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----- Forwarded by Steven J Kean/NA/Enron on 02/28/2001 01:51 PM -----
Miyung Buster@ENRON_DEVELOPMENT 02/28/2001 10:02 AM To: Ann M Schmidt/Corp/Enron@ENRON, Bryan Seyfried/LON/ECT@ECT, dcasse@whwg.com, dg27@pacbell.net, Elizabeth Linnell/NA/Enron@Enron, filuntz@aol.com, James D Steffes/NA/Enron@Enron, Janet Butler/ET&S/Enron@ENRON, Jeannie Mandelker/HOU/ECT@ECT, Jeff Dasovich/NA/Enron@Enron, Joe Hartsoe/Corp/Enron@ENRON, John Neslage/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, John Sherriff/LON/ECT@ECT, Joseph Alamo/NA/Enron@Enron, Karen Denne/Corp/Enron@ENRON, Lysa Akin/PDX/ECT@ECT, Margaret Carson/Corp/Enron@ENRON, Mark Palmer/Corp/Enron@ENRON, Mark Schroeder/LON/ECT@ECT, Markus Fiala/LON/ECT@ECT, Mary Hain/HOU/ECT@ECT, Michael R Brown/LON/ECT@ECT, Mike Dahlke/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Mona L Petrochko/NA/Enron@Enron, Nicholas O'Day/AP/Enron@Enron, Paul Kaufman/PDX/ECT@ECT, Peggy Mahoney/HOU/EES@EES, Peter Styles/LON/ECT@ECT, Richard Shapiro/NA/Enron@Enron, Rob Bradley/Corp/Enron@ENRON, Roger Yang/SFO/EES@EES, Sandra McCubbin/NA/Enron@Enron, Shelley Corman/ET&S/Enron@ENRON, Stella Chan/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Steven J Kean/NA/Enron@Enron, Susan J Mara/NA/Enron@Enron, Mike Roan/ENRON@enronXgate, Alex Parsons/EU/Enron@Enron, Andrew Morrison/LON/ECT@ECT, lipsen@cisco.com, Janel Guerrero/Corp/Enron@Enron, Shirley A Hudler/HOU/ECT@ECT cc: Subject: Energy Issues Please see the following articles: Governor Renews Criticism of Regulators LA Times, 2/28/2001 Energy Crisis Fails to Hamper Selling of California Bonds LA Times, 2/28/2001 Energy Crisis Is a Benefit to Redding SF Chronicle, 2/28/2001 Davis: Power-crisis fixes almost finished Sac Bee, 2/28/2001 Davis passed up Duke Energy's deals Contra Costa Times, 2/28/2001 Davis fights for backing, takes state plan to D.C. San Diego Union Tribune, 2/27/2001 Duke Energy Suspends Suits Vs. Calif. AP, IndividualNews.com, 2/28/2001 Calif. Optimistic About Power Line AP, IndividualNews.com, 2/28/2001 ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ------------------------------------------------------------------------- Wednesday, February 28, 2001 Governor Renews Criticism of Regulators Power: The governor implies that the panel is too ideological. Its approval is needed if California is to purchase the electricity transmission grid. By DAN MORAIN and NANCY VOGEL, Times Staff Writers ?????WASHINGTON--Gov. Gray Davis, trying to win support for California's plan to buy a huge stretch of the state's electrical transmission system, took a swipe Tuesday at the federal commission that must bless such a deal. ?????Davis noted that President Bush has an opportunity to fill two vacancies on the five-member Federal Energy Regulatory Commission and will determine its chairman. ?????"It is my hope," Davis said, "that whoever the president chooses is a practical businessman or woman who lives in the real world and understands that when you inherit a mess, your job is to fix it, right the ship and move forward--as opposed to being a rigid adherent to ideology." ?????Earlier this year, Bush appointed Curt Hebert Jr., a strong free-market proponent who has served on the commission since 1999, as chairman. But he can change that appointment. ?????Hebert, a 38-year-old attorney and former Mississippi lawmaker, has said Davis' plan to have California buy 32,000 miles of high-tension power lines from the state's ailing utilities would amount to "nationalization" and might not be in the public interest. ?????The commission has been a strong advocate of electricity deregulation and, in addition to the dispute over purchase of the power grid, Davis has criticized its members for refusing to impose limits on soaring wholesale power prices, which bled California utilities of billions of dollars in the last nine months. ?????"We have practical problems we have to solve," he said, citing the billions of dollars the utilities owe power generators and banks. "My hope is that [Bush] places people on the FERC who understand real-world considerations." ?????Hebert could not be reached for comment Tuesday. The commission's two other members, William L. Massey and Linda K. Breathitt, Democrats appointed by former President Bill Clinton, were also unavailable. There are two vacancies on the panel. ?????Davis spoke after conferring for 30 minutes with U.S. Energy Secretary Spencer Abraham about the state's proposal to help the financially ailing utilities by purchasing the power grid. He presented Abraham with a nine-page memo detailing the plan and said the energy secretary would probably give him his views on the plan by the end of the week. ?????Last week, the governor struck a tentative deal with Southern California Edison to buy its portion of the grid for $2.76 billion, more than twice the book value. He is working on similar deals with Pacific Gas & Electric and San Diego Gas & Electric. Utilities could use money from the sale to restructure their multibillion-dollar debt. ?????Although Abraham has no direct authority over the energy commission, he presumably holds influence with Bush, and Davis came away from their conversation buoyed. ?????"If he would endorse the plan," Davis said, "that would be a leg up in getting FERC's approval. . . . I hope by the end of the week he will be able to endorse the proposal or at least endorse a modified proposal that is satisfactory to us. ?????"Believe me," Davis said, "I've been in enough meetings to know when someone is trying to be helpful and when someone is not. [Abraham] is trying to be helpful. He wants this problem solved, and . . . I believe he will support our proposal to get Southern California Edison back into the energy business." ?????Under federal law, the energy commission would have to approve California's purchase of the steel towers and aluminum wires of its three biggest private utilities. The commission could scuttle the purchase if it determined that state ownership would harm the public interest--a legal standard that gives the agency much discretion. ?????Walter Ferguson, Hebert's chief of staff, said Tuesday that Davis' plan would get close scrutiny. ?????"Sure, we have to be open-minded, but I'm skeptical as to how this helps," he said. "How does this solve the supply issue? How does this impact the region? Those two questions have got to be answered, because you don't want to make the problem worse." ?????California's proposal runs counter to the commission's 2-year-old push to have transmission grids operate on a wide regional scale without heed to political boundaries. In some parts of the Midwest and South, private companies have proposed operating transmission systems for profit--a trend endorsed by Hebert. ?????"I assume Hebert is going to be unenthusiastic, probably very unenthusiastic [about California's proposal]," said Richard Pierce, a George Washington University law professor who has observed the commission for decades. ?????"Nobody at FERC is going to be real happy about a state trying to take away from FERC jurisdiction over a large portion of a transmission grid," he said. "I can't imagine any commissioner will like that. So what we're talking about is the intensity of their dislike and whether it will be so great they'll say, 'No, we won't approve it.' " ?????Consumer advocates and state Senate leader John Burton (D-San Francisco) have endorsed state purchase of the transmission grid as a way to get California out from under some federal oversight. Ownership would, for example, allow the state to set the transmission fees that electricity consumers pay. Those fees now amount to about 6% of the average utility customer's monthly bill and are overseen by the energy commission. ?????Burton has also argued that state ownership would give California greater control over its own destiny should federal officials try to force the West to manage its interconnected grid under a single agency. ?????Federal rules already prohibit transmission grid owners from discriminating, through fees or rules, against the generators and marketers that use their lines like highways to move electricity from power plants to buyers. ?????Davis, in trying to win support for state purchase of the grid, has not focused on the freedom from federal regulators California might gain. Instead, he has treated the idea as a key part of a financial transaction necessary to revitalize debt-ridden utilities. ?????Davis said he expects that California would operate the transmission system within federal restrictions. ?????"I am not looking forward to any additional regulatory burdens from FERC," Davis said. "Obviously, we will meet the existing regulatory burden that we have." ?????Whether the commission will approve a state purchase of the grid and how long it will take to reach a decision are unknown, Edison International Chief Financial Officer Ted Craver told debt holders Tuesday in a conference call. He characterized Hebert's recent public statements on the matter as "cryptic." ?????A decision by FERC on sale of the grid could take "many months," according to research released Tuesday by Fitch Inc., a credit-rating firm. ?????Fitch called the tentative agreement between Edison and the state "a favorable step to avoid bankruptcy," but noted that several hurdles remain, chiefly approval by the state Legislature and the federal commission. ?????State Sen. Steve Peace (D-El Cajon) said that if the commission rejects California's purchase of transmission lines, the state should simply condemn the property. ?????"It was President Bush who told Gov. Davis that California should solve this," said Peace. "Gov. Davis is doing so. Certainly President Bush would expect the governor to use every tool at his disposal to solve it." --- ?????Times staff writers Richard Simon in Washington and Nancy Rivera Brooks in Los Angeles contributed to this story. ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ -------------------------------------------------------------------------- Wednesday, February 28, 2001 Energy Crisis Fails to Hamper Selling of California Bonds By MIGUEL BUSTILLO, Times Staff Writer ?????The energy crisis is apparently not affecting California's ability to finance its debt. ?????California successfully sold $982 million in bonds Tuesday to provide funds for a variety of construction projects and already approved ballot measures, including last year's $2.1-billion parks bond. ?????Most of the sale, $600 million, represents new funding, while the remainder will be used to refinance older bonds at current, more favorable interest rates. ?????The general obligation bonds, overseen by state Treasurer Phil Angelides, will have a 4.8% rate of interest--which is actually lower than the last few general obligation bonds issued before the energy crisis. ?????A day before the sale, Wall Street credit-rating firm Fitch IBCA blessed the bond issue with a favorable AA credit rating, and reaffirmed its AA rating for the state's $22.6 billion in outstanding bond debt. The two other major rating agencies, Standard & Poor's and Moody's, rated the bonds Aa2 and AA, respectively. ?????In releasing its rating, Fitch analysts concluded that, although the energy crisis is taking a substantial toll on California's budget reserves, that money will eventually be repaid through a $10-billion bond issue that will be paid off by utility ratepayers. ?????Moreover, Fitch concluded, the state's per-capita debt of $787 is moderate compared with that of other states--and the California economy has yet to show any signs of being significantly affected by the crisis. ?????"In anything that's tangible--tax receipts, employment information--we have yet to see a real effect," said Fitch vice chair Claire G. Cohen. ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ -------------------------------------------------------------------------- BUSINESS Energy Crisis Is a Benefit to Redding George Raine ? 02/28/2001 The San Francisco Chronicle FINAL Page C1 (Copyright 2001) High energy prices can create strange bedfellows. Just ask Morpheus Lights Inc., a powerhouse in the entertainment industry that has provided the lighting for the Academy Awards as well as the concerts of Bruce Springsteen, Shania Twain, Metallica, and Ringo Starr and his All Star Band. A fixture in Santa Clara County, the company shifted its operations three years ago 225 miles north of San Francisco to Redding, a city resting comfortably between the Cascades and the Trinity Alps that is known more for its Pendleton shirts and wily trout. The move has paid off handsomely. This city of about 78,000 has escaped the energy deregulation crisis that is roiling California and is, in fact, a seller of surplus power. That's good news to Morpheus, which consumes some 25,000 kilowatts a month to test and manufacture huge performance lighting pieces like its BriteBurst, which has enough power to light 3Com Park and was used in the 2000 Super Bowl halftime festivities. Morpheus is one of several success stories touted by the Economic Development Corporation of Shasta County, which is attempting to sell businesses on an outdoorsy quality of life in Redding, through which the Sacramento River meanders and where labor is plentiful and costs are low. But there's much more, the pitch goes: Redding is a unique electrical island unto itself, with its own electric utility and ample surplus power to sell -- this while investor-owned utilities mull bankruptcy and the lights and the patience of business owners flicker in much of the rest of California . Other states and regions of the country have initiated economic development campaigns to capitalize on California 's misfortune, seeking to lure businesses disgruntled by the energy crisis. But as much or more aggressive efforts are now being developed within California to convince businesses they don't need to leave because there are sanctuaries of electrical stability. NONPROFIT LOCAL UTILITY Redding has owned and operated its nonprofit electric utility since 1921. The utility purchases significant amounts of its energy from the federally operated Central Valley Project, through the Bonneville Power Administration in the Northwest, and it generates energy at its own gas-fired power plant. In fact, Redding Electric Utility (REU) has made so much money selling surplus power that it expects to pay off its debt a year from now, two years earlier than originally expected. "We are a utility that has resources in excess of our needs and that's a nice place to be," said Jim Feider, director of the REU. Several months before most Californians knew a long-term energy crisis loomed, the Economic Development Corporation of Shasta County, which seeks to attract business and the wealth it generates, began to aggressively pursue small and midsize Bay Area manufacturing businesses looking to expand and relocate. There is a lot of ground to make up in Shasta County, said Jim Zauher, the EDC president. In 1970, 19 percent of the county's workforce was in manufacturing and most of that was in the timber industry, which then tumbled. Since then, 4,000 jobs have been lost, and manufacturing is at 7 percent. That figure has been stabilized, with 1,270 new jobs in the past four years. The EDC has set a goal for the next five years of 1,500 jobs at $15 per hour. In the Shasta County-area workforce of 84,000 (71,600 in Shasta and another 12,400 in Tehama County), a consultant's survey has identified 18,000 underemployed workers who have the skills, education and experience that qualify them for a better job, said Zauher. Two weeks ago, the Shasta County EDC retained a Silicon Valley insider, Bill Haerle, former vice president for government relations and national accounts at the American Electronics Association, and former MCI executive, as a consultant. The EDC wants Haerle to create access to "low-tech" or "mid-tech" manufacturers. "First, a company has to decide the threshold question, whether it can operate in the greater Redding area. Then they look at the cost of doing business and a large component of that is a reliable source of reasonable energy. The third is the labor pool," said Haerle. STAYING IN STATE "Shasta County offers a solution without leaving the state. But this is a highly sensitive issue and we don't want to appear to be poaching," he said. "We are looking for smaller companies that could flourish in the greater Redding area." Haerle has yet to reel in a company, but the path has been cleared by Morpheus Lights, which moved up nearly three years ago, and a handful of other small and midsize businesses in the past year. In addition to energy savings, Morpheus has seen other dividends. The lighting company, which was paying $1.55 a square foot for space in Santa Clara, pays approximately 25 cents per square foot in Redding. This enabled the company to move from a 30,000-square-foot space in Santa Clara to one with 42,000 square feet in Redding. The extra space enables concert tour stage and lighting designers to conduct rehearsals with the computerized systems at the Redding site, said Dan English, Morpheus' vice president of operations. "We can be anywhere, as long as it's close to a major freeway, because the equipment travels by truck. There's I-5," said English. Nearby, Knauf Fiber Glass of Shelbyville, Ind., a leading U.S. manufacturer of thermal and acoustical fiber-glass insulations, is building a $140 million plant in Shasta Lake City. Some 2,000 people have applied for the plant's 150 jobs. Shasta Lake City, too, has its own utility but does not generate power. It buys power from the federal government and also contracts with Enron for supplemental needs, and is negotiating for more to ensure a 24-hour operation for Knauf. Redding's energy situation is enviable. The REU reaches its demand peak at 215 megawatts in the summer, when its has access to between 285 and 300 megawatts, said director Feider. The excess is sold. SELF-SUFFICIENCY GOAL In the early 1990s, REU made a strategic decision to make costly capital expenditures so that it could be more self-sufficent instead of being subject to market conditions, said Feider. When the electricity deregulation bill was signed in 1996, REU worried that with its debt of $300 million from those improvements it would be at risk in a competitive environment. As a result, it decided in 1997 to eliminate it with a controversial 23 percent surcharge on customer bills. The rates went from 8 cents a kilowatt hour to 10 cents, and the plan in 1997 was for the surcharge to continue through 2004. But Redding has prospered in the surplus power market and now expects to eliminate the surcharge in early 2002. Now, if everything goes according to form, the district could see a return to a rate of 8 cents, said Feider. Kevin Risse moved his Risse Racing, a high-end bicycle component manufacturer, from Sunnyvale in June 2000. "We came up and heard the spiel and power was one thing and, in hindsight, it turned out to be pretty important," said Risse. In Sunnyvale, his PG&E bill was $2,000 a month. In Redding, he pays from $800 to $1,000 monthly. Risse moved from a 4,000-square- foot space to an 8,000-square-foot building and cut his rent by more than half. It fell from $1 per square foot to 35 cents, said Risse, whose company builds bicycle shock absorbers and forks. "There are things we miss about the Bay Area, culturally, but, at the same time, I lived in Redwood City and sometimes it was a 20- minute commute and sometimes one hour and 20 minutes," he said. "There are people who worked for me with rents going up and they are caught in a loop and there's nothing they can do. But now they're paying $400 a month in Redding rather than $1,000 in the Bay Area." Chris King Precision Components, also a maker of sophisticated bicycle components, was synonymous with Santa Barbara for 25 years, but the tight labor market and cost of living for blue-color workers no longer made economic sense, said King, who now employes 60 people in Redding. King said that in 1996, he placed an ad for an assembly worker and got 50 applications. In 1999, he placed the same ad and got one application. "The labor market was strangling us," he said. In Redding, he received 2,000 applications for jobs at his plant, where he will employ about 100 this summer. "But there is a lot of chaff in this area," he said of the labor pool. "It's a low-cost area that has traditionally gone boom and bust, mostly bust," said King. King said he is confident he can maintain a blue-collar workforce adequate to the test of manufacturing what he described as the "Rolls Royce" standard in the bicycle industry. However, he said he has concerns about his ability to attract higher-paid designers with degrees in mechanical engineering. "You can go skiing in 45 minutes, and the environmental part of the equation is pretty incredible," King said of the Shasta County area. "But there's no foreign film theater here, no culture. There's middle-class shopping, and you need to entertain executive people or engineers or creative people. Unless they like fishing." PHOTO (2); Caption: (1) Dan English and Lisa Pendegrast displayed some of their lights for rock 'n' roll concerts inside the Morpheus Lights testing facility in Redding, (2) Chris King, who moved his bicycle component plant to Shasta County a year ago, said he's happy he made the move after learning that his old site in Santa Barbara was experiencing rolling blackouts. / John Storey/The Chronicle ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ -------------------------------------------------------------------------- Davis: Power-crisis fixes almost finished By David Whitney Bee Washington Bureau (Published Feb. 28, 2001) WASHINGTON -- California Gov. Gray Davis said Tuesday the state is two weeks to a month away from completing all the "legislative fixes" to its electricity crisis, and that with "a little luck and a lot of conservation" he hopes to avoid power blackouts this summer when demand is at its peak. "I see light at the end of the tunnel and it's not a train," Davis said during a luncheon speech before the California State Society. "It is the lights staying on in the state." But the governor, who spent much of his time here at the National Governors Association's winter meeting fending off questions about the state's power situation, left for New York City on Tuesday afternoon without any firm endorsements from the Bush administration. And despite his rosy recap of his administration's progress, he acknowledged that difficult work remains before deals can be reached to revive cash-starved utilities teetering on bankruptcy, particularly Pacific Gas and Electric Co. Davis said that he thought he might have an agreement soon -- perhaps by the end of the week -- with Southern California Edison permitting it to sell revenue bonds to repay debts to power wholesalers in exchange for state acquisition of their electric transmission lines. "PG&E is taking a little longer," the governor said. "Its debt is two times as big. It's a little more complicated situation -- two, three four weeks at the outside and we'll have PG&E worked out." PG&E declined to comment on the governor's timetable, but spokesman John Nelson confirmed that company officials will take part in talks with the Governor's Office this week. Deals to take over the utilities' power lines would put the state in the electricity transmission business, even though it's intention is to lease the day-to-day operations back to the utilities. But Davis said the deals would complete "all the legislative fixes" and put the state on course toward stabilizing supplies and price. "Does this mean we are home free and don't have to worry about anything?" the governor said. "No, but it means we are basically on the downside of the problem." Striking deals with the utilities is not the only remaining problem, however. State purchase of the transmission lines would require approval by the Federal Energy Regulatory Commission. Davis was scouting for help Tuesday from Energy Secretary Spencer Abraham on that front. In a brief meeting with reporters, Davis described Abraham as "open" to the transmission line purchase. Davis said he presented the secretary with a nine-page memo on the Southern California Edison transaction, and Abraham said he'd review it and get back to the governor by the end of the week. "If he would endorse the plan, that would be a big leg up in terms of getting the FERC's approval," Davis said, even though Abraham cannot simply order the FERC to approve the deal. "I hope by the end of the week he'll be able to endorse the proposal or at least endorse a modified proposal that is satisfactory to us." In his speech to the California State Society, an organization of Californians who live and work in the Washington area, Davis said the state is on course to add new generating plants over three years so that supply exceeds demand. But to make it through the summer, Californians are going to have to work hard to reduce consumption, he said. Residences are being asked to curb usage by 10 percent, and mechanisms are in place to squeeze similar savings from industries and commercial buildings through mandatory curtailments and cash incentives. "We are practicing what we preach," Davis said. He said his wife has turned down the thermostat in their home to 55 degrees. "I go to bed with a heavy sweat shirt on, sweat pants, three blankets and a comforter," Davis said. "Going to the kitchen is like going to Antarctica. My office is so dark at night you could develop film in it." Davis meets today with analysts on Wall Street, where he will carry forward the same message he delivered Tuesday -- that California is on the road to energy self-sufficiency. "We'll have utilities back in business paying their bills," he said. "We'll have long-term contracts for power at greatly reduced prices. We'll have a very aggressive conservation program. And we'll have a public power authority not unlike New York, the state of Washington and Tennessee." Bee staff writer Carrie Peyton contributed to this report. ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ -------------------------------------------------------------------------- Published Wednesday, February 28, 2001 Davis passed up Duke Energy's deals The supplier's offers last summer could have helped avoid blackouts this year By Mike Taugher TIMES STAFF WRITER As the California energy crisis was beginning to brew last summer, one of the state's largest electricity suppliers made Gov. Gray Davis a pair of offers to smooth the state's energy convulsions. Looking back, the governor may be regretting that he dismissed the proposals. Duke Energy said it could sell enough electricity for 2 million homes for five years at what is now considered a very low price of $50 per megawatt-hour. And Duke said that if the governor helped speed up permits, the company could build enough new portable units to power an additional 500,000 homes. Those offers embodied what has become two of the governor's top strategies in dealing with the crisis -- stabilizing the price of electricity through relatively long-term commitments and boosting generation to avoid blackouts this summer. As it was, though, Duke spokesman Tom Williams said his company never received a response to its July 31 proposal. In hindsight, Davis' inaction could prove costly. The governor's campaign to enter into long-term deals for electricity has produced just a handful of modest contracts, and there is some doubt that the governor's goal to speed up construction of small portable power plants to power millions of homes will be reached by summer. "We're pleased he's got that sense of urgency," Williams said. "We displayed that sense of urgency on July 31." Davis spokesman Steve Maviglio said at the time the offer was made, Duke's proposal was expensive and there was uncertainty about how the energy crisis would take shape. In hindsight, the Duke proposal "seems like the deal of the century today," Maviglio said. "The question is, where's that offer today? ... They're not at the table now with a reasonable offer." Had the governor decided to help Duke get permits for the new "peaker plants," he could already be halfway to his goal of getting 1,000 megawatts worth of new peaker plants by this summer. Now, however, Duke says its offers are off the table. The units the company would have used in California are now committed to the Midwest, and Duke has become hesitant to invest more money in a state where it has more than $400 million in uncollected power bills from the state's utilities, according to Williams. Moreover, Williams and others said it would be difficult for energy companies to meet Davis' goal of 1,000 megawatts from new peaker power plants by summer because, even under a new speedy permitting process announced by Davis three weeks ago, it still can take months to line up equipment and get it constructed and on line. The dilemma for California this summer shapes up like this: various estimates predict that the amount of electricity that will be available will fall short of demand by 5,000 megawatts to nearly 7,000 megawatts, or enough electricity to power 5 million to 7 million homes. Davis has called for enough conservation to cut demand by 3,700 megawatts and has unveiled initiatives he hopes will boost generation by 5,000 megawatts. If successful, that would be enough to avoid rolling blackouts this summer, according to state energy officials. Nearly half of the new generation sought by Davis would come from peaker plants, including 1,000 megawatts of new peaker plants that the governor wants to attract to the state and another 1,300 megawatts from peaker plants to be built by energy firms that have signed contracts with the California Independent System Operator. There is uncertainty on both counts. The Department of Water Resources, which has stepped into the energy-buying field because of the financial collapse of the utilities that have backed the ISO's purchasing, is attempting to renegotiate some of the contracts energy companies entered into with the ISO. That has alarmed some contractors. And even if no agreements are scuttled through renegotiations with the water resources agency, the ISO never figured on seeing all 1,300 megawatts it signed up for to actually materialize. "We viewed the prospect of getting all 1,300 megawatts as unlikely," said Brian Theaker, ISO's manager of reliability contracts. "It was going to be very difficult, if not impossible, for all 1,300 megawatts to hit the ground." And even with a speedier licensing process, it might be difficult to get the other 1,000 megawatts of new peakers built in time for summer. "If you don't have the equipment in hand, it's very difficult to get it at this late stage of the game," Theaker said, citing conversations with industry officials. Still, state officials are confident that the governor's goals to boost power production from peaker plants and through increased energy conservation will work. "With increased generation and the reduction in demand, we should be able to avoid rolling blackouts this summer," said Energy Commission spokeswoman Claudia Chandler. Chandler said the new peaker plants, which can be transported on a flatbed truck and can be as small as a large backyard storage shed, still could be running by summer if applications are filed by mid-April. But the Energy Commission has yet to receive a single application for a new peaker power plant. "That kind of is putting us on pins and needles," Chandler said. "We are talking to developers, though. They indicate they will be submitting applications late this week or next." Meanwhile, Davis met in Washington, D.C., with Energy Secretary Spencer Abraham to discuss California's plans to buy 26,000 miles of electricity transmission lines now owned by three financially troubled utility companies. Speculation has surfaced in recent days that federal regulators are opposed to the plan and would reject it. Curtis Hebert, the chairman of the Federal Energy Regulatory Commission, has said the state takeover of the lines would be "against the best interests of the American public." A spokeswoman for the regulatory commission said Tuesday the panel has not discussed or taken a position on the California plan. Hilary McLean, a spokeswoman for the governor, characterized Davis' meeting with Abraham as "productive" and said the two had pledged to work together and continue discussing the issue. Davis is scheduled today to fly to New York, where he will meet with Wall Street analysts, before flying back to California tonight. Staff writer Andrew LaMar contributed to this story. ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ -------------------------------------------------------------------------- Davis fights for backing, takes state plan to D.C. 'Lots of people' in capital wary of transmission-grid takeover By Toby Eckert? COPLEY NEWS SERVICE February 27, 2001 WASHINGTON -- Gov. Gray Davis, worried about possible federal opposition to the state's plan to take control of California's power transmission system, said he will lobby Energy Secretary Spencer Abraham on the plan in a meeting today. "Clearly, we have to persuade lots of people in Washington that what we're doing is the right thing," Davis said yesterday, citing recent news reports that indicate opposition to the plan from the head of the Federal Energy Regulatory Commission, or FERC. The commission appears to have authority over approving the plan. Hydropower net needs a 'miracle' Edison: No more money to bury power lines underground ? After joining other governors in a wide-ranging meeting with President Bush at the White House, Davis also said "there may be some give" on the Bush administration's opposition to price controls on wholesale electricity if power generators are assured a healthy profit. He did not elaborate. A White House spokeswoman said she was unaware of any change in the administration's stance on price controls. FERC Chairman Curtis Hebert has declined to comment on how the commission might rule on California's plan to acquire 26,000 miles of utility-owned electricity transmission lines as part of a strategy for solving the state's power crisis. But in an interview with the Dow Jones news service last week, he indicated the plan may run counter to FERC's policy of encouraging the development of regional transmission organizations, or RTOs, to manage access to power grids. "Anything that moves in the opposite direction of RTOs .?.?. is against the best interests of the American public," he was quoted as saying. Davis said Hebert's comments "raised concerns in my mind. And I want Secretary Abraham to understand the motivation for doing this is to solve the problem, allow the utilities to get back into business, pay off the generators and the banks, and begin to stabilize the market." While Abraham does not have direct authority over the issue, he is part of an energy policy team appointed by Bush. Davis sees winning Abraham's backing of the plan as a possible key to federal approval. "I think that team's assessment of the progress we're making will have a lot to do with how Washington responds, including the FERC," Davis said. Davis will also pitch his plans for ending the crisis to Wall Street analysts tomorrow. However, he said he had no meetings planned with FERC officials. The Democratic governor acknowledged that many California Republicans are philosophically opposed to the state buying the transmission lines. "Some people in Washington, I think, see this as more of an ideological statement" by the Democrat-controlled state government, Davis said. "As a governor, I see it as a practical solution to a problem we're trying to deal with." The state wants to acquire the transmission system from Pacific Gas and Electric, Southern California Edison and San Diego Gas and Electric as a condition for helping the utilities pay off some $13 billion in debt they have accumulated. The debt is a product of soaring costs for wholesale power that the utilities have been unable to fully recover from consumers under state law. Davis announced a tentative agreement last week to buy Edison's power lines for $2.76 billion. The purchase plan also will allow the state to upgrade the transmission system and fix bottlenecks in the flow of electricity within California and from neighboring states such as Arizona, Davis said. He and other governors stressed the importance of improving the power grid in a discussion yesterday with Abraham, Environmental Protection Agency Administrator Christie Whitman and Interior Secretary Gale Norton. "We'll need federal approval and, hopefully, federal assistance on the financing of those improvements" in California, Davis said. The governor has tangled with FERC on numerous aspects of the power crisis. The commission, which has authority over the wholesale power market, has resisted Davis' proposal to cap wholesale prices in the West. Bush and Abraham have, too. But Davis suggested that temporary "cost-plus" price limits -- in which wholesale rates would reflect the cost of producing the power, plus a set profit margin -- may still be an option. In San Diego yesterday, House Speaker Dennis Hastert, R-Ill., emphasized that California needed to resolve its own energy problems and rework its deregulation plan. But Hastert held out the possibility of caps on the wholesale price of electricity, which have bipartisan support from California representatives and senators. "Maybe we can do that on a short-term, focused way, but you have to go back and fix the legislation," Hastert said in a meeting with The San Diego Union-Tribune's editorial board. Davis indicated that he discussed the power crisis in general terms with Bush and would have a more detailed talk with Abraham. Bush "invited me to call on him directly if we need more assistance," Davis said. ? ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ -------------------------------------------------------------------------- Duke Energy Suspends Suits Vs. Calif. LOS ANGELES (AP) via NewsEdge Corporation - Duke Energy Corp. suspended a lawsuit against the state on Monday after the California Department of Water Resources agreed to buy power from Duke that was formerly being provided under contracts with two financially troubled utilities. Duke said Monday it will suspend until April 30 its lawsuit against Gov. Gray Davis, who had commandeered Duke's long-term energy contracts with Southern California Edison and Pacific Gas and Electric. Duke sued Davis after the governor announced plans to allow the California Power Exchange to sell the contracts as a way to pay debts owed by SoCal Edison and PG&E. The power generator argued that Davis exceeded his authority under the state's Emergency Services Act. Under a settlement announced Monday, the water resources department will buy power on behalf of residential and business customers that was previously being delivered to Edison and PG&E. ``We see this as progress. It's a step that takes us in the positive direction,'' said Roger Salazar, spokesman for Davis. Bill Hall, head of Duke's California operations, said the agreement ``gives California consumers the benefit of the long-term contract price that was negotiated with the utilities before they defaulted. And it allows Duke to provide electricity through an entity that can pay us for it.'' SoCal Edison and PG&E, California's two biggest utilities, have lost nearly $13 billion in part because the state's deregulation plan prohibits them from passing on skyrocketing wholesale power prices to consumers. With SoCal Edison and PG&E near bankruptcy, the California Department of Water Resources was authorized last month to buy power. Duke said the interim settlement expires April 30, when a court hearing on Duke's suit is scheduled in U.S. District Court in Los Angeles. Also on Monday, Duke suspended a case it brought against the California Independent System Operator, which manages 75 percent of the state's power grid. Duke and other power generators sued the ISO after the water resources department said it would not pay for power bought on the expensive spot market. The ISO had said it would bill the nearly bankrupt utilities for that power. When power generators tried to pull out of the spot market, the ISO sued and a federal judge ordered companies to keep selling to the state. That order was allowed to expire last week while the state and the generators work on a settlement. ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ -------------------------------------------------------------------------- Calif. Optimistic About Power Line By DAVID HO Associated Press Writer WASHINGTON (AP) via NewsEdge Corporation - California Gov. Gray Davis said Tuesday that he is confident the Bush administration will support the state's $2.7 billion proposal to ease energy woes by buying Southern California Edison's electricity transmission system. Supporters of the plan say it could lead to quick improvements of a bottlenecked system overdue for repairs. But critics contend the proposal saddles the state with an antiquated network that could prove costly to fix. Davis said he presented a nine-page proposal to Energy Secretary Spencer Abraham and he expects a response by the end of the week. Abraham ``wants this problem solved and he's been very supportive,'' Davis said. ``He's recommended approval on every request I've made, and I believe he will support our proposal.'' Energy Department spokesman Joe Davis said Abraham is reviewing the proposal but wouldn't comment on whether he would endorse it. On Friday, the governor announced a deal to purchase the power lines and require Edison International, the utility's parent company, to sell cheap power to the state for a decade. Federal approval is required for the proposal, which does not include the state's other major investor-owned utilities, Pacific Gas & Electric and San Diego Gas and Electric. Negotiations are continuing with all three utilities to buy their 26,000 miles of transmission lines for a cost that could range from $4.5 billion to $7 billion. Edison and PG&E have said they have accumulated nearly $13 billion in losses because the state's 1996 deregulation law prevented them from passing the true costs of wholesale energy to their customers. The governor's plan would infuse the utilities with part of the cash they need to remain solvent. Some state lawmakers have said the long-term costs of the plan outweigh the immediate benefits because the transmission lines need repairs that could cost an estimated $1 billion a year. Addressing a lunch for the California State Society attended by members of the state's congressional delegation, Davis outlined his plans to solve the power problems by building new power plants and working with the energy industry. ``We have a real challenge this summer and the following summer,'' he said. ``The third year I think enough generation will be online so that we're in much better shape.'' Davis has issued executive orders to shorten the approval process for new plants and expects to gain 5,000 megawatts by summer _ enough to power about 5 million homes. In addition to increasing power production, Davis emphasized the need for greater conservation, advising his state's consumers to turn off lights in empty rooms, unplug unused appliances and lower thermostats. ``In my house, my wife has the thermostat down to 55 degrees,'' he said. ``Going to the kitchen in the middle of the night is like a trip to Antarctica.''
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