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Oakland Trib Wed 3/7: "Breakthrough made in rescue of PG&E" Bakersfield Californian, Wed 3/7: "El Paso Energy closes six valley power plants" Contra Costa Times, Wed 3/7: "Still undecided: Who'll pay DWR for electricity" SF Chron, Wed 3/7: "State Taxpayers In Dark on Details Of Energy Deal" Sac Bee, Wed 3/7: "Lawmakers pitch fixes for region's energy woes" Orange Co. Register, Wed 3/7: "Power plan called wrong" LA Times - Wed 3/7: "Bill to Cut Some Power Prices Stalls" Sac Bee, Wed 3/7: "PG&E could face mutiny on outages: SMUD, others may balk if utility orders summer blackouts" SF Chron, Wed 3/7: "PUC to Decide Fate Of Utility Workers PG&E, Edison want to trim costs by laying off thousands, cutting service" San Jose Mercury, Wed 3/7: "Power prices could soar during the summer" SF Chron, Wed 3/7: "Power Plant Plans Cause Conflicts East county residents blast supervisors" Contra Costa Times Wed 3/7: "Supervisors set search for power plant sites" Sac Bee, Wed 3/7: "Peter Schrag: California's $90 billion infrastructure gap" Contra Costa Times, Wed 3/7: "PG&E power plan debated at hearing" SF Chron, Thurs. 3/8: State OKs 'Peaker' Power Plant at SFO / Temporary generator could be sending electricity to 50,000 homes by August WSJ, Thurs. 3/8: Crossed Wires: Major Kinks Emerge In Gov. Davis's Plan To Power California --- State's Outlays for Electricity May Be Hard to Recover Without Rate Increases --- Betting on Long-Term Deals ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ------------------------ Breakthrough made in rescue of PG&E State ready to pay $7 billion for lines By Steve Geissinger SACRAMENTO BUREAU SACRAMENTO -- Signaling a breakthrough in secret energy crisis talks, the Davis administration disclosed Tuesday it may announce the framework of a pact to rescue the teetering Pacific Gas and Electric Co. next week. "Things are going very well," said Steve Maviglio, a spokesman for Gov. Gray Davis. The state appears to be poised to pay at least $7 billion -- and possibly billions more -- for PG&E's high-voltage transmission lines as part of a deal to financially renovate the north-state utility, according to sources familiar with the negotiations. But consumer advocates insisted that even the $7 billion price is too much to pay. And experts warned that a deal with PG&E will be more complex than with other utilities. PG&E representatives declined comment, in keeping with their policy on the talks, even though the Davis administration said an announcement could come as early as next week or the following week. The new timetable for an announcement was substantially sooner than in Davis' original forecast. Until late last week, PG&E was still resisting the sale of its power grid despite the fact that Davis had announced the framework of an agreement with Southern California Edison. Davis expects to soon announce a similar deal with the San Diego Gas and Electric Co. However, any such deal still would need federal approval. The investor-owned utilities, trapped between high wholesale costs and lower, regulated retail rates, amassed nearly $13 billion in debts and were unable to buy electricity this winter. With the onset of rolling blackouts, the state began brokering billions of dollars in emergency short- and long-term power purchases. Davis' strategy to ease the energy price and supply crisis includes bolstering both conservation and generation while fiscally refurbishing the nearly bankrupt utilities. As part of the rescue deal, the utilities would have to drop legal actions seeking dramatically higher electricity bills, environmentally shield wildlands they own, sell power from their generators to Californians for the next decade and secure help with their debts from their parent companies. Together with the cash infusion from the sale of their power 26,000-mile power grids, the utilities would be allowed to sell bonds to raise funds and use customer money to pay them off. The state would upgrade the high-voltage lines and lease them back to the utilities for operation. In a reflection of the negotiations with the three utilities, a Davis administration official said the deal with PG&E is proving to be more complex than with the other firms. Though PG&E finally agreed late last week to sell its transmission grid, the utility apparently wants more than the $7 billion that Davis has offered, according to sources. The figure is more than twice the book amount, or the value placed on the system for purposes of accounting. And that's the markup that lured Edison into an agreement to sell its smaller portion of the transmission grid for $2.8 billion. But PG&E, which fears an erosion of its economic base, may be asking as much as $10 billion. Due to complexities in the state's 1996 deregulation of the industry, PG&E is more likely to lose revenue than Edison as a result of selling its transmission lines, according to experts. Big customers might be able to bypass the utility's remaining local distribution lines, thereby eroding its customer base. Therefore the utility may view bankruptcy, and sale of its transmission lines to the highest bidder, as a potentially attractive alternative to selling its share of the grid to the state at too low a price. ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ---- El Paso Energy closes six valley power plants Filed: 03/07/2001 By CHIP POWER, Californian staff writer e-mail: ppower@bakersfield.com El Paso Energy, citing non-payment from Pacific Gas & Electric Co., said it has shut down six cogeneration plants this week. The smaller plants produced about 175 megawatts of electricity and are located primarily in the San Joaquin Valley, said company spokesman Mel Scott. A megawatt can supply power to 1,000 homes. At least 10 plants have closed in the past two weeks as a result of non-payment, according to the state Independent System Operator, which manages most of the state's electrical distribution. The El Paso Energy plants are operated with various partners and had not been compensated for December, January and February deliveries, said Scott. He said he did not know the total amount due but said the plants would be closed until PG&E's credit worthiness is improved. A cogeneration plant, common in oil fields, simultaneously produces heat energy and electrical or mechanical power from the same fuel in the same facility. Typically, it produces electricity and steam, which can be deployed to enhance oil recovery. Kern County is the state's leading oil-producing county. El Paso owns or has interests in more than 40,000 miles of interstate and intrastate pipeline connecting the nation's principal natural gas supply regions to the five largest consuming regions in the United States, namely the Gulf Coast, California, the Northeast, the Midwest and the Southeast. El Paso closed up 99 cents on Tuesday, or 1.4 percent, at $71.49. The Houston-based company's stock price has ranged between $36.31 and $75.30 in the last 52 weeks. ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ---- Still undecided: Who'll pay DWR for electricity By Karen Gaudette ASSOCIATED PRESS SAN FRANCISCO -- The price tag is $3.2 billion and counting for electricity bought by the state Department of Water Resources for the customers of two nearly bankrupt utilities. Pacific Gas and Electric Co., Southern California Edison and the state disagree over how the DWR eventually will be reimbursed for its purchases on the expensive last-minute power market. So do the state power regulators, who have the final call over who gets the money when. Under a recent law, the DWR went into the electricity-buying business to help keep the two utilities from sinking further into their $13 billion debt. The state plans to retrieve the money by selling $10 billion in revenue bonds. The utilities continue to collect ratepayer dollars on that electricity, which the bill's author, Assemblyman Fred Keeley, D-Boulder Creek, says is meant to help them begin paying down their debt. In a recent letter, however, DWR officials requested that the state Public Utilities Commission order that a portion of that money be diverted to the state. But after the utilities subtract the costs of generating electricity, payments to environmentally friendly power plants and other expenses, there is no money left from ratepayer dollars to give to the DWR without sinking further into debt, PG&E spokesman Ron Low said Tuesday. If it passed along money to the DWR, "our undercollection would grow by about $2.4 billion by the end of the year," Low said. The commission, unable to agree on the best course of action, left the issue untouched at its last meeting but expects to revisit the issue when it meets this morning. Commissioner Richard Bilas is proposing an alternate plan that would have the DWR set its own revenue requirements that would be passed on to ratepayers. The PUC also is expected to respond to complaints from laid-off workers and customers that layoffs by utilities to cut costs have been hurting service. Commissioner Carl Wood warned at the last meeting that failure to provide safe and reliable service could mean fines for the utilities. Representatives from electrical workers unions, the PUC and the utilities were to discuss the issue Tuesday afternoon. "I don't think we believe that utilities can find a way out of their problems by laying off workers," said Mindy Spatt, a spokeswoman with the Utility Reform Network. "We think consumers deserve safe and reliable service, and we think they deserve it at a reasonable price." ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ---- State Taxpayers In Dark on Details Of Energy Deal David Lazarus, Chronicle Staff Writer Wednesday, March 7, 2001 ,2001 San Francisco Chronicle Few people would purchase a car simply because the dealer said, ''Trust me, it's a great deal.'' Yet Gov. Gray Davis essentially is telling Californians just that about dozens of long-term power contracts. Because of confidentiality agreements with power companies, the governor has revealed only scant details about the state's multibillion-dollar contracts for electricity over the next 10 years. "Gov. Davis has our money, and we can't see how he's spending it," said Doug Heller, a spokesman for the Foundation for Taxpayer and Consumer Rights in Santa Monica. "We've been locked out of the room." Neither Davis nor power companies would divulge specific details about the price, duration or scope of individual contracts. Each cited secrecy clauses that the governor's office said had been desired by both sides. What consumers do know is this: -- California has signed 40 contracts and tentative accords, valued at about $40 billion, to secure enough power to light 9 million homes over the next decade. -- The average purchase price of each deal is $69 per megawatt hour -- well above the $30 to $40 charged by power generators before California's energy market went haywire last summer. -- If, as is widely expected, wholesale power prices fall in years ahead, the state nevertheless will be locked into paying above-market rates for electricity. But it is not known which generator agreed to part with the most power at the cheapest level or the full range of the prices in concocting the $69 average. Moreover, it is unclear how shrewdly the state negotiated with taxpayer money in securing power on behalf of cash-strapped utilities. "These agreements are the bedrock of our long-term energy policy," Davis said Monday in announcing the deals. The governor's office defended the murky nature of the contracts yesterday. "It's a business transaction in which private corporate information is included," said Steve Maviglio, a spokesman for Davis. "That's the kind of information that never gets revealed." While additional elements of the contracts will be publicized in coming months, he said, the contracts themselves will remain a secret. "You'll never see all the details," Maviglio said. This did not sit well with many observers. "It's a breach of public trust," said Daniel Bacon, a San Francisco attorney specializing in business law. "A public servant spending public money shouldn't be able to keep the spending secret." But Gary Ackerman, executive director of the Western Power Trading Forum, an energy-industry association in Menlo Park, called confidentiality agreements "a necessary evil in transactions like this." He explained that no power company would agree to a long-term contract if rival firms could learn the terms of the accord. The company would be losing too much of its competitive edge in the marketplace, Ackerman said. At the same time, he noted that secrecy allowed the buyer -- in this case, California taxpayers -- to secure more favorable terms with individual sellers. A high price with one generator would not necessarily be sought by all power providers. Still, the fact that public funds are being used makes confidentiality in this case a different matter than, say, Cisco Systems' quietly negotiating to take over yet another tech rival. "The public is in a very awkward position," said Michael Shames, executive director of the Utility Consumers' Action Network in San Diego. "It has to rely on the good word and expertise of the governor, and he has yet to demonstrate that he has expertise or good word in this field." Shames likened consumers to passengers in a plane being flown by a pilot without a license to fly. "But what choice do we have?" he asked. "I don't see many other options available right now." There's the rub. No matter how bad a deal California may have cut to help meet its energy demands, the alternative -- blackouts, disruptions, economic catastrophe -- is far, far worse. On the other hand, it already appears that the new contracts will not shield Californians from the threat of daily outages this summer, when demand surges. Davis said only about 60 percent of the state's summertime electricity needs so far had been met. Part of the reason is that many power companies already have contracted for their output this year. Duke Energy said this was why it would not begin its nine-year contract with California until 2002, while Williams Cos. said it would only gradually increase the amount of available wattage in its 10-year contract. Both companies, meanwhile, will continue to profit this summer by selling into the volatile "spot" market, where wholesale power went for as much as $1, 500 per megawatt hour last year. "You can't sell all your power into long-term contracts," said Paula Hall- Collins, a Williams spokeswoman. "You save some for the spot market." Consumer groups worry that consumers will be hammered again this summer with sky-high power prices, and then get nailed down the road by contracts for above-market rates. "If we could look at the terms of the deals, we'd see that California is being gouged for 10 years," said Heller of the Foundation for Taxpayer and Consumer Rights. "But the governor doesn't want us to see that." Ackerman of the Western Power Trading Forum said the state had gotten the best rates it could under current market conditions. "California went for long-term contracts when everyone else moved in as well," he said. "Californians are paying a price for not acting sooner." ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ---- Lawmakers pitch fixes for region's energy woes By David Whitney Bee Washington Bureau (Published March 7, 2001) WASHINGTON -- California members of Congress pleaded for everything from wholesale price caps to extending daylight-saving time an extra hour to help the region cope this summer with its persistent electricity shortage, but none of the ideas seemed to catch fire at a House hearing Tuesday. "People will die in California because of this crisis," Rep. Brad Sherman, a Los Angeles-area Republican, warned the House Energy and Commerce Committee. Sherman testified that his idea for saving lives is to extend daylight-saving time by an extra hour, so that there would be more daylight at the end of the day when power consumption surges. "One of the peak demand periods for electricity occurs between 5 p.m. and 8 p.m., when the sun sets and people come home from work," Sherman testified. "If people come home and it is light out, there is less of an inclination to turn a light on." Sherman said the state Legislature has called for congressional approval for states to be given authority to extend daylight-saving time, and he cited analyses by the California Energy Commission and other agencies suggesting that it could cut power consumption by 1 percent to 2 percent. Sherman, who was one of about a dozen California lawmakers presenting their views on the energy squeeze, drew no questions from committee leaders about what his legislation might do to everything from airline schedules to television programming if West Coast states didn't agree on the same time standard. Most of the committee's questioning was on the more popular idea proposed by several California and Western lawmakers, primarily Democrats, to require the Federal Energy Regulatory Commission to impose caps on wholesale electricity prices that have gone wild because of a regional power shortage. Rep. Bob Filner, D-San Diego, charged that the price spiral has little to do with power shortages but a lot to do with a "small cartel" of generators bilking ratepayers. Rep. Jay Inslee, D-Wash., said he brought up the idea of regional price caps with President Bush, who was initially skeptical. But Inslee said that Bush warmed to the idea after being told that protections could be built into the caps so as not to discourage construction of new power plants. Upon hearing that, Inslee said, Bush invited him to meet with the president's Cabinet-level task force led by Vice President Dick Cheney on a national energy strategy. But Inslee said he can't get the group to meet with him. "It's very disappointing," Inslee said. Tuesday's hearing was part of a series the panel is holding on the California crisis, so far without any emerging consensus on what, if anything, Congress should do. ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ---- Power plan called wrong Wall Street analysts say the governor's approach to the problem avoids the issue that caused the imbalance. March 7, 2001 By DON THOMPSON The Associated Press SACRAMENTO California's scramble to insulate consumers from the soaring price of electricity may add to the state's power problems this summer, Wall Street analysts said Tuesday. Gov. Gray Davis' emphasis on buying utilities' transmission lines and negotiating long-term power contracts to help ease their debts skirts the deep imbalance between wholesale and market rates that led to the state's power problems in the first place, they said. "In the long run, it doesn't solve anything," said Michael Worms, an industry analyst for Gerard Klauer Mattison & Co. "In the long run, you need to send the right price signals to consumers, which will create its own conservation signals. Unfortunately, customers were shielded from that in California." Davis said Monday that the state's first contracts to buy electricity for two financially struggling utilities will provide only about two-thirds of the power needed on a typical summer day, forcing Californians to cut power use at least 10 percent to avoid blackouts. Since early January, the state has been buying one- third of the power Southern California Edison and Pacific Gas and Electric Co. customers need. The two utilities, denied credit by suppliers, say they have lost nearly $14 billion due to soaring wholesale electricity prices that the state's industry-deregulation law says they cannot pass on to consumers. The keepers of the state power grid had enough electricity Tuesday to avoid declaring an electricity alert, but have faced an almost-daily scramble for weeks due to a tight supply and high wholesale prices. Several wholesale and retail rate proposals are circulating. Among them: Free-market advocates such as Worms want an immediate end to the deregulation-imposed retail rate freeze on Edison and PG&E that will expire next year. Davis wants a Western price cap of $100 per megawatt hour on power generators he says have been prof iteering from California's short energy supply. The Bush administration and Federal Energy Regulatory Commission are cool to that idea. In December, FERC imposed a "soft cap" of $150 per megawatt hour on wholesale rates in the state and required suppliers to justify any higher prices they charge. Consumer groups such as The Utility Reform Network, or TURN, want regulated rates for residential and small-business customers, but free-market rates for large industrial customers, which sought deregulation in the first place. TURN also advocates a tiered rate structure, with higher rates for consumers who use more than a reasonable amount of electricity each month. Assembly Republicans say electricity and natural-gas prices will fall naturally if the state increases supply, mainly by making it easier to build plants and pipelines. "Right now, you're sort of sitting partially with regulation and part with the free market," said Paul Fremont, an analyst with Jefferies & Co. "Both these systems work. It's sort of that in-between system that you have in Califor nia that doesn't appear to be working." The system discourages generators from building new power plants because they aren't guaranteed a profit, and it doesn't do enough to discourage power use by consumers because the price they pay doesn't reflect the true cost of power, Fremont said. "I don't think people here have much faith in the market, and why should they?" countered TURN's Mindy Spatt. "I think there are probably better ways of encouraging consumers to conserve than by gouging them." Davis insists the crisis can be resolved without raising rates for Edison and PG&E customers beyond "the existing rate structure." In January, state regulators imposed temporary rate hikes of 7 to 15 percent on Edison and PG&E customers. The Legislature and Davis extended the increases for up to a decade to help pay back the estimated $10 billion in power buying the state expects to do for Edison and PG&E over the next several years, and finance its purchase of the power lines owned by the two companies and San Diego Gas & Electric. Rates were already scheduled to increase next year for Edison and PG&E customers. Under the 1996 deregulation law, the pair's ratepayers saw a 10 percent rate reduction, but only until early 2002. That rate cut will likely expire as planned, Davis spokesman Steve Maviglio has said. Davis wants those rates to cover not only the traditional cost of generating, transporting and distributing power, but the added cost of paying off the two utilities' massive debt and buying their transmission lines, said Assemblyman Fred Keeley, D-Boulder Creek, the Assembly's chief power negotiator. Yet Davis has indirectly addressed the rate imbalance by signing legislation that will let regulators raise consumer rates if necessary, Keeley said. The governor and lawmakers are in effect spreading out rate increases over a decade by using long-term revenue bonds to buy power for the nearly bankrupt utilities, said Severin Borenstein, director of the University of California Energy Institute. "At some point we have to deal with the reality that all of the power that we buy has to be paid for by somebody - it's either going to come from taxpayers or it's going to come from ratepayers," Bor enstein said. "Raising rates now would get us a lot of conservation." Davis also wants financial incentives for conservation and power-plant construction in time to make a difference this summer. "Our mouths were agape" at the rapid timetable, Keeley said. Legislators are rushing to pass those incentives by month's end, he said, allowing three months for consumers and suppliers to act before the heat of summer. Among bills considered Tuesday, the Senate Energy Committee approved legislation to accelerate the siting of power plants. It also was considering a proposal to restructure rates for generators that use renewable energy to provide about 30 percent of the state's electricity. ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ---- Bill to Cut Some Power Prices Stalls Energy: Democrats balk at varying payment levels for alternative generators. By DAN MORAIN, JULIE TAMAKI, Times Staff Writers SACRAMENTO--Legislation aimed at cutting prices for more than a fourth of the power consumed in California stalled Tuesday, as Democrats questioned why a few alternative energy generators--some of them campaign donors--stood to receive higher payments than others. Lawmakers working to unravel California's energy mess have been negotiating for weeks in an effort to cut the price paid to more than 600 generators of alternative power by more than half, to below 8 cents a kilowatt-hour. Those alternative generators' contracts with utilities have shot up in recent months because of a rise in the price of natural gas. The cash-strapped corporations have suspended or made partial payments to the generators over the last few months, causing many to shut down or reduce their outputs. But even as the lawmakers reached agreement that pushed the average price to near the 8-cent level per kilowatt-hour, some generators would have received higher prices under the bill by state Sen. Jim Battin (R-La Quinta). Some of the generators that stood to benefit had donated to Battin's campaigns. One--Windtec Inc.--gave Battin a $20,000 campaign donation in 1999. Others contributed from $3,000 and $5,000 last year. Battin acknowledged that he has received campaign contributions from some wind power generators but said there is no connection between the donations and the bill's provisions. "It is illegal, it is unethical and it's not how I do business," he said. Battin noted that 25% of the state's alternative energy producers are in his district. As Democrats on the Senate Energy Committee blocked the bill, Battin warned that some alternative energy producers might react to the delay by trying to force Southern California Edison and Pacific Gas & Electric into bankruptcy. "We will be the cause of bankruptcy," Battin said. That prompted Energy Committee Chairwoman Debra Bowen (D-Marina del Rey) to retort: "I'm really tired of being threatened with bankruptcy." Alternative energy producers, including those that use wind, solar power, biomass and other means, produce 27% of the energy used in California. They sell the electricity to the utilities, which in turn transmit it to retail consumers. But with the utilities facing multibillion-dollar debts, the alternative energy producers under contract with Edison have not been paid since November. Scores of alternative energy producers supported the measure. Edison International and the San Francisco-based consumer group, the Utility Reform Network, opposed it. Michael Florio of the Utility Reform group said the deal could result in higher consumer prices; an Edison representative said the same thing. Battin and Assemblyman Fred Keeley (D-Boulder Creek) worked out an arrangement with many of the generators. Keeley took the lead in the early negotiations, and then turned to Battin to introduce the legislation, SB 47X. Rather convoluted language would have allowed higher payments to a select few generators that produce electricity from wind and biomass. Most of California's wind suppliers, for instance, would have received about 6 cents per kilowatt-hour. But a handful of them, about half a dozen wind farms--mostly in the Palm Springs area represented by Battin--would have received 7.8 cents. Battin contends that other wind producers receive additional payments that boost them to the same level as Windtec and others that would get the higher payments. "They get the same deal," Battin said of the handful of generators that would benefit from the provisions he added to the bill. In California's overall energy market, the amount of money that would have flowed to the favored generators is minor. But the added prices that would have been paid to the generators would have translated to at least $19 million in the next five years, to be absorbed by Southern California Edison customers, according to one analysis. Also Tuesday, more details were disclosed about another leg of the state's effort to escape from the energy crunch--the deals with large power generators to supply electricity to California for as long as 10 years. Those arrangements were announced by Gov. Gray Davis Monday as "the bedrock" of California's energy policy. But some consumer advocates warned that the deals could lock the state into excessively high-priced contracts. S. David Freeman, the general manager of the Los Angeles Department of Water and Power and Davis' negotiator, said that the state guarded against that by varying the time spans of its deals. About 6,000 megawatts are expected to be available this summer, about one-third of the energy needed by the state, Freeman said. The amount of power under contract swells until more than 9,000 megawatts are contracted in 2004, half of the needed amount, before dipping to 8,000 megawatts in 2010. "What we're doing here is what everybody said had to be done," Freeman said. "We deliberately bought 50% so we'd have a good mix between long-term contracts, which may turn out to be somewhat higher or somewhat lower than the spot market," and purchases on the spot market. ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ---- PG&E could face mutiny on outages: SMUD, others may balk if utility orders summer blackouts By Carrie Peyton Bee Staff Writer (Published March 7, 2001) Sacramento's electric utility wants out of a deal that imposes rolling blackouts locally on PG&E's command. So do a lot of other utilities. They've been writing letters, lobbying lawmakers and launching informal talks with Pacific Gas and Electric Co. to get off the hook before summer. Who dodges the blackout bullet "is going to play out as a political hot button" around the state, said George Fraser, head of the Northern California Power Agency, a coalition of municipal utilities. In Sacramento, the next volley is expected soon, with the Sacramento Municipal Utility District reportedly poised to notify PG&E that it will no longer black out homes and businesses on the larger utility's command. "We are absolutely trying to fight off the requirement for rolling blackouts for the Sacramento area," said Linda Davis, one of seven elected members of the SMUD board of directors. Saying they don't want to be dragged down by somebody else's problems, two Southern California utilities have written grid operators asking to be exempted from any blackouts caused by PG&E's or Southern California Edison's financial woes. But in PG&E's view, "California is in an energy crisis (and) ... we're all in this together," said spokesman John Nelson. The maneuvering comes amid bleak forecasts for power supplies this summer. Although Gov. Gray Davis has said conservation, new power plants and moderate weather could avert blackouts, officials at the Independent System Operator, which runs much of California's grid, expect frequent rotating outages. One consulting firm, Cambridge Energy Research Associates, predicts 20 hours of rolling blackouts during July and August, and about 200 hours of especially intense calls for voluntary cutbacks. Before blackouts hit, the jockeying over just whose lights, air conditioners and assembly lines will be shut down is growing. The outcome could affect millions of people statewide. The state Public Utilities Commission is probing rolling blackout programs run by the for-profit utilities it regulates, including PG&E and Edison. A PUC analysis has suggested that PG&E's program, which currently exempts about 40 percent of its customers, should spread the burden more broadly. For example, it said, 1.9 million homes and businesses are spared just because they share a circuit with a customer deemed "essential." But not-for-profit utilities such as SMUD, which answer to their own elected boards or city councils, have other worries. Many have already lined up their power supplies for summer. Some have raised rates or are considering raising rates. Some have taken extra conservation steps. They think those preparations ought to give them leverage to ease blackout clauses in their contracts with PG&E. SMUD general manager Jan Schori "is going to use every avenue ... any avenue, to put pressure on," including lobbying the ISO, the governor and others, said utility director Davis. The Northern California Power Agency, a joint-powers authority that owns and operates power plants for municipal utilities, has begun informal negotiations with PG&E to change blackout rules, according to Fraser, its top executive. It is preparing to write PG&E, asking that its members be exempted from outages altogether. Failing that, it wants them to face fewer outages or to be compensated for cutting off power, he said. At SMUD, the utility board has met in closed session to discuss exactly what it is required to do during electric emergencies, under terms of the interconnection contract that links SMUD's lines to PG&E's. "The contracts are being inspected with a fine-tooth comb," said SMUD director Howard Posner. Schori declined to comment on any specifics. Sources indicated that the main option being considered is notifying PG&E that because of changed circumstances, SMUD believes it no longer is required to routinely comply with outage requests. Other options being explored include re-negotiating existing agreements with PG&E. Posner said that ever since two days of rolling blackouts in January, constituents have been asking him, " 'Why are we participating when we're not the problem?' And I don't have a good answer to that." Several directors said SMUD has already spent a lot of money -- and is considering 16 percent rate increases -- to ensure that it has enough electricity under contract to meet its customers' summer demands. They believe PG&E should do the same. "We're almost like a David against Goliath here," said board vice president Genevieve Shiroma. "The huge investor-owned utilities next door have severe problems that they need to get under control." In addition, SMUD plans to argue that because it can cut usage through its "Peak Corps" program, which remotely turns off air conditioners at volunteer households, it has already done its part without rotating outages, director Davis said. PG&E believes the interconnection agreements that govern smaller utilities' ties to its transmission lines have "benefits and burdens to both sides," said Nelson. "It wouldn't be fair or good policy for just one provision to be altered without taking a look at how that affects the entire contract," he said. Interconnection contracts generally have clauses that require utilities to help each other out to avert greater emergencies. Sometimes reducing demand -- called load shedding -- can be the only way to stabilize the electric grid in the seconds after a major power plant or transmission line fails. "It's been around in the electrical fabric forever," said Jim Pope, head of Silicon Valley Power, Santa Clara's city-run utility. In addition to legal requirements, "you have a moral obligation so you don't bring the system to collapse." Like other city-run utilities, Silicon Valley Power has a contract with PG&E that requires it to shed load during an electric emergency. But its contract allows it to work with big users to reduce their demand, so no one has to be completely shut off. Such agreements, formed long before deregulation when PG&E ran the north state's grid, now are complicated by the 1997 creation of the state Independent System Operator. The ISO today runs pieces of the grid owned by PG&E, Edison, and San Diego Gas & Electric Co. If it believes power use is about to surge past supply, potentially triggering a grid collapse across the western United States, the ISO notifies the three utilities that they have to shed a certain number of megawatts. The big utilities meet that requirement two ways. They cut circuits to some of their own customers, and they tell smaller, connected utilities to cut a proportionate share. In Northern California, about 80 percent of the outages are borne by PG&E customers and the rest by customers of SMUD and other municipal utilities and irrigation districts. "In one sense, we are all in this together. If SMUD were in danger of going down, we would hope others would help us out," said SMUD's Posner. "But that's if we're in danger from circumstances beyond our control, not from mismanagement or lack of financial wherewithal." It is unclear what penalties, if any, a utility would face for violating an interconnection agreement. In the long run, the issue would be fought either in the courts or before the Federal Energy Regulatory Commission, grid officials said. As a practical matter, in the seconds when the risk to the grid is greatest, if one utility refused to shed load, the ISO would probably solve to problem by calling on PG&E, Edison or others who are willing to make deeper cutbacks, they said. ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ---- PUC to Decide Fate Of Utility Workers PG&E, Edison want to trim costs by laying off thousands, cutting service Bernadette Tansey, Chronicle Staff Writer Wednesday, March 7, 2001 ,2001 San Francisco Chronicle State regulators are set to decide today whether debt-ridden Pacific Gas and Electric Co. and Southern California Edison can conserve cash by laying off thousands of workers and letting service standards slip. Union officials who protested the layoffs before the California Public Utilities Commission warn that if the cuts go through, neighborhoods hit by power outages could stay dark for hours, and more customers could face busy signals when they call about their bills. An administrative law judge agreed, advising the commission in February to order the utilities to restore 725 positions already cut and block the elimination of an additional 2,125 jobs. Judge John Wong said PG&E and Edison have acknowledged the layoffs will not substantially improve their shaky financial condition, which arose from skyrocketing wholesale electricity costs the utilities could not pass on to consumers under a rate cap. "The savings would barely make a dent," Wong said in his draft decision. The two companies together claim that their debt from power purchases amounts to more than $13 billion. PG&E says it has saved $18 million from the first wave of 325 layoffs. Wong's recommendation is already running into resistance on the PUC. Commissioner Richard Bilas said the five-member panel should not be micromanaging the utilities in a time of crisis. Bilas has proposed an alternate ruling that would allow the utilities to make the cuts, but provide for PUC monitoring of service in case the commission wants to step in later. "We're in a situation where the utilities are not collecting the revenues they need to operate, and yet we may be guilty of not letting them cut expenses where they can cut expenses," Bilas said. PG&E spokesman Jon Tremayne said savings from the layoffs are helping to keep electricity running and gas flowing. "It keeps cash in our accounts so we can keep doing day-to-day business," Tremayne said. In addition to the 325 positions dropped so far, PG&E is proposing to cut an additional 675 during the next three to six months. The cuts affect temporary and contract workers who read meters, handle new service hookups and replace equipment. PG&E has no plans to eliminate permanent positions. The company is struggling to keep up with a higher workload at its call center as customers deluge the lines with inquiries about their rising bills and the effects of deregulation. Calls to PG&E ballooned from 1.3 million in January 2000 to 2.3 million in January 2001. Bilas advocates granting PG&E's request to temporarily relax standards requiring the utility to respond swiftly to customer calls and to read customers' meters once a month. PG&E wants to read meters bimonthly and send bills based on the estimated use between readings. Discrepancies could be corrected later. Wong called those measures unacceptable. He said customers need to know immediately if their efforts to conserve power are working. Wong also said the utilities' own experts have said the workforce reductions will lengthen the time required to restore power after nonemergency equipment failure. Eric Wolfe, communications director for the International Brotherhood of Electrical Workers, Local 1245, said some customers have already been left without power overnight because PG&E is trying to avoid the use of overtime on nonemergency power outages. "It hurts a lineman to walk away from the job leaving a customer without power," Wolfe said. Tremayne said PG&E is trying to minimize overtime costs, but denied the company has allowed customers to go without power out of financial concerns. He said crews were pulled out when darkness and falling trees made the work too dangerous. ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ---- Power prices could soar during the summer Posted at 10:35 p.m. PST Tuesday, March 6, 2001 BY STEVE JOHNSON Mercury News Unless Gov. Gray Davis arranges significantly more long-term electricity contracts or persuades people to turn off a lot more lights, California's unpredictable spot market for power could wreak havoc this summer. Even with the 40 long-term deals announced by Davis on Monday, experts interviewed Tuesday said, up to 43 percent of the state's daily needs may have to come from this highly volatile market, in which power is bought within a day of need. That could could prove hugely expensive, because some spot market energy has cost five to six times what it would under the long-term contracts. It's widely expected that consumers ultimately would have to pay that tab, which could amount to billions of dollars. And because that power won't be locked up in contracts, there is no guarantee it will be available when it's needed, which could lead to blackouts, according to a recent report to the California Independent System Operator, which oversees three-fourths of the state's power grid. ``The situation in California could reach catastrophic proportions,'' the report concluded, adding that unless things change dramatically, ``it is a virtual certainty that peak demand will go unmet during many hot summer days.'' Steven Maviglio, Davis' press secretary, conceded Tuesday that the spot market could be troublesome. ``It's a major concern,'' he said, which is why the state is trying to line up more power contracts, speed up power plant construction and promote conservation. During the normally hot month of August, peak daily demand for power in the Independent System Operator's territory is expected to hit about 47,700 megawatts -- enough for nearly 48 million homes. The state's three main utility firms generate about 8,200 megawatts and have long-term contracts from wind, solar and other energy sources for about 11,700 megawatts more. That totals about 20,000 megawatts. Add in the 7,000 megawatts of long-term power that Davis has announced for this summer, and the state is still nearly 21,000 megawatts short. Costly proposition If all that power has to be obtained on the spot market, the price could be high. On Friday, last-minute purchases on the market averaged $411 per megawatt-hour, compared to about $150 per megawatt-hour for all power obtained by the Independent System Operator and $69 per megawatt-hour on average under Davis' long-term contracts. It's possible that not all 21,000 megawatts would have to be purchased on the market. Assuming Davis is successful in getting people to save 10 percent -- which could prove difficult -- conservation could reduce peak demand by nearly 5,000 megawatts. California also might be able to trade for another 5,000 megawatts with the federal government's Bonneville Power Administration and a hydroelectric operator in British Columbia, said Arthur O'Donnell, editor of California Energy Markets, a trade publication. Under such deals, those two outfits often send that much power to California when they don't need it and California returns the same amount or more when its demand is low. But O'Donnell said it wasn't clear whether 5,000 megawatts would be available this summer, because ``they still haven't gotten the snowpack they need in the Pacific Northwest,'' which could limit that region's generating capacity. Still falling short Even if those hydropower imports are available and conservation works as Davis hopes, it's likely California would still require the spot market for 11,000 megawatts to meet the August demand. That's more than 20 percent of the state's overall power needs. ``All of the surrounding states are buying probably less than 5 percent, at most, of their energy on the spot market,'' said Frank Wolak, a Stanford economist, who monitors electricity prices for the Independent System Operator. He worries about how much that power could cost and is disturbed that state officials haven't adequately addressed the issue. ``No one has any idea what they are going to do, and that is part of the problem,'' he said. Officials at Pacific Gas & Electric Co. are particularly concerned. They fear that their company -- which is nearing bankruptcy -- could get stuck for much of the spot market purchases by the Independent System Operator, which has threatened to bill the utilities for the cost. Fearing the annual bill for that power could hit $2.4 billion this year, PG&E wants the tab sent to the Department of Water Resources, which also is buying power on the spot market for the state. But the Department of Water Resources has objected to that idea and the matter is expected to be heard today by the California Public Utilities Commission. ``We're looking for clarity on a number of issues'' regarding how the spot market will work ``and certainly that's one of them,'' said Thomas Hannigan, the water agency's director. ``I don't think anybody knows the answer of who's going to pay for it,'' added PG&E spokesman John Nelson. But Nettie Hoge, executive director of the Utility Reform Network in San Francisco, said she suspects consumers ultimately will foot the bill. The unfortunate likelihood about spot market purchases is that ``ratepayers are responsible for all of it eventually,'' Hoge said. ``It's a very big problem.'' ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ---- Power Plant Plans Cause Conflicts East county residents blast supervisors Jason B. Johnson, Chronicle Staff Writer Wednesday, March 7, 2001 Industry dreams of building new power plants in east Contra Costa's hills are prompting an angry reaction among residents and elected officials who say they don't want more plants. The conflict was sparked by a vote by county supervisors yesterday to aggressively explore possible sites for new power plants throughout the county. The measure by Supervisors Mark DeSaulnier and Federal Glover, which passed on a 4-to-0 vote, directs the county administrator and Department of Community Development to compile a report on possible sites within 45 days. Supervisor Donna Gerber abstained after criticizing the plan for potentially repeating the same mistakes that plagued the state's energy deregulation effort by not considering how much energy the state, region and county will need in future years, and how much power is slated to come online. Gerber said alternative power sources, such as solar, should also be examined. A site drawing much attention is on top of a deposit of natural gas near the Concord Naval Weapons Station off Highway 4. The owners of 70 acres of land near the station recently formed a company, Golden State Power Co., to pursue construction of at least one small peaker plant and a much larger facility capable of producing 600 megawatts. The site could hold up to three small 50-megawatt peaker plants, and a larger 15-acre natural gas plant, said Steve Thomas, managing partner with Golden State. No land use applications have been filed. Thomas said 30 acres could be kept as open space to form a buffer around the project. "Both (facilities) are state of the art," said Thomas. "We believe that the site is ideal." But east county residents at yesterday's meeting blasted the supervisorial measure and the power plant proposal, complaining that more plants could put people's health at risk. The region already is home to six power plants. "We're going to get a good dose of poor air quality and (negative) health conditions from this," said Concord resident Evelyn Frietas. "I think we need to stop and think about what we're doing to our quality of life." Dan Torres said the home he bought in 1995 at a new Bay Point development would be alarmingly close to the proposed Golden State site. "It will be dragging emissions over our home," said Torres. "I didn't buy a home on that hill to be surrounded by power plants." There are six power plants in operation in east Contra Costa. Pittsburg already has two power plants, and two more under construction. City Council members Frank Aiello and Yvonne Beals said the Antioch-Pittsburg area has done more than its share of energy production. Aiello said Pittsburg will soon produce enough energy to power three million homes in California. "When is enough, enough?" asked Aiello. "Pittsburg has shouldered responsibility for a land-fill and two more power plants. At some point you have to say enough." Beals said that while power plants have added millions to the city's general fund, the negatives of additional plants could outweigh the benefits. "I don't think that Pittsburg or east county should be the dumping ground for energy for California," said Beals. ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ---- Supervisors set search for power plant sites The board also heard from the potential developers of a 650-megawatt plant between Bay Point and Concord By Thomas Peele TIMES STAFF WRITER MARTINEZ -- Contra Costa County supervisors took tentative steps Tuesday toward allowing the construction of at least one small power plant before summer, ordering that its staff identify potential sites in unincorporated areas within seven weeks. The board voted 4-0 to search for locations. Third District Supervisor Donna Gerber abstained, saying her colleagues lacked a "comprehensive context'' to identify sites. "I think the board knows just enough to be dangerous,'' she said. Gerber said the county should examine the potential for additional power plants within its borders but not investigate individual sites yet. But Fourth District Supervisor Mark DeSaulnier said the action was necessary because of the energy crisis and because of Gov. Gray Davis' call for local governments to help speed the construction of so-called "peaker plants" before July and August. "I wouldn't do this except under an emergency," DeSaulnier said after the vote. "There are unusual circumstances. We're not talking about putting this in a residential area." Fifth District Supervisor Federal Glover backed DeSaulnier, but said he hoped for a location outside his heavily industrialized East County district. "There's a lot of concern in East County as to the number of plants," he said. DeSaulnier said, though, that the only logical place for a small plant remains the "industrial belt'' stretching along the waterfront from West County to Antioch. He declined to provide specifics, but said the only other potential site outside the industrial areas was the Concord Naval Weapons Station property. But he quickly added that he believes the U.S. Department of Defense "would never go for it." Also, DeSaulnier said he could not rule out the county building the plant itself and entering the electricity-selling market during peak demand times. Board Chairwoman Gayle Uilkema called that idea extremely premature and unlikely. "That's a very powerful decision. I do not think we are ready,'' she said. The California Energy Commission listed the Equilon refinery in Martinez as one of 32 potential "peaker plant" sites in the state last week. Peaker plants kick in during peak usage times. Davis called for their quick construction before the height of summer and its energy demand for air conditioning. Plants that generate as much as 50,000 megawatts don't need Energy Commission approval. DeSaulnier said he believed a peaker plant could be built about a month after final approval. Supervisors also heard from the potential developers of a 650-megawatt plant between Bay Point and Concord. Walnut Creek commercial real estate developer Steve Thomas announced his intentions for the site north of Highway 4 last week. Construction could take two years. Eric Hasseltine, a consultant representing Thomas and what he described as a "brand new" company for the site, the Golden State Power Co., told supervisors that if they intended to speed peaker plant construction they should do what they can to expedite the larger plant. The Thomas site could house a peaker plant until the proposed larger one goes online. A large natural gas line passes under the site. DeSaulnier seemed cautious about the larger proposal, which he had described last week as "a good site." Uilkema, too, said she knew too little about it to comment. A resident who lives near the Thomas property asked the board to "build it (the larger plant) closer to where you have industrial areas. You have to carefully consider the people" who live nearby, said Dan Torres, 39. Evelyn Freitas of Concord said she lives downwind of the proposed site. "Our air quality is going to be worse then it is now," she said. Gerber played on the environmental issues, saying the county already ranks second statewide to Los Angeles in volume of hazardous materials and amount of electrical generation. ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ---- Peter Schrag: California's $90 billion infrastructure gap (Published March 7, 2001) By now, California's surreal energy mess has grown from a crisis to a condition. It may not be quite as permanent as, say, death and taxes, but it's still something that could get a whole lot worse before it gets better. Until there's more realistic pricing, no gubernatorial pea-under-the-shell buyout scheme will solve it. Beyond the energy crisis, however, and in many ways similar to it, California faces a whole range of other infrastructure problems -- in transportation, in water resources and sewer systems, in school and university buildings -- that seem, once again, to be all but forgotten. The Business Roundtable has estimated the need at roughly $90 billion, though no number can possibly be exact. What's certain is that after a burst of high-level investment in public facilities during the 1950s and 1960s, California's annual capital investment has sunk precipitously -- from an annual $150 per capita in the 1960s, according to a set of recent studies for PPIC, the Public Policy Institute of California, to about $30 in the 1990s. But you probably don't need to tell anyone driving Bay Area or Los Angeles freeways or looking at the ubiquitous portable classrooms, those dreary brown boxes that house a fourth of our public school students. Ever since passage of Proposition 13 in 1978, we have been flying the flag of deferred maintenance. As in the state's electricity crisis, however, there's no way California can effectively address those problems merely by building or bonding itself out of them. In highway construction, in developing water resources, in finding enough university space to accommodate the Tidal Wave II of students, managing demand is likely to be as crucial to any solution as new construction. In the energy market -- and in electricity particularly -- it's been a familiar principle ever since David Roe of the Environmental Defense Fund first persuaded Pacific Gas and Electric that a dollar invested in conservation may be worth as much as the same investment in new generation. But in most other sectors of California's infrastructure, state and local, it's a lesson still to be learned. There have been scattered attempts to encourage conservation and reduce demand -- significant reduction in water use, for example, through the installation of low-flow faucets and low-flush toilets; some reduction in traffic by using rush-hour diamond lanes or by adjusting highway or (as in New York) bridge tolls to levels of congestion. But as pointed out by David Dowall, an urban economist at Berkeley, state policy-makers have not really begun to "consider how demand management strategies can be applied to infrastructure service areas," or how the more efficient use of facilities and more realistic pricing -- highway tolls, say, or parking fees -- "can reduce demand for scarce infrastructure resources." In any case, says Dowall in one of the PPIC reports, we should pick which major projects we will build not just according to per capita estimates of how much we need, but according to how much consumers are willing to pay for them. To avoid hurting the poor, congestion-related highway tolls and other tariffs can be rebated on the basis of income. University fees can be means-tested. In California, they also could be adjusted to encourage summer school classes and other off-peak uses, rather than (as in the past) making UC summer courses more expensive. Given the political and economic uncertainties, there's no way to know how far such demand management can be taken. But there's not much doubt that, as Dowall and others point out, the state's infrastructure planning is a jumble of uncoordinated agency agendas and wish lists. The Legislature last year passed a bill, AB 1473, by Assembly Speaker Robert Hertzberg, that requires the governor, beginning next year, to submit an annual five-year infrastructure plan for state agencies and public schools, along with recommendations on how to fund it. In addition, Gov. Gray Davis' infrastructure commission is expected to recommend better coordination of infrastructure and land-use planning when it issues its report this spring. That would be a start. As California State Treasurer Phil Angelides has pointed out, the state desperately needs to start joint planning -- regional planning -- for housing, roads and other resources to reduce the need for long commutes; to preserve open space; and to bring jobs to where people live and housing to where the jobs are. That would itself reduce demand for more freeway lanes and, equally important, improve the quality of life. At present, most planning for housing, roads, water systems and other facilities rarely recognizes the regional impact of local decisions. In the East Bay, slow-growth forces push well-intended initiatives that would force more development into Tracy or Modesto and further tax the transportation systems to Silicon Valley. In city after city, there are beggar-thy-neighbor efforts to grab yet another shopping mall that produces a little extra sales tax revenue for the city that gets it, and that often compounds traffic and revenue problems in adjacent communities. In higher education we divide bond proceeds evenly among UC, the California State University and the community colleges even though the community colleges serve eight times as many students as UC. We plan road projects according to county, not regional, priorities. It is all done according to antiquated political and fiscal formulas that often no longer make sense. We don't just need better capital planning; we need a whole new planning system. ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ ---- PG&E power plan debated at hearing A PUC meeting on the utility's capacity expansion project for the Tri-Valley follows weeks of protest from officials, residents Power upgrade in valley debated By Megan Long TIMES STAFF WRITER SAN FRANCISCO -- Dublin officials and the developer of a Livermore subdivision faced questions Tuesday about their opposition to alternative routes of PG&E's controversial Tri-Valley power upgrade plan -- and answered by restating their long-standing objections. Tuesday's cross-examination came during the third and likely final week of the California Public Utility Commission's evidentiary hearings on the utility's $91 million Tri-Valley 2002 Capacity Increase Project. It has followed weeks of protests of PG&E's upgrade plans by officials and residents of Livermore, Pleasanton, Dublin and San Ramon. And before the questioning started, Dublin Vice Mayor Janet Lockhart reiterated concerns about an alternative route deemed "environmentally superior" that would place a substation just 1,000 feet north of Interstate 580 between Tassajara and Fallon roads. She said that would undermine the results of a 15-year process to plan the eastern development of the city. "It's extremely important to the residents of our community to follow a plan we worked hard to produce," she said. Dublin officials favor PG&E's proposed placement of the station three miles north of the freeway, away from new high-tech company offices and housing developments. Besides the Dublin substation, the project calls for construction of a substation in North Livermore, expansion of the Pleasanton substation and installation of 23.5 miles of new lines. In response to questions from PUC Administrative Law Judge Michelle Cooke, Dublin's public works director, Lee Thompson, confirmed that the Lin family, the owner of the property where the alternative substation would go, wasn't interested in selling the land to PG&E. Cooke also asked Thompson to define a "discretionary permit," which is how city officials said they might treat a permit for a substation. Lee said that type of permit is one the city has the right to approve or not depending on the project's impact. Eddie Peabody, Dublin's community development director, testified that the zoning for the Lin property accommodates uses such as commercial business, research and development and light manufacturing. It would not, he said, be appropriate for a power substation. He said parcels within the East Dublin area that could host a station would include those zoned for public and semi-public uses, including land recently bought by Oracle and Sun Microsystems for new campuses. While Dublin officials testified that one buyer of land in that area paid $86 per square foot, others suggested land prices would be inflated to help make a PG&E land buy look prohibitively expensive. An executive of Centex Homes, the developer of new houses near Isabel Avenue and Concannon Boulevard, objected to an alternative route that would place high-voltage transmis
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