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Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Jeff Dasovich X-To: Alan Comnes, Angela Schwarz, Beverly Aden, Bill Votaw, Brenda Barreda, Carol Moffett, Cathy Corbin, Chris H Foster, Christina Liscano, Christopher F Calger, Craig H Sutter, Dan Leff, Debora Whitehead, Dennis Benevides, Don Black, Dorothy Youngblood, Douglas Huth, Edward Sacks, Eric Melvin, Erika Dupre, Evan Hughes, Fran Deltoro, Frank W Vickers, Gayle W Muench, Ginger Dernehl, Gordon Savage, Harold G Buchanan, Harry Kingerski, Iris Waser, James D Steffes, James W Lewis, James Wright, Jeff Messina, Jeremy Blachman, Jess Hewitt, Joe Hartsoe, Karen Denne, Kathy Bass, Kathy Dodgen, Ken Gustafson, Kevin Hughes, Leasa Lopez, Leticia Botello, Mark S Muller, Marsha Suggs, Marty Sunde, Meredith M Eggleston, Michael Etringer, Michael Mann, Michelle D Cisneros, mpalmer@enron.com, Neil Bresnan, Neil Hong, Paul Kaufman, Paula Warren, Richard L Zdunkewicz, Richard Leibert, Richard Shapiro, Rita Hennessy, Robert Badeer, Roger Yang, Rosalinda Tijerina, Sandra McCubbin, Sarah Novosel, Scott Gahn, Scott Stoness, Sharon Dick, skean@enron.com, Susan J Mara, Tanya Leslie, Tasha Lair, Ted Murphy, Terri Greenlee, Tim Belden, Tony Spruiell, Vicki Sharp, Vladimir Gorny, Wanda Curry, William S Bradford, Kathryn Corbally, Jubran Whalan, triley@enron.com, Richard B Sanders, Robert C Williams, Greg Wolfe, James Wright, Dirk vanUlden, Steve Walker, Jennifer Rudolph, Martin Wenzel, Douglas Condon, wgang@enron.com X-cc: X-bcc: X-Folder: \Steven_Kean_June2001_4\Notes Folders\Discussion threads X-Origin: KEAN-S X-FileName: skean.nsf ----- Forwarded by Jeff Dasovich/NA/Enron on 02/15/2001 08:15 AM ----- Joseph Alamo 02/14/2001 11:50 AM To: Paul Kaufman/PDX/ECT@ECT, Susan J Mara/NA/Enron, Sandra McCubbin/NA/Enron, Jeff Dasovich/NA/Enron cc: Lysa Akin/PDX/ECT@ECT Subject: Sac Bee, Tues 2/13 Editorial: "Lawmakers failed to respond to energy alarm" ---------------------- Forwarded by Joseph Alamo/NA/Enron on 02/14/2001 09:48 AM --------------------------- Joseph Alamo 02/13/2001 04:57 PM To: Miyung Buster/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: Subject: Sac Bee, Tues 2/13 Editorial: "Lawmakers failed to respond to energy alarm" Lawmakers failed to respond to energy alarm (Published Feb. 13, 2001) Now that state lawmakers have begun an inquiry to determine what caused California's energy crisis, they might want to take a look in the mirror. Not at the infamous 1996 vote that triggered the partial deregulation of the electricity industry. The remains of that law have been picked over enough. Besides, most of the people who voted for it have already left the Legislature, thanks to term limits. But there was another vote last June, far less heralded and still little known. It came just as warning bells were starting to signal the onset of what has since become a crippling crisis. The Legislature not only ignored those alarms, it stood in the way of the people who were trying to respond. Why it did so remains something of a mystery. How it did so says a lot about the way the Legislature works. At issue was the now-defunct California Power Exchange. This was a state-mandated auction, until recently the only place that utilities were allowed to shop for the electricity that lights our homes and businesses. By last June there were ominous signs that the power exchange, known as the PX, wasn't working right. Prices were higher than anyone expected. The supply of energy seemed thinner than was reasonable. There were enormous overhead costs. The power exchange was a bit like having a single automobile auction where everyone who wanted to buy or sell a car had to do business. In times of surplus this might work, because the sellers would underbid each other to unload their cars to reluctant buyers. But in a shortage, the opposite would be true. Buyers, with no place else to go, would pay ever-higher prices to get what they needed. That's what was happening with electricity. A majority of the Public Utilities Commission decided to do something about it. The PUC voted 3-2 to allow privately formed exchanges to compete with the state-sanctioned auction. At least two private exchanges were promising to deliver more power at lower prices with fewer administrative costs. The commission wanted to let them give it a try. But before the PUC could even implement the change, the Legislature intervened. Acting with unusual speed, lawmakers overturned the commission's decision. Assembly Bill 2866 was a classic legislative bill, in the worst sense. A cobbled-together collection of 28 unrelated items, it was drafted in a hurry as a companion to the new state budget. One of the bill's many parts was a provision to subsidize California's film industry. That got a lot of attention. The paragraph overturning the PUC's attempt to head off the energy crisis got next to none. The bill was amended in the Senate on June 15 and approved later that day. The Assembly passed it the next day, and Gov. Gray Davis signed it. The analysis of the bill that members saw in the Assembly was cryptic and misleading. It said the bill would authorize the PUC to study the idea of allowing competition for the state-mandated exchange. That was true as far as it went. But the analysis omitted the fact that the bill's real intent was just the opposite: to reverse a PUC decision and prohibit competing exchanges for at least a year. "California had made a big investment in the power exchange," said Sen. Jim Brulte, R-Rancho Cucamonga, who was one of probably just a handful of legislators who knew about the provision before it became law. "The PUC decision would have put that investment at risk." Which is another way of saying that the power exchange wasn't working and had to be protected from competition. Richard Bilas, the PUC commissioner who was pushing the hardest for the reform the Legislature overturned, said he never liked the idea of mandating a single exchange in which the utilities would have to buy all their power. Bilas wasn't a member of the commission when the PUC restructured California's electricity industry. But he said the result reminded him of the former Soviet Union, where leaders declared that they were going to move to a market economy and then appointed a group of central planners to figure out how those markets should function. "Markets are not based on fictitious or created exchanges," he said. "Markets are based on buyers and sellers coming face to face to negotiate a deal. You don't establish beforehand something that may not be necessary." It's still not clear whether opening up the markets would have prevented the price spikes that have since nearly bankrupted the utilities, forcing the state to step in and buy electricity to keep the lights on. It might be a stretch to suggest that any single policy change could have prevented the crisis. But we will never know. The Legislature, acting in haste and with little information, kept us from finding out. The California Power Exchange, which the Legislature was so eager to protect from competition, collapsed of its own weight anyway, and is now out of business. The law preventing other exchanges from entering the market was quietly repealed two weeks ago, seven very long months after it was adopted.
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