003. Early on, Freeman made a critical decision=01*one that in hindsight appears to be flawless=01*for LADWP to opt out of deregulation while the state's th= ree IOUs (PG&E, SCE and SDG&E) continued down the treacherous path of=20 restructuring. While the IOUs began divesting themselves of generating facilities as means of averting market power issues (due to agreements established with the CPUC) LADWP was a prime example of public power throughout the United State= s electing to keep the integrated utility model. In addition, Freeman blocked ongoing attempts by a consortium led by Duke Energy to buy LADWP's trading unit, and thus maintained control over the muni's generation assets. Enter the summer of California's discontent. With demand on an unexpected increase and supplies in questionable availability, LADWP found itself having the upper hand. The wholesale market over the last year or so clearl= y has favored generators, and LADWP was one of an elite group of companies that capitalized on the disparity between supply and demand. Critics accuse= d LADWP of "profiteering," but Freeman contended that the utility was just taking advantage of California's flawed market. The truth is that LADWP was in the right place at the right time, and maximized its ability to generate cash via power trading, which it used to drive down its debt. A shrewd move by any estimation. The utility ran its plants flat out for most of the hot season, illustrated by the fact that it got fined for violating emission standards. Some report= s indicate that LADWP earned about $45 million just from surplus power over the course of the summer. These profits only added to what LADWP had made in the previous year. Fiscal year 1999 wholesale energy marketing and=20 transmission services generated $98 million, which, along with other sources of wholesal= e revenue, marked a growth of 118-percent over 1998. The problems that were so well documented last summer have not stopped with the onset of cooler temperatures. Ongoing structural problems within the state of California continue to result in concerns about supply and warnings of sudden increases in prices. As noted, the state continues to face new challenges as generation that had been expected to be online has been forced off, including a substantial amount from plants that had expire= d air emissions credits. A squeeze on imports from the Pacific Northwest=01*a= nother carry over problem from the summer=01*also has complicated the situation in California. And, while the state IOUs evaluate long-terms contracts with energy provide= rs (based on today's high prices), LADWP is free to continue with an aggressiv= e generation plan. Among its objectives are to add 2,900 MW of power generati= on within its service territory in the Los Angeles basin. The end result of this would be less dependence on external sources for power and instant supply available at times of peak demand. Also high on the list of Freeman'= s priorities is the development of generation from renewable or alternative energy sources. Already demonstrating a good record for green power, LADWP wants to cut its NOx emissions at its in-basin plants by 65 percent by 2010. Toward that end, just this week LADWP announced that it has contracte= d for two additional fuel cell power plants that it will install in the Los Angeles area. The first 250 kW Direct FuelCell power plant is to be deliver= ed in the fourth quarter of 2001, and the second in the first quarter of 2002. A previously ordered 250 kW fuel cell power plant, announced last year, is to be installed at the LADWP headquarters in the second quarter of 2001. Along with having no worries about supply, LADWP customers also can look forward to a 5-percent rate reduction that should take effect by 2002, followed by a 10-percent rate reduction that has been proposed for 2003. As criticism continues to mount against California's competitive wholesale market, it certainly appears that LADWP took a prudent route by opting out of competition and retaining its integrated model three years ago. =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D SCIENTECH is pleased to provide you with your free, daily IssueAlert. Let us know if we can help you with in-depth analyses or any other SCIENTECH information products. If you would like to refer a colleague to receive our free, daily IssueAlerts, please reply to this email and include their full name and email address or register directly at: http://www.consultrci.com/web/infostore.nsf/Products/IssueAlert =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D Feedback regarding SCIENTECH's IssueAlert and SourceBook Weekly should be sent to wmcnamara@scientech.com =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D SCIENTECH's IssueAlerts are compiled based on independent analysis by=20 SCIENTECH consultants. The opinions expressed in SCIENTECH's IssueAlerts are not intended to predict financial performance of companies discussed or to be the basis for investment decisions of any kind. SCIENTECH's sole purpos= e in publishing its IssueAlerts is to offer an independent perspective regard= ing the key events occurring in the energy industry, based on its long-standing reputation as an expert on energy and telecommunications issues. Copyright 2000. SCIENTECH, Inc. If you do not wish to receive any further IssueAlerts from SCIENTECH, pleas= e reply to this message and type "delete" in the subject line.
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