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Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: James D Steffes X-To: Steven J Kean, Richard Shapiro, Mark Palmer X-cc: X-bcc: X-Folder: \Steven_Kean_June2001_4\Notes Folders\Discussion threads X-Origin: KEAN-S X-FileName: skean.nsf FYI. Finally the Chairman speaks the truth. Jim ----- Forwarded by James D Steffes/NA/Enron on 01/21/2001 12:25 PM ----- Mary Hain@ECT 01/19/2001 05:45 PM To: James D Steffes/NA/Enron@Enron, steve.c.hall@enron.com, Tracy Ngo/PDX/ECT@ECT, Christian Yoder/HOU/ECT@ECT, Joe Hartsoe@Enron cc: Subject: In formal, opinion Hoecker calls for FERC to enjoin California state action I wonder if a court would give this any credence? ---------------------- Forwarded by Mary Hain/HOU/ECT on 01/19/2001 03:51 PM --------------------------- Alan Comnes 01/19/2001 12:58 PM To: Tim Belden/HOU/ECT@ECT, mhain@enron.com, Susan J Mara/NA/Enron@ENRON, Paul Kaufman/PDX/ECT@ECT, Jeff Dasovich/NA/Enron@Enron cc: Subject: Hoecker's Last Word:Calif Must Adopt 'Realistic' Pwr Plan Nice final flame! Hoecker's Last Word:Calif Must Adopt 'Realistic' Pwr Plan 01/19/2001 Dow Jones Energy Service (Copyright © 2001, Dow Jones & Company, Inc.) WASHINGTON -(Dow Jones)- California officials have shown "bald disregard" for Federal Energy Regulatory Commission authority and are pursuing short-sighted policies that will push the state's two largest utilities over the brink and into bankruptcy, FERC Chairman James Hoecker said Thursday. The remarks by Hoecker, who resigned as chairman effective Thursday, came in a highly unusual formal opinion in what represents his blistering last words on the rapidly unraveling power crisis in California. Hoecker lambasted Gov. Gray Davis and state policymakers for allowing the state's power crisis to finally succumb to rolling blackouts. State officials ignored the commission's Dec. 15 market-restructuring order and instead embraced "conspiracy theories, resistance to more realistic rates, and calls for palliative price caps...to obscure the issues and delay solutions," Hoecker said. White House-brokered negotiations to develop power-supply contracts as part of a near-term solution are at an impasse due to "unrealistic" demands by Gov. Davis that power providers agree to contracts at rates below their cost of production, Hoecker said. He further called for Davis and lawmakers to relent in their unrealistic position that retail rates continue to be frozen at below-present-cost, pre-1996 levels. Unless state officials agree to pursue realistic policies, Edison International's Southern California Edison Co. (EIX) and PG&E Corp.'s Pacific Gas & Electric Co. (PCG), will be pushed into bankruptcy by following the state's flawed market-restructuring law, Hoecker said. "Perhaps bankruptcy can be averted. If it cannot, perhaps it will force debtors, creditors and state officials to address the financial problems of utilities in a new light, without recrimination and posturing," he said. "Let's be realistic," Hoecker said. "Wall Street and consumers share one critical trait: Without a reasonable, technically defensible and comprehensive set of solutions to such crises, they have no basis for confidence that problems can or will be managed or confidence to support investment on one hand and political forbearance on the other." Hoecker called for state officials to "expeditiously" implement the provisions of FERC's Dec. 15 order. In particular, he said, the California Power Exchange is making the financial situation worse by ignoring the order's provision calling for suspension of the single-price auction when prices bid exceed $150 per megawatt-hour. "Prices above the level allowed in the Dec. 15 order (have) further jeopardized the financial status of California utilities," he said. Reaching a deal on forward contracts, as called for in FERC's order, is essential, Hoecker said. "An arbitrary bottom-line solution cannot be prescribed without regard to costs," he said. But Hoecker reserved perhaps his harshest criticism for the state's first legislative response to the crisis, which Davis signed into law Thursday, to replace the California Independent System Operator's industry-participant governing board with a board of political state appointees. Such mixing of markets and politics on the ISO, a FERC-jurisdictional entity, represents "an unacceptable intrusion...into federally regulated power markets," Hoecker said. Further, he said, FERC made "mistakes" in allowing AB 1890, the state's electricity restructuring law, to usurp the commission's regulatory authority over wholesale power markets in the first place. "Because the state is now clearly a market participant, the independence of the (ISO) board is bound to be compromised. Consequently, the state's decisions are no longer entitled to the kind of deference we have accorded it since AB 1890," Hoecker said. "More than that, this action evinces a bald disregard for federal jurisdiction and a rejection of cooperative solutions (called for in FERC's Dec. 15 restructuring order)," Hoecker said. "I recommend that the commission seek to enjoin this technically flawed and unlawful usurpation of its authority." Hoecker rejected the state's continuing call for firm price caps in the region. "Price caps will only jeopardize reliability, mask problems temporarily, and deter or destroy any chance to solve the long-term supply challenge," he said. Hoecker urged an urgent response by policymakers, regardless of whether the utilities enter bankruptcy. "We cannot...keep moving from one failure to the next, with no agreed-upon objectives. The governor's stated plans are unrealistic and ours' cannot be fully implemented without his help," Hoecker concluded. "I urge state policymakers to reject the false illusion that going it alone will serve the interests of California consumers." -By Bryan Lee, Dow Jones Newswires; 202-862-6647; bryan.lee@dowjones.com Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.
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