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GOVERNOR DAVIS SENDS LETTER TO SECRETARY OF ENERGY ABRAHAM 2/26/2001, www.governor.ca.gov Pacific Gas & Electric Co. Makes Partial Payments to Suppliers 3/1/2001, bloomberg.net Governor Davis Comes to Wall Street 3/1/2001,Merrill Lynch report Energy Deal May Take a Month, Davis Tells Analysts=20 3/1/2001, LA Times PUC chief says summer outages not inevitable 3/1/2001, Sac Bee Dan Walters: Why has probe stopped short?=20 3/1/2001, Sac Bee =09=09=09=09=09 =09=09=09=09=09PG&E's gas rates to ease in March=20 3/1/2001, Sac Bee Davis optimistic about fed approval for power line deal=20 2/28/2001, San Diego Union Tribune Partial Power Payments / Governor asks that generators take less 3/1/2001 SF Chronicle PG&E May Be Ready To Deal / Lawyers to advise it on selling lines 3/1/2001 SF Chronicle Generating Ideas / Deregulation, done right this time -- not state control = --=20 is the answer to Calfiornia's energy woes 3/1/2001, SF Chronicle (editorial) ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- -------------------- GOVERNOR GRAY DAVIS SENDS LETTER TO SECRETARY OF ENERGY ABRAHAM 2/28/1 15:25 (New York) (The Following is a reproduction of a press release from The State of California. This document was obtained from www.governor.ca.gov.) GOVERNOR DAVIS SENDS LETTER TO SECRETARY OF ENERGY ABRAHAM February 26, 2001 The Honorable Spencer Abraham Secretary, U.S. Department of Energy 1000 Independence Avenue, SW Washington, D.C. 20585 Re: Update on California's Energy Efforts Dear Secretary Abraham: The purpose of this letter is to update you on California's significant ene= rgy conservation and efficiency efforts, as well as our generation development initiatives. Energy Conservation and Efficiency Estimates by the California Energy Commission indicate that the State as a= =20 whole used approximately 2,000 fewer megawatts in January 2001 than might have be= en expected, absent conservation and efficiency efforts. As you know, since January, we have implemented the following major initiatives: Directing more than $800 million for programs to improve conservation and efficiency. Implementing aggressive conservation measures in state buildings, resulting= in about 200 MW of savings during energy emergencies. Developing a comprehensive outreach and education campaign to reach=20 businesses, organizations, and millions of California consumers. Partnering with other governmental entities, including school districts to ensure that all 475 cities, 58 counties, and 8,300 schools in California=20 reduce consumption. Adopting the strongest energy efficiency standards in the world for=20 residential and non-residential buildings and appliances. Incorporating energy efficient, sustainable building designs in new state building projects. Issuing 13 Governor's Executive Orders on energy. Additional State Conservation Outreach Efforts The State Department of Consumer Affairs has launched the first stage of a = $20 million paid media campaign to encourage California's consumers and busines= ses to conserve energy and become more energy efficient. The first three=20 commercials have run in all 12 major metropolitan markets, the most recent of which encourages consumers to turn down their thermostats. We are coordinating our conservation efforts with many businesses and busin= ess associations. For example, Safeway agreed to print an energy conservation message on its supermarket grocery bags. In addition, it will place an ener= gy conservation message in its weekly advertisement insert, which reaches 11 million households in every major California newspaper each week. Safeway a= lso has offered to donate 10 to 15 seconds on its advertising buys for the stat= e energy conservation message. In addition, McDonald's is placing four millio= n tray liners with the energy conservation message in its 1,100 restaurants throughout the State. The Department of Motor Vehicles (DMV) puts conservation and efficiency=20 messages on Vehicle Registration and Driver's License Application and Renewal=20 envelopes. DMV envelopes are expected to the reach 19.6 million vehicle owners and eig= ht million drivers who apply for or renew licenses this year. The approaching tax season has enabled the Franchise Tax Board (FTB) to rea= ch nearly 300,000 Californians a week with the energy message. This past week alone, FTB included an energy insert in nearly 24,000 Return Information Notices, reached 71,000 visitors to the FTB home page, which features the= =20 energy conservation message, and played a recorded energy conservation message for nearly 193,000 taxpayers who used the FTB call center. The California Lottery Commission is placing conservation messages on certa= in game tickets and on 7,000 television monitors in stores throughout the Stat= e. The Department of Consumer Affairs, the Franchise Tax Board, California Ene= rgy Commission, and other agencies play energy conservation information during = on- hold telephone messages. The Department of Consumer Affairs reached an estimated 2.5 million=20 Californians with the energy conservation and efficiency message during Consumer Protect= ion Week through public appearances, media interviews, handouts, and letters. The Governor's Office of Planning and Research has worked with your Departm= ent of Energy to get the conservation message to all federal employees and facilities in California. These communications will reach as many as 265,00= 0 civilian employees and 100,000 military personnel in California. Distributi= on=20 is provided by the Department of Energy's Seattle Regional Office to key facil= ity managers and other federal offices throughout the state. Every state agency website features the state's "Flex Your Power" logo and energy conservation message. For example, the Energy Commission's home page features in-depth conservation and efficiency information and receives 3=20 million hits a month. The Energy Commission also has established an 800 number and = web form to handle consumer conservation ideas and inventions. This allows peop= le=20 to make suggestions directly to government. Articles on energy conservation have been placed in trade publications and newsletters, such as the Employment Development Department's California Employer, which reached some 900,000 employers, and the CalPERS PERSpective= s, which reached one million subscribers. The Technology, Trade, and Commerce Agency e-mailed and broadcast faxed an energy conservation letter to approximately 97,000 businesses, associations= ,=20 and partners. The California Science Center, a state museum in Los Angeles that has 1.3 million visitors a year, including 800,000 children, is providing conservat= ion tips in English and Spanish to all visitors. Two weeks ago, I issued an Executive Order that requires retail=20 establishments, particularly shopping malls, gas stations, auto dealerships, and other commercial properties, to reduce unnecessary outdoor lighting during non- business hours. The Executive Order is directed at the large banks of=20 decorative and marketing illumination that often stay on all night and do not serve a public safety function. Quantifying Impact of Outreach Efforts The State and Consumer Services Agency is working with the Electricity=20 Oversight Board, the California Energy Commission, the Department of General Services= ,=20 and cabinet agencies to attempt to quantify the impact of our outreach efforts = on energy efficiency and conservation. Preliminary estimates for January 2001 indicate that the State experienced an overall reduction of approximately= =20 2,000 megawatts from what the State's overall anticipated load should have been, absent recent conservation and efficiency efforts. This estimate measured overall impact by comparing monthly peak load data against data from the sa= me month one year earlier, while adjusting for projected load growth from last= =20 year to this year, significant changes in weather conditions, and other factors. In addition, we are attempting to measure the overall impact of state agenc= y conservation efforts by gathering monthly utility bills of state buildings = and facilities and comparing them to the same month in 2000. Some preliminary highlights include: The DGS Telecommunications headquarters at 601 Sequoia Pacific Blvd. (Sacramento) consumed 20.5% less kilowatt hours of electricity in January 2= 001 when compared with data from January 2000. The Office of State Publishing facility at 344 N. 7th Street (Sacramento) consumed 26.6% less kilowatt hours of electricity in January 2001 when=20 compared with data from January 2000. Caltrans indicated that the electricity bill for its Sacramento headquarter= s went down 23.8% last month, compared with January 2000. The Department of Housing and Community Development reports a 40.5% reducti= on=20 in energy usage at its Sacramento headquarters building. Generation Development Initiatives Objective: 5,000 MW on line by July, and 20,000 MW by 2004. Since August 2000, I have issued a series of Executive Orders and signed=20 urgency legislation that created: Fast-track licensing procedures for environmentally-preferred facilities; s= ome plants will be licensed in as little as 21 days A State Air Emissions offset bank so fast track plants can obtain air permi= ts=20 up front. Ability to increase power production at existing facilities and to allow construction of plants 24/7. ISO outage scheduling tools so shut downs occur while system reliability is maintained Intergovernmental "Green Team" strike force to cut red tape at federal, sta= te and local levels. Performance awards for plants that accelerate construction and come on-line before July, 2001. I have requested that President Bush direct federal agencies to expedite=20 federal permit reviews for power projects; President Bush granted this request. I have written Chairman Hebert to urge the FERC to further extend the waive= r=20 of certain operating and efficiency restrictions on qualifying facilities from April 30, 2001 until October 15, 2001; California awaits the Chairman's response. I anticipate that by July, 2001, these measures will result in the addition= of 1,320 MW from three large power plants, a 320 MW plant licensed under=20 expedited permitting procedure in December, 2000, up to 2,400 MW of "peaking" power projects, up to 1,266 MW by restarting or expanding production at existing thermal and renewable power projects - some of this production depends upon= =20 the FERC's response to my request, and 145 MW of wind, biomass and other renewa= ble energy projects receiving California financial incentives California remains committed to achieving a significant reduction in energy consumption and to an aggressive program to develop generation for this sum= mer and beyond. Best regards, Gray Davis Governor (bh) PN -0- (CRL) Feb/28/2001 20:25 GMT ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ---- Pacific Gas & Electric Co. Makes Partial Payments to Suppliers 3/1/1 9:32 (New York) Pacific Gas & Electric Co. Makes Partial Payments to Suppliers (For more on the California power crisis, see {EXTRA <GO<}) New York, March 1 (Bloomberg) -- Pacific Gas & Electric Co., California's largest investor-owned utility, will make partial payments of $228 million instead of $1.442 billion to its suppliers, a filing with the Securities and Exchange Commission said. Kent Harvey, a senior vice president and chief financial officer at the utility, told investors in a Feb. 1 conference call that the utility was paying power suppliers 15 percent of invoices received. The company would rather ``make partial payments than no payments at all, to keep electricity flowing to customers,'' he said. The cash-strapped utility, which has defaulted on more than $731 million of commercial paper since Jan. 17, is conserving money in order to stave off filing for bankruptcy protection. Pacific Gas & Electric paid soaring wholesale energy prices since last summer, which California regulators prohibited it from passing on to customers. The utility accumulated $6.6 billion of debt through the end of 2000 for such power purchases. The filing didn't update the undercollections through January. Edison International's Southern California Edison, the state's No. 2 utility, has said its unreimbursed costs were $5.47 billion through January 31. Sempra Energy's totaled $605 million. Some Power Payments Pacific Gas and Electric's filing said it is making partial payments for January power deliveries from certain suppliers, known as qualifying facilities, and for December deliveries from the California Independent System Operator, which oversees about 75 percent of the state's transmission grid. As of Jan. 16, the utility had drawn $938 million of a $1 billion credit line. On Jan. 17, banks refused to lend the utility additional money causing it to default on maturing commercial paper. The utility and its parent, PG&E Corp., have been shut out of the commercial paper markets and unable to raise money from sources other than banks since late December. Pacific Gas & Electric has an additional $142 million of commercial paper maturing by the end of this month, according to an audit ordered by the California Public Utilities Commission. It recently had $1 billion of cash reserves, based on a Feb. 14 SEC filing. California Governor Gray Davis has proposed buying the utilities' transmission systems as part of a broader plan, including buying power on their behalf, to help PG&E and Edison avoid bankruptcy. --Liz Goldenberg in the New York newsroom at (212) 893-3940 or at egoldenberg2@bloomberg.net and Dennis Walters in Ojai, California, through the New York newsroom (212) 318-2300 /jm Story illustration: For more information on electricity markets and prices, type {VOLT <GO<}. ---------------------------------------------------------------------------= --- -------------------------------------------------------------- Governor Davis Comes to Wall Street 3/1/1 9:47 (New York) M E R R I L L L Y N C H Research Bulletin Fixed Income Research Reference Number=20 10906001 United States Mar/01/2001 09:47 Leo J. Kelser (1) 212 449-7803 Highlights of This Issue Governor Gray Davis of California met with a group of sell-side and rating agency analysts in New York yesterday. The Governor outlined his plan for restoring the utilities to financial viability so that they can meet their obligations. Below we summarize a few highlights from the meeting. Trying to Fit Solution Within Existing Rate Structure The Governor talked about the need to find a solution to the utilities' problems within the context of their existing rate structures. He indicated that the temporary 9% rate hike from January 2000 would be made permanent a= nd that a 10% rate reduction that went into effect in January 1998 would be reversed in March 2002. Status of Negotiations with PG&E As we noted in a February 26(**th) comment, the Governor has reached an agreement in principle with Southern California Edison (EIX: B3/CC) to addr= ess that utility's past under-collections. He hopes to also have an agreement= =20 with PG&E within the next 30 days, suggesting that progress was made in particul= ar in the last 2-3 days. However, the Governor acknowledged that reaching an agreement with PG&E was more difficult due to its larger under-collected balance and lower rates compared with SCE. Some Generators Agree to Haircut The Governor indicated that a couple of unnamed generators have voluntarily agreed to accept less than 100 cents on the dollar for their past due receivables. When pressed about which parties they've had constructive discussions with, he identified Williams (WMB: Baa2/BBB-), Enron (ENE: Baa1/BBB+) and Dynegy (DYN: Baa2/BBB+). We note that most of the generator= s and marketers with exposure to California have established reserves against possible losses. Importantly, the Governor said that he hoped that the ban= ks and bondholders would not be asked to take a haircut. Prospects for Legislation and Possibility of Ballot Initiative The Governor said he is quite confident that he can reach an agreement with= =20 the utilities that the legislature can support. Although he admitted that he couldn't prevent someone from proposing a ballot initiative, the governor s= aid that in the end, the acid test with the public is how it affects their pock= et books. Thus, if there is ultimately a ballot initiative, Governor Davis is optimistic that the public will be supportive of his plan given the limited impact on electric rates. Status of Defaulted Utility Debt As we have commented in the past, it appears unlikely that the resulting legislation will pass with the required 2/3majority to go into effect immediately. Accordingly, there will be a several month lag before the utilities receive any cash. In response to a question, it appears that the state will not step in to help the utilities pay off any maturing or defaul= ted commercial paper. But the Governor and his advisers hope that legislation= =20 will provide enough certainty so that the companies can get bridge financing. Essentially, it appears the Governor is leaving it up to the utilities to f= ind the money from their banks. Governor's Strategy to Keep the Lights On The Governor stated that a key reason that deregulation failed in Californi= a was that no new power plants were built in the state for over twelve years.= =20 In the intervening time, demand caught up with supply. In response, he has proposed various conservation initiatives and is trying to expedite the construction of new power plants. He set a goal of having 20,000 megawatts (mws) of new supply on line by 2004. In addition, the governor highlighted the need for additional investment in= =20 the transmission infrastructure. In particular, he cited the need to expand th= e capacity to import more power from Arizona as well to improve the ability t= o move power from south to north within the state. He suggested that part of = the rationale for the state taking over the utilities' transmission grids was t= o ensure that the additional investment takes place. He also suggested that = the state would lease the transmission lines back to the utilities to allow the= m=20 to continue to operate them. In the meantime, the focus is to move away from California's over-reliance = on the spot market. In that vein, Calpine (CPN: Ba1/BB+) yesterday announced = the signing of two long-term contracts with the state's Department of Water Resources (DWR). One of those contracts was to sell up to 1,000 mws over a= =20 ten- year term. The other was to provide up to 495 mw of peaking capacity under= a 20-year contract. Earlier in February, CPN had reached agreement with the = DWR on a separate 10-year contract for an additional 1,000 mws. (EIX, WMB) MLPF&S was a manager of the most recent public offering of securities of this company within the last three years. Copyright 2001 Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S). All rights reserved. Any unauthorized use or disclosure is prohibited. This report has been prepared and issued by MLPF&S and/or one of its affiliates = and has been approved for publication in the United Kingdom by Merrill Lynch, Pierce, Fenner & Smith Limited, which is regulated by SFA; has been conside= red and distributed in Australia by Merrill Lynch Equities (Australia) Limited= =20 (ACN 006 276 795), a licensed securities dealer under the Australian Corporation= s Law; is distributed in Hong Kong by Merrill Lynch (Asia Pacific) Ltd, which= is regulated by the Hong Kong SFC; and is distributed in Singapore by Merrill Lynch International Bank Ltd (Merchant Bank) and Merrill Lynch (Singapore) = Pte Ltd, which are regulated by the Monetary Authority of Singapore. The information herein was obtained from various sources; we do not guarantee i= ts accuracy or completeness. Additional information available. Neither the information nor any opinion expressed constitutes an offer, or = an invitation to make an offer, to buy or sell any securities or any options, futures or other derivatives related to such securities ("related investments"). MLPF&S and its affiliates may trade for their own accounts = as odd-lot dealer, market maker, block positioner, specialist and/or arbitrage= ur in any securities of this issuer(s) or in related investments, and may be o= n the opposite side of public orders. MLPF&S, its affiliates, directors, officers, employees and employee benefit programs may have a long or short position in any securities of this issuer(s) or in related investments. MLP= F&S or its affiliates may from time to time perform investment banking or other services for, or solicit investment banking or other business from, any ent= ity mentioned in this report. This research report is prepared for general circulation and is circulated = for general information only. It does not have regard to the specific investme= nt objectives, financial situation and the particular needs of any specific=20 person who may receive this report. Investors should seek financial advice regard= ing the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statemen= ts regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each security's price or value may rise or fall. Accordingly, investors may receive back le= ss than originally invested. Past performance is not necessarily a guide to future performance. The bonds of the company are traded over-the-counter. Retail sales and/or distribution of this report may be made only in states where these securiti= es are exempt from registration or have been qualified for sale. MLPF&S usuall= y makes a market in the bonds of this company. Foreign currency rates of exchange may adversely affect the value, price or income of any security or related investment mentioned in this report. In addition, investors in securities such as ADRs, whose values are influenced= by the currency of the underlying security, effectively assume currency risk. Provider ID: 10906001 -0- Mar/01/2001 14:47 GM ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ------ Thursday, March 1, 2001 Energy Deal May Take a Month, Davis Tells Analysts=20 Power: Wall Street experts appear cool to governor, who tries to convince= =20 them he is solving the state's electricity crisis.=20 California members of Congress vow to keep seeking wholesale price caps.=20 By DAN MORAIN and RICHARD SIMON, Times Staff Writers=20 ?????As a hopeful Gov. Gray Davis extended his East Coast barnstorming tour= =20 before skeptical Wall Street utility analysts Wednesday, members of California's congressional delegation vowed to continue their= =20 campaign for caps on wholesale electricity prices after a tense standoff with a top federal regulator. ?????Davis completed his five-day trip by raising about $200,000 for his 20= 02=20 reelection campaign at private events in Manhattan, and then conferring with analysts in an effort to persuade them that he is solving= =20 California's energy crisis. ?????Although Davis delivered some good news--that some electricity supplie= rs=20 would accept less than the full payments owed to them by the state's debt-ridden utilities--he acknowledged that it probably would take= =20 more than a month to complete his plan to enable the utilities to stave off bankruptcy. ?????"Did they leave without doubt? I don't know that is ever the case,"=20 Davis said of his select audience of 35 analysts. "But I do believe they le= ft=20 thinking I'm sincere, I'm making progress, and am confident that I will fix= =20 it." ?????Reaction Varies ?????Analysts who attended the hourlong meeting came away saying Davis=20 offered little that they didn't already know. Some questioned why he exclud= ed=20 many analysts who closely track utility bond debt, given that Southern=20 California Edison and Pacific Gas & Electric Co. have defaulted on several bond payments. ?????Michael S. Worms, senior vice president of Gerard, Klauer & Mattison,= =20 described Davis as "very cognizant of the situation," adding that the=20 governor appears to understand the fundamental problem that California lack= s=20 sufficient power plants to supply the populace. ?????"I got the impression he is on top of it. He understands the issues,"= =20 Worms said. ?????Others were far less charitable. Davis' lack of specificity added to= =20 their skepticism. ?????"I'd like to see specifics," said Steven M. Fetter of Fitch Inc., whic= h=20 rates companies' credit-worthiness. "I didn't expect specifics, and he live= d=20 up to my expectations." ?????Davis told the analysts that some power generators have agreed to forg= o=20 full payments from the utilities. State regulators have barred Edison and PG&E from passing on to consumers the skyrocketing wholesale power cos= ts=20 charged by independent power generators and marketers, leaving the utilitie= s=20 owing billions. ?????Davis spokesman Steve Maviglio confirmed Wednesday that two generators= =20 made "unsolicited offers" to the governor to write off some of their debt. He did not identify the independent generators or say how much= =20 they would trim from their debt. ?????Representatives of the energy companies that have sold more than $1=20 billion in electricity to the state since January reacted coolly to Davis'= =20 suggestion that they not receive full payment for their goods. ?????"The best insurance against continued energy shortages is full payment= =20 for all deliveries that have been made in the past," said Gary Ackerman of the Western Power Trading Forum, a group of energy marketers and=20 generators. ?????Davis last week said he and Edison had agreed to the outlines of a dea= l=20 by which the state would give the utility $2.76 billion in exchange for=20 its share of the statewide electricity transmission system. ?????At the time, he said he hoped to have a more detailed version of the= =20 plan by the end of this week, as well as one to buy transmission lines from San Diego Gas & Electric. ?????Fund-Raising Events ?????However, on Wednesday, the governor said a final agreement between the= =20 state and Edison will not be reached for as long as a month,=20 maybe longer. A deal with PG&E, the state's largest utility, "could take a= =20 little longer," Davis said, adding that the company's debt is far larger than Edison's. ?????"This transaction is going to be scrutinized for decades to come," he= =20 said. "I'm determined to do it fairly but do it in a way that withstands=20 scrutiny." ?????After conferring with Bush administration officials and attending a=20 governors conference in Washington, D.C., over the weekend, Davis=20 arrived in New York on Tuesday to be feted at a fund-raising dinner hosted = by=20 Richard Medley, an economic strategy consultant and head of Medley Global= =20 Advisors. On Wednesday, Davis attended a breakfast fund-raiser at the=20 headquarters of the banking and financial services firm Citigroup, whose=20 chairman, Sanford Weill, served as host. ?????The governor raised an estimated $200,000 in all for his 2002 reelecti= on=20 campaign, a source said, requesting anonymity. Neither Medley nor Weill could be reached for comment. Both men are significant political= =20 donors to national campaigns. ?????While Davis sought to make the case for his utility rescue plan, membe= rs=20 of California's congressional delegation focused on efforts to reduce the high wholesale power costs at the heart of the crisis. The bipartisan= =20 group of lawmakers pledged to press ahead with legislation that would impos= e=20 temporary price caps, after they met behind closed doors with Curt Hebert= =20 Jr., chairman of the Federal Energy Regulatory Commission. Hebert is a=20 free-market advocate and has vigorously opposed price controls. ?????"You heard me screaming?" asked Rep. Bob Filner (D-San Diego) after th= e=20 meeting with Hebert. ?????"Almost everyone argued with Mr. Hebert that we need help from FERC,"= =20 said Rep. Henry A. Waxman (D-Los Angeles), citing Democratic and Republican support for temporary limits on wholesale prices. "Mr. Hebe= rt=20 didn't care." ?????"It didn't make any difference whether you were a conservative=20 Republican or a liberal Democrat," Waxman said. "We all felt that we were not getting the help we need from the Federal Energy Regulatory Commission= ." ?????But Waxman said he considered the meeting worthwhile "because it had t= o=20 impress upon Mr. Hebert" the strong support for price controls shared by ma= ny=20 California lawmakers. ?????Several Republicans who attended the session were less critical of the= =20 agency and its chairman but expressed support for providing a=20 legislative fix in the absence of FERC intervention. ?????"The chairman is not going to be supportive of our bill, but he's at= =20 least willing to talk with us and listen to us," said Rep. Duncan Hunter=20 (R-Alpine) ?????So far, only about half the delegation has endorsed the price cap=20 legislation. Filner noted that he and his ideological opposite, Hunter, hav= e found common ground on this issue after hearing from constituents squeezed= =20 by higher fuel costs. ?????During the meeting, Hebert declined--on his attorney's advice--to take= a=20 stand on Davis' proposal to have the state take control of the=20 electrical transmission system, according to some of those attending. The= =20 takeover would require FERC approval, and Hebert reportedly=20 expressed concern about taking a position on a matter that his agency has n= ot=20 yet considered. ?????Hebert bristled when a reporter, chasing him down a hallway, asked if= =20 FERC were doing enough to help California. ?????"We've worked so hard on California that we have a backlog of 2,000=20 cases right now," he snapped, adding that Davis never asked to meet with him. ?????Asked if he was aware of talk that another chairman might be named, he= =20 said, "You'd have to ask the president that."=20 ?????In other developments Wednesday: ?????* California's electricity grid was jolted into a Stage 2 power=20 emergency after several large electricity plants tripped offline in the=20 morning.=20 The outages were not related to the Seattle earthquake, which had no=20 significant effect on regionwide electricity operations, a grid spokesman said. ?????* Millions of Californians would receive rebates of 10 cents for every= =20 kilowatt-hour of electricity they conserve this summer, under legislation= =20 introduced by state Sen. Don Perata (D-Alameda). The bill, SB 63X, would se= t=20 aside $1 billion to reward consumers who reduce their power use compared with that of the same month a year earlier. ?????* Calpine Corp. said it signed two more long-term electricity contract= s=20 with the state Department of Water Resources valued at $8.3 billion.=20 ?????* Southern California Gas Co. agreed to provide as much as 30 million= =20 cubic feet of gas per day to PG&E in the next month to help ease the=20 utility's difficulties in obtaining supplies. Under the agreement, PG&E wil= l=20 guarantee payment to the Los Angeles gas utility by pledging gas=20 accounts receivable as security for unpaid balances that cannot exceed $16.= 5=20 million. Gas Co. Chairman Edwin A. Guiles said the agreement=20 should have no adverse effects on natural gas costs or service for any of t= he=20 company's 5 million customers. ---=20 ?????Times staff writers Nancy Rivera Brooks and Nicholas Riccardi in Los= =20 Angeles, Miguel Bustillo and Nancy Vogel in Sacramento and Tim Reiterman in= =20 San Francisco contributed to this story. ---------------------------------------------------------------------------= --- --------------------------------------------------------------- PUC chief says summer outages not inevitable By Jim Sanders Bee Capitol Bureau (Published March 1, 2001)=20 California Public Utilities Commission President Loretta Lynch defended her= =20 handling of the energy crisis in a speech Wednesday but made no promises th= at=20 blackouts won't occur this summer.=20 "We can probably dodge the bullet" if Californians reduce their electricity= =20 use by 10 percent this summer, she said.=20 But the key will be Mother Nature. If temperatures soar far beyond a normal= =20 year, she said, "We're going to have serious problems."=20 Gov. Gray Davis, meanwhile, sought to reassure stock analysts about=20 California's plans to cope with the crisis on a trip to New York, where he= =20 outlined steps the state is taking to reach a deal to retire utilities'=20 debts.=20 But electric emergencies returned to plague California's grid, as imported= =20 power from the Pacific Northwest dwindled.=20 After five days without issuing any power alerts, which warn that backup=20 electricity supplies have dipped too low, the Independent System=20 Operator declared a Stage 2 alert at 9:40 a.m. Wednesday. The warning was= =20 scheduled to stay in place through midnight.=20 Unexpected power plant breakdowns and low imports triggered the alert, said= =20 spokesman Patrick Dorinson.=20 California energy experts have predicted the state could be thousands of=20 megawatts of electricity short this summer, enough to leave millions of hom= es=20 without lights and air conditioning.=20 Lynch, who has been on the front lines as the state has spent billions of= =20 dollars to keep the power on, declined to predict whether rates will rise to help solve California's electricity problems.=20 Rates will depend on many factors, she said, including the state's success = in=20 securing long-term contracts at bargain rates, increasing power generation= =20 and encouraging conservation.=20 Davis has vowed to keep rates "within the existing rate structure," but tha= t=20 does not rule out ending a 10 percent rate freeze imposed several years ago or increasing rates for heavy energy users of debt-ridden Southe= rn=20 California Edison and Pacific Gas and Electric Co.=20 Lynch said the state is on track to achieve stability in the electricity=20 industry through its proposal to buy 32,000 miles of power transmission=20 lines.=20 Lynch, a former campaign volunteer for Davis, was director of his Office of= =20 Planning and Research before being named to the PUC in December 1999.=20 She started her speech Wednesday to the Sacramento Press Club with a=20 whimsical reference to the biblical character known for his suffering.=20 "I now understand what Job must have felt like," Lynch quipped.=20 She blamed the energy crisis largely on the fact that California's=20 electricity deregulation forced utilities to sell many of their power plant= s=20 and left them vulnerable when out-of-state generators failed to meet supply=20 expectations and wholesale prices soared.=20 "That lack of vision has come at an extraordinary price for California,"=20 Lynch said.=20 Asked what the PUC, in retrospect, could have done to avert the crisis, Lyn= ch=20 pointed again to deregulation.=20 Officials should have seen that deregulation wasn't working, she said, and= =20 either reversed it or re-evaluated it.=20 "From my perspective, the system we created was built on theory, hope and= =20 promise," she said. "The promise was not realized because the=20 theory was faulty."=20 Deregulation of the industry did not lead to the heavy competition that was= =20 predicted to provide ample supply and lower prices.=20 Lynch defended the PUC against criticism that it exacerbated the crisis by= =20 reacting too slowly to requests that would have allowed utilities to raise rates and/or negotiate long-term energy contracts at lower-than-mark= et=20 rates.=20 Lynch said the PUC has voted consistently since last August to allow the=20 utilities to enter into long-term power contracts.=20 "When the utilities asked, we gave them the authority -- and in some cases = at=20 lightning speed," she said.=20 In recent legislative hearings, utility officials said the PUC's votes did= =20 not solve their problems because the agency reserved the right to determine in years to come whether the contracts were reasonable. If the PUC=20 ultimately decided against the utilities, the officials said their=20 shareholders could be left holding the bag for large sums of money collected years prio= r=20 to the "reasonableness review."Thus, the utilities hesitated to enter into long-term pacts.=20 Lynch said her agency has a responsibility to protect consumer interests=20 regarding rate hikes.=20 "It was their business decision not to (negotiate long-term contracts)=20 fully," she said of Edison and PG&E.=20 Lynch also said the Federal Energy Regulatory Commission's actions in=20 December helped send electricity rates soaring 500 percent in five days.=20 Before FERC acted, she said, "the utilities were bleeding, but they weren't= =20 hemorrhaging."=20 ---------------------------------------------------------------------------= --- ---------------------------------------------------------------- Dan Walters: Why has probe stopped short?=20 (Published March 1, 2001)=20 Earlier this year, as California's energy squeeze morphed into a full-blown= =20 crisis, the state Assembly's leadership opened what it said would be=20 an in-depth investigation, modeled after the much-acclaimed probe of former= =20 Insurance Commissioner Chuck Quackenbush.=20 A special subcommittee, chaired by Assemblyman Darrell Steinberg,=20 D-Sacramento, was established, investigators, many of them veterans of the Quackenbush probe, went to work, and a few days of hearings were=20 eventually held.=20 The reality didn't live up to the advance billing. Utility executives and= =20 other players were grilled, but the hearings fell far short of laying out w= ho made what decisions that brought the utilities to the edge of bankruptcy a= nd=20 left California scrambling to find and pay for enough juice to keep=20 its lights burning. And then the hearings ended abruptly, the apparent vict= im=20 of a partisan conflict.=20 Republicans have been demanding a deeper inquiry into what the Public=20 Utilities Commission, and inferentially Gov. Gray Davis, did or not do last summer when the crisis first began to make itself felt. And their=20 partisan interest is also clear: Pinning the crisis on Davis and the PUC wo= uld be ammunition for the 2002 election, when Davis is seeking re-election.=20 Democrats want to move into aspects of the energy crisis, such as=20 shortages of natural gas and the electricity supply prospects for next=20 summer, that would not expose the governor or the PUC to any embarrassing revelations.=20 Steinberg insists that he's not trying to protect Davis. But only this week= ,=20 after Republicans exerted behind-the-scenes pressure, did he send a letter to the PUC backing the GOP demand for extensive access to critica= l=20 documents and interviews of key participants in last summer's actions.=20 Utilities executives say they pleaded with the PUC and Davis last summer to= =20 acquire long-term, low-cost contracts with suppliers, but that they were rebuffed. The issue is critical, because the lack of long-term=20 contracts meant that utilities ran up many billions of dollars in debts to= =20 pay for power at soaring spot market prices -- a form of deficit financing that th= e=20 state is continuing. How much of that debt should be eaten by utilities, and how much should be recovered from ratepayers is, perhaps, the single= =20 most controversial aspect of the crisis.=20 The touchiness of the issue was underscored Wednesday when PUC president=20 Loretta Lynch appeared before the Sacramento Press Club and dismissed as "one of the biggest myths" and "a tremendous canard" the=20 allegation that the PUC had blocked long-term supply contracting. She said the PUC had granted long-term contracting authority to the utilities,= =20 but they allege that the permission came with too many financial strings to be practical.=20 Lynch also denied that the PUC has dragged its feet in responding to demand= s=20 for documents, citing the overwhelming volume of both the demands and the inquiries from several legislative committees. Earlier las= t=20 month, PUC executive director Wesley Franklin complained in one=20 response to legislators that the demanded documents "may include confidenti= al=20 information" and complying with the requests would "entail=20 considerable time and effort for us to compile ... "=20 Whether the legislative hearings ever return to last summer's events is=20 uncertain. The Republicans' partisan motives aside, however, it is importan= t to establish what role Davis and the PUC played so that the public can jud= ge=20 any Davis-brokered settlement of the utilities' debts. It's also an important test for Assembly Speaker Bob Hertzberg, who is very proud of th= e=20 investigation of Republican Quackenbush and has pledged that other official shortcomings would be ruthlessly examined regardless of the= ir=20 partisan origin.=20 DAN WALTERS' column appears daily, except Saturday. Mail: P.O. Box 15779,= =20 Sacramento, CA 95852; phone (916) 321-1195; fax: (781) 846-8350 E-mail: dwalters@sacbee.com Recent columns: http://www.capitolalert.com/voices/index_walters.html=20 ---------------------------------------------------------------------------= --- ----------------------------------------------------------------- Newswatch: PG&E's gas rates to ease in March (Published March 1, 2001) Rates for natural gas will inch down in March but will remain more than twi= ce=20 as high as a year ago, Pacific Gas and Electric Co. said Wednesday.=20 Household gas bills will average $95 this month, up from $45 in March 2000,= =20 but down from this winter's high of $125 in=20 January, the utility said.=20 Gas rates are high nationwide as the result of years of reduced exploration= =20 while prices were low. But they have been far=20 higher in California and various analysts have suggested a range of reasons= :=20 pipeline and storage shortages; soaring=20 demand by power plants; and market manipulation.=20 PG&E figures a different rate each month, based on how much it expects to= =20 spend buying gas for households and small businesses. Large businesses are= =20 responsible for lining up their own supplies.=20 An average March household bill will be about 16 percent lower than an=20 average February bill, which PG&E calculated at=20 $113.=20 -- Carrie Peyton=20 ---------------------------------------------------------------------------= --- ------------------------------------------------------------- Davis optimistic about fed approval for power line deal=20 ASSOCIATED PRESS=20 February 28, 2001=20 WASHINGTON =01) California Gov. Gray Davis is hopeful federal energy offici= als=20 will back a proposal aimed at easing the state's energy crisis by purchasin= g=20 a wide swath of transmission lines.=20 While the Davis administration continued negotiations with three=20 investor-owned utilities Wednesday, the state's weeklong respite from power= =20 alerts came to an end.=20 Four Western power plants shut down unexpectedly, prompting grid officials = to=20 call a Stage 2 alert with electricity reserves expected to drop below 5=20 percent, said spokeswoman Lorie O'Donley of the California Independent Syst= em=20 Operator. The plants included two in Montana and one each in Oregon and=20 Northern California.=20 In addition, several California plants were down for scheduled repairs,=20 O'Donley said.=20 The state has been besieged with electricity problems in recent months. The= y=20 include the near-bankruptcy of Southern California Edison and Pacific Gas a= nd=20 Electric Co. and a lack of power that resulted in rolling blackouts twice= =20 last month in Northern California.=20 On Friday, the governor announced a deal to purchase Edison's power lines a= nd=20 require Edison International, the utility's parent company, to sell cheap= =20 power to the state for a decade.=20 Davis gave the Edison proposal to Energy Secretary Spencer Abraham on Tuesd= ay=20 and expects a response by the end of the week.=20 Abraham "wants this problem solved and he's been very supportive," Davis=20 said. "He's recommended approval on every request I've made, and I believe = he=20 will support our proposal."=20 Supporters say the $2.7 billion plan to buy Edison's transmission system an= d=20 have the state spend several billion more to buy the power lines of its oth= er=20 two investor-owned utilities, could lead to quick improvements to a=20 bottlenecked system overdue for repairs. Critics contend it would saddle th= e=20 state with an antiquated network that could prove costly to fix.=20 The Davis administration continues negotiating with PG&E and San Diego Gas = &=20 Electric. In all, Davis' plan would put 26,000 miles of power lines under= =20 state control at a total price that could range from $4.5 billion to $7=20 billion.=20 Edison officials said Tuesday they would prefer a deal that includes all=20 three utilities, but might agree to sell Edison's transmission lines alone = as=20 long as it is not held responsible for any of PG&E's debts.=20 As a member of the California Power Exchange, Edison agreed to pay a share = of=20 any default by any other member.=20 A group of power generators have sued the exchange because they were charge= d=20 a portion of the debt owed by Edison and PG&E. That lawsuit is on hold whil= e=20 the issue is being decided by the Federal Energy Regulatory Commission.=20 "Clearly it is simpler and a lot cleaner if all three utilities are=20 ultimately a party to some sort of agreement with the state," Ted Craver,= =20 chief financial officer of Edison International, said during a conference= =20 call with creditors. "It's not necessarily the only way it can be done."=20 The governor feels the state won't "have a satisfactory arrangement without= =20 having 60 percents of the transmission lines and that requires that we have= =20 an agreement with PG&E," spokesman Roger Salazar said.=20 Edison and PG&E say they have accumulated nearly $13 billion in losses=20 because the state's 1996 deregulation law prevented them from passing the= =20 true costs of wholesale energy =01) which have soared since last June =01) = to their=20 customers.=20 The governor's plan would infuse the utilities with part of the cash they s= ay=20 they need to remain solvent.=20 Some state lawmakers have said the long-term costs of the plan outweigh the= =20 immediate benefits because the transmission lines need repairs that could= =20 cost an estimated $1 billion a year.=20 Assembly Minority Leader Bill Campbell, R-Villa Park, said Republican=20 lawmakers are unlikely to support the governor's plan, which needs=20 legislative approval.=20 Without Republican support, the measure could still pass, but it would take= =20 effect 90 days after the governor signed it, rather than immediately.=20 "That's a hurdle, waiting 90 days in these delicate times," Campbell said.= =20 Addressing a lunch for the California State Society attended by members of= =20 the state's congressional delegation, Davis outlined his plans to resolve t= he=20 energy crisis, in part by speeding up power plant construction.=20 "We have a real challenge this summer and the following summer," he said.= =20 "The third year I think enough generation will be online so that we're in= =20 much better shape."=20 Davis has issued executive orders to shorten the approval process for new= =20 plants and expects to gain 5,000 megawatts by summer =01) enough to power a= bout=20 5 million homes.=20 In addition to increasing power production, Davis emphasized the need for= =20 greater conservation, advising his state's consumers to turn off lights in= =20 empty rooms, unplug unused appliances and lower thermostats.=20 "In my house, my wife has the thermostat down to 55 degrees," he said. "Goi= ng=20 to the kitchen in the middle of the night is like a trip to Antarctica."=20 ?? On the Net:=20 California Energy Commission: www.energy.ca.gov=20 U.S. Department of Energy: www.energy.gov=20 California Independent System Operator: www.caiso.com=20 ---------------------------------------------------------------------------= --- --------------------------------------------------- BUSINESS=20 Partial Power Payments / Governor asks that generators take less Christian Berthelsen ?=20 03/01/2001=20 The San Francisco Chronicle=20 FINAL=20 Page B1=20 (Copyright 2001)=20 California Gov. Gray Davis yesterday suggested that power generators accept= =20 partial payment for the electricity they have supplied to the state's=20 financially troubled utilities.=20 Analysts at the meeting said the governor made reference to a company that= =20 had agreed to do so. However, he did not identify the company or offer=20 details about how much it would accept.=20 Davis' comments at a closed meeting with analysts in New York City are=20 significant because they represent an apparent departure from the power=20 companies' position that they be repaid in full.=20 The move is in line with the governor's view that the generating companies= =20 selling electricity to California 's utilities should contribute "modestly= =20 and voluntarily" to solving the crisis.=20 Said Richard Cortwright, an analyst for Standard & Poors: "It came across= =20 pretty loud and clear that he felt they could afford to take less than a=20 hundred cents on the dollar and still do pretty well for themselves."=20 Several power companies, including Enron Corp. and Reliant, both of Houston= ,=20 were quoted by Bloomberg News as saying they were surprised by the governor= 's=20 statements.=20 Davis went to Wall Street yesterday for the first time during the Californi= a=20 power crisis to reassure the financial world's opinion- makers he is doing= =20 all he can to resolve the problem.=20 During the meeting, Davis presented a history of how California 's=20 investor-owned utilities came to be in the sorry financial shape they are i= n.=20 He was also said to have emphatically ruled out electricity rate increases,= =20 saying they are politically unfeasible and would be easily undone by a vote= r=20 initiative.=20 Davis also said he will have a deal within 30 days to purchase transmission= =20 lines from Pacific Gas & Electric Co. and Southern California Edison.=20 Financial analysts are looking forward to that deal as a way of providing t= he=20 utilities with some cash to work their way out from under a combined debt= =20 load estimated at $13 billion. The utilities have been barred by law from= =20 passing high wholesale power costs on to customers.=20 At a press conference after the meeting, Davis told reporters that=20 negotiations are improving between the state and PG&E for a deal similar to= =20 the one announced with Edison last week. In that transaction, the state wou= ld=20 buy Edison's power lines for $2.76 billion, and Edison would issue bonds to= =20 recover its wholesale power costs.=20 Yesterday's meeting was closed to the media and investors, and no Internet= =20 broadcast or teleconference of the event was available. That frustrated som= e=20 investors and analysts who had hoped for greater access -- particularly=20 bondholders of the two utilities, who have the greatest power to push the= =20 utilities into bankruptcy if they decide to do so.=20 But a transcript of the session was being prepared yesterday and is expecte= d=20 to be made available this morning on the governor's Web site,=20 governor.ca.gov.=20 Analysts who attended the meeting said the Davis visit was productive, thou= gh=20 not likely to produce any immediate change in equity recommendations or bon= d=20 ratings.=20 "There wasn't any news that's new," said Dave Hitchcock, director of Standa= rd=20 & Poor's state and local government group. "He reiterated he expects an=20 agreement with PG&E in 30 days. So we have a date we can watch."=20 Indeed, there appeared to be little immediate reaction in the market during= =20 the 45 minutes or so of trading that was left after the meeting broke.=20 Trading volume for PG&E remained under 25,000 shares, and the stock closed = at=20 $13.96, down 9 cents.=20 Trading was heavier in Edison shares, which ended the day down 4 cents at= =20 $14.90. Both stocks are trading at around half of their 52- week highs. ---------------------------------------------------------------------------= --- ------------------------------------------------------------------ BUSINESS=20 PG&E May Be Ready To Deal / Lawyers to advise it on selling lines David Lazarus ?=20 03/01/2001=20 The San Francisco Chronicle=20 FINAL=20 Page B1=20 (Copyright 2001)=20 Pacific Gas and Electric Co. has retained outside counsel to advise it on= =20 selling its transmission lines to the state, The Chronicle has learned.=20 The move represents a potential breakthrough in the stalemated talks betwee= n=20 PG&E and representatives of Gov. Gray Davis on California 's plan to buy th= e=20 utility's power lines for perhaps more than $7 billion.=20 Southern California Edison already has voiced willingness to part with its= =20 transmission lines. But sources familiar with the negotiations said PG&E ha= s=20 remained largely inflexible, insisting that its lines are not for sale.=20 That stance could be changing.=20 According to an internal memo sent to some PG&E employees this week, the=20 utility is bringing in attorneys from an unspecified law firm to offer=20 guidance on a potential sale of assets.=20 "The company has hired a law firm to help deal with a possible purchase of= =20 the electric transmission system by the state, as proposed by Gov. Davis as= =20 part of a deal to resolve the utility debt problem," the memo said.=20 It added: "Don't read anything into this regarding an agreement by PG&E to= =20 sell or not to sell."=20 Ron Low, a PG&E spokesman, refused to confirm the contents of the memo or= =20 even that such a memo was issued.=20 Choosing his words carefully, Low said: "We are not aware of the alleged=20 memo. We cannot speculate on a memo we have not seen." He said he was=20 speaking on behalf of the public relations department.=20 Asked whether outside counsel had been retained, Low said, "It would be=20 inappropriate to comment on ongoing discussions with the governor."=20 Nevertheless, sources within the utility said the new lawyers are being giv= en=20 workstations in PG&E's land department, where records of real estate holdin= gs=20 are kept.=20 The sources interpreted this as a sign that the utility is eager to place a= =20 higher value on its assets -- almost certainly more than the governor has= =20 offered so far.=20 Edison already has agreed to sell its power lines for $2.76 billion, which = is=20 about 2.3 times book value, or the value placed on the system for accountin= g=20 purposes.=20 If PG&E were to accept a similar premium on its lines, the sale price would= =20 be $7.2 billion.=20 Sources within the utility said that if a deal is reached, it will likely b= e=20 for above this amount. The new lawyers, presumably, are intended to help PG= &E=20 drive a harder bargain.=20 "They're trying to play hardball, but I'll bet they submit," said Richard= =20 Bilas, who sits on the California Public Utilities Commission. "Getting mor= e=20 than two times book value doesn't sound like a bad deal."=20 The governor told Wall Street analysts in New York yesterday that the=20 negotiations with PG&E could last another month.=20 On Tuesday, he said U.S. Energy Secretary Spencer Abraham is open to=20 California 's buying the utilities' power networks. Federal approval is=20 necessary for the plan to work.=20 The Bush administration and federal regulators have been less forthcoming,= =20 however. Privately, they have expressed skepticism about a public entity's= =20 taking over private energy assets.=20 California is hoping to return the state's cash-strapped utilities to=20 solvency by handing over billions of dollars in return for hard assets. PG&= E=20 and Edison have racked up nearly $13 billion in debt as a result of the=20 state's bungled efforts to deregulate electricity prices.=20 Sources familiar with the talks said Edison's parent company, Edison=20 International, appears eager to get out of the utility business, while PG&E= 's=20 parent, PG&E Corp., would prefer to remain a player in the industry.=20 "The companies are structured differently," said the PUC's Bilas. "I believ= e=20 Edison has a much broader operation than PG&E."=20 ---------------------------------------------------------------------------= --- ------------------------------------------------------------------ EDITORIAL=20 OPEN FORUM=20 Generating Ideas / Deregulation, done right this time -- not state control = --=20 is the answer to Calfiornia's energy woes Kenneth L. Lay ?=20 03/01/2001=20 The San Francisco Chronicle=20 FINAL=20 Page A23=20 (Copyright 2001)=20 BLACKOUTS, skyrocketing electricity prices and the threat of bankruptcy of= =20 two large utilities must mean the failure of deregulation, right?=20 No, it's not right.=20 What has happened in California over the past four years is not deregulatio= n.=20 It is misguided regulation.=20 Deregulation does not mean eliminating customer choice and competition for= =20 most customers. Deregulation does not mean limiting new market entrants.=20 Fewer than five percent of customers in California are served by competing= =20 suppliers.=20 Deregulation does not mean creating a single central power pool from which= =20 all participants must buy and sell their wholesale power; the state Power= =20 Exchange effectively replaced three monopoly buyers with one monopoly buyer= .=20 Deregulation does not mean buying all of your commodity at the last minute,= =20 on the spot market, rather than planning ahead and purchasing most of the= =20 power under long-term contracts that lock in prices.=20 The situation in California is the result of continued regulation,=20 complicated by a series of natural and man-made factors.=20 In the past two years, California has enjoyed an economic boom fueled by a= =20 burgeoning technology industry. Since 1995, demand for electricity in=20 California has grown by 5,500 megawatts. Supply, on the other hand, has not= =20 kept pace.=20 California was clearly headed for major problems when nature pushed it over= =20 the edge. November and December 1999 were the warmest in the previous 100= =20 years. Those same months in 2000 were the coldest in the last century. Add = a=20 sharply reduced snowpack that has dried up hydro sources from Northern=20 California and the Pacific Northwest. Add tight gas supplies across the=20 country, and you have an electricity supply problem in the West and an=20 electricity supply crisis in California .=20 The problem in California 's energy market is simple: There is too little= =20 supply and too much demand. As a result, every potential solution must=20 address either or both of those factors, and the test for any proposal must= =20 be: Does it increase supply? Does it decrease demand?=20 California desperately needs new generation. While Enron and other companie= s=20 have built peaker generation facilities in as little as 10 months in other= =20 states, it takes years to construct a power plant in California .=20 The state also suffers from a congested transmission system, which prevents= =20 the delivery of power to where it is needed. California needs quicker sitin= g=20 for power plants and expanded transmission facilities.=20 California also needs real-time pricing -- pricing that reflects the=20 difference in the cost of providing electricity at peak periods as compared= =20 to non-peak periods.=20 As a country, we're power hungry. Virtually all of our daily amenities are= =20 fueled by electricity. We flip switches and use electricity anytime we want= ,=20 with no thought to the cost at a given moment.=20 But if customers, particularly large commercial and industrial customers,= =20 received real-time price signals, they'd know how much they were paying for= =20 electricity at any given time. This would encourage conservation or shiftin= g=20 usage to off-peak times to reduce electric bills.=20 This would also spread California 's scarce electricity supplies over more= =20 users (including those residential customers who don't have the flexibility= =20 to reduce or shift demand) and reduce the risk of rotating blackouts.=20 A complementary demand-side solution would be to purchase demand reductions= .=20 If utilities or the state are willing to pay $75 for a megawatt hour, they= =20 ought to be willing to pay $75 for a "negawatt" hour.=20 This would free up still additional megawatts to meet peak demand.=20 Blackouts are not voluntary, but by giving customers incentives to reduce= =20 demand, the choice is theirs, and the result is less disruption to business= =20 and the economy.=20 Customer choice is absolutely essential in creating a competitive market an= d=20 in allowing consumers to realize the benefits of competition.=20 Just ask utility customers in San Diego, whose supplier purchased most of i= ts=20 power on the spot market. When prices jumped, those hikes were passed along= =20 to the consumer. The only customers who were protected were those who chose= =20 alternative suppliers like Enron and had locked in a price, thus avoiding t= he=20 sharp price increases.=20 California needs to rely less on the spot market. A balanced portfolio of= =20 short- and long-term purchases by customers would sharply reduce=20 Californian's exposure to volatile prices and would bring down prices in th= e=20 near term.=20 California needs to restore the creditworthiness of the utilities, which is= =20 necessary to attract new generation and long-term supply commitments. The= =20 state has made a significant first step by allowing the state Department of= =20 Water Resources to purchase power on behalf of the utilities.=20 In a crisis, it is equally important to understand what won't work.=20 We cannot afford to waste time on things that don't work or make matters=20 worse. California does not need state control of the power business.=20 There is no reason to believe -- and every reason to doubt -- that governme= nt=20 will do a better job than private firms in rapidly constructing new=20 facilities and operating them efficiently. In every other developed nation,= =20 governments are getting out of the power business, not trying to get in it.= =20 What California does not need is price caps, which don't work because they= =20 neither increase supply nor decrease demand. In fact, they worsen the=20 situation. Price caps discourage investment in the development of new=20 generation.=20 When the state imposed price caps last October, companies such as Enron wer= e=20 forced to cancel plans for more than 1,000 megawatts of peaking generation= =20 that would have been online by this summer. Peaking plants are
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