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Sac Bee, Tues, 6/12: Davis loosens limits on older plants Sac Bee, Tues, 6/12: Edison's parent secures financing Sac Bee, Tues, 6/12: Energy digest: FERC broadens El Paso Gas probe SD Union, Tues, 6/12: Public furious at 19% rate hike=20 SD Union, Tues, 6/12: Temporary takeovers to be spelled out in bill SD Union, Tues, 6/12: New law bypasses PUC rate review SD Union, Tues, 6/12: Report warns of natural gas shortages this summer SD Union, Tues, 6/12: Political pressure eases for Davis as power prices di= p LA Times, Tues, 6/12: Davis Eases Power Plant Pollution Rules Electricity : Order will allow more production from heavily polluting 'peaker' facilities LA Times, Tues, 6/12: Edison Devises Complex Debt Restructuring Plan Energy= : New subsidiary created to sell bonds would issue the proceeds as dividends = to=20 the parent of utility SCE LA Times, Tues, 6/12: California State's Rating Still Seen 'at Risk' Bonds: Standard & Poor's reaffirms its A+ grade but warns it may be cut again LA Times, Tues, 6/12: California Williams May Be Required to Refund $11=20 Million for Power LA Times, Tues, 6/12: THE NATION U.S. Broadens Inquiry Into Alleged Gas=20 Monopoly SF Chron, Tues, 6/12: Air standards lowered for power plants=20 DAVIS ORDER: They can run overtime SF Chron, Tues, 6/12: U.S. panel steps up probe of supplier=20 NATURAL GAS: Charges of price fixing SF Chron, Tues, 6/12: Developments in California's energy crisis SF Chron, Tues, 6/12: Political pressure eases for California Gov. Gray Dav= is=20 as power prices dip SF Chron, Tues, 6/12: Power plant force-fed to Gonzales=20 Mayor says he had no choice but to cave in SF Chron, Tues, 6/12: State seeks electric rate hike for SDG&E customers Mercury News, Tues, 6/12: Blackouts' first birthday is this week Mercury News, Tues, 6/12: Drilling aside, Bush plan aids energy industry Mercury News, Tues, 6/12: Feds to probe Texas energy company's practices=20 during California energy crisis Mercury News, Tues, 6/12: Here's an idea: FERC should do its job =20 (Editorial) OC Register, Tues, 6/12: Few traffic lights will withstand blackouts OC Register, Tues, 6/12: Energy notebook Davis relieves gas-fired plants of pollution rules OC Register, Tues, 6/12: Davis' con job (Commentary) Wash. Post, Tues, 6/12: Whining in the Dark (Editorial) ---------------------------------------------------------------------------= --- ----------------------------------- Davis loosens limits on older plants=20 By Chris Bowman Bee Staff Writer (Published June 12, 2001)=20 Gov. Gray Davis on Monday waived all local smog rules that limited how long= =20 older and dirtier natural gas-fired power plants can run this summer.=20 Davis said he issued the order under his emergency powers to help avoid=20 blackouts.=20 "We are doing everything possible to keep the lights on this summer," he=20 said.=20 The order modifies a directive that Davis issued Feb. 9 that required local= =20 air pollution control districts to extend hours of operation when plants=20 approached their permitted limits. Plant operators offset the extra emissio= ns=20 by paying the districts a "mitigation fee." Those fees fund programs that= =20 reduce emissions from other sources.=20 Some municipal power utilities, however, argued that they shouldn't have to= =20 make a case to the air district for additional hours when the need to provi= de=20 for more energy is so apparent.=20 Under the directive issued Monday, power production to meet demand anywhere= =20 in the state will not count against the hours of operation allotted in the= =20 smog permits.=20 Waiving the operation limits should encourage operators to increase the use= =20 of these "peaker" plants, which are designed to operate only during periods= =20 of peak energy use, state officials said.=20 "This will allow us to offer that excess capacity to the state," said David= =20 Wiggs, interim general manager of the Los Angeles Department of Water and= =20 Power.=20 Air districts generally impose limits on hours of operation on a relatively= =20 small number of older, dirtier plants, as a more economical alternative to= =20 installing modern pollution controls. The order, which is effective=20 immediately, could provide up to 1,200 additional megawatts in the state th= is=20 summer, enough to power about 900,000 houses, state officials said.=20 Kellan Fluckinger, an energy adviser to Davis, argued that in the long run= =20 the directive will result in a net gain for air quality.=20 Expanding the use of the peaker plants, he said, will help avoid blackouts= =20 and the attendant use of emergency diesel generators, which typically emit= =20 about 10 times more smog-forming emissions than the dirtiest of natural=20 gas-fired plants.=20 In addition, the pollution mitigation fees paid to allow expanded operation= =20 of the peaker plants would go toward local efforts to cut pollution from=20 other sources, such as diesel-powered trucks and water pumps on farms.=20 Several air districts, including those in the Sacramento region, offer=20 financial incentives to businesses to replace dirty diesel engines with=20 cleaner-burning ones sooner than they normally would.=20 "They have more applicants than the ability to fund them," said Michael=20 Scheible, deputy executive officer of the state Air Resources Board.=20 The governor's office also is expected to announce financial incentives for= =20 companies to press their backup diesel generators into service to forestall= =20 blackouts this summer, according to S. David Freeman, a top Davis energy=20 adviser.=20 "Whether or not we do that is still being discussed," Scheible said.=20 Under the plan, participating businesses would disconnect from the=20 electricity grid when power supplies are at Stage 3 and turn on backup=20 generators.=20 The state would pay the companies for the power saved by converting to dies= el=20 generation.=20 The Bee's Chris Bowman can be reached at (916) 321-1069 or cbowman@sacbee.c= om .=20 Edison's parent secures financing=20 By Dale Kasler Bee Staff Writer (Published June 12, 2001)=20 Desperate for cash, Southern California Edison's corporate parent announced= a=20 $1.2 billion finance plan Monday that would ease the parent's financial woe= s.=20 The move by Edison International would do nothing to aid the troubled Ediso= n=20 utility. It is similar to a refinancing undertaken by PG&E Corp. in early= =20 March, a month before it put its utility subsidiary, Pacific Gas and Electr= ic=20 Co., into bankruptcy, analysts said. But it doesn't necessarily mean Southe= rn=20 California Edison is ready to file for bankruptcy, they said.=20 "The utility is no better off and no worse off" as a result of the Edison= =20 International deal, said Standard & Poor's Corp. analyst Peter Rigby.=20 Edison International, facing hundreds of millions of dollars in debts comin= g=20 due this year, said a newly formed subsidiary will sell $1.2 billion worth = of=20 bonds. The proceeds will go to pay off the parent's debts, the company said= .=20 The Edison utility has been on the brink of bankruptcy for months because o= f=20 exploding wholesale electricity costs. It has said it would file for=20 bankruptcy unless the Legislature passes Gov. Gray Davis' rescue plan, whic= h=20 centers on the state buying Edison's power transmission lines for $2.76=20 billion. Davis' plan appears doomed, although lawmakers are cooking up=20 alternative proposals.=20 Davis spokesman Steve Maviglio said the $1.2 billion financing won't affect= =20 the state's negotiations with Edison.=20 The utility has more than $3 billion in overdue bills. The parent hasn't=20 missed any debt payments but is in significant financial pain because of th= e=20 utility's troubles. The parent "is dependent on obtaining additional=20 financing to meet its cash requirements," the company told the Securities a= nd=20 Exchange Commission recently.=20 By relieving the parent company's debts, the plan could protect Edison=20 International even if the utility goes bankrupt, analysts said. "No one has= =20 put the PG&E parent into bankruptcy in this mess, so perhaps this will help= =20 Edison International remain even further insulated from the courts," Dot=20 Matthews of CreditSights Inc. told the Reuters news service.=20 To put together the deal, the Edison parent formed a new unit called Missio= n=20 Energy Holding Co. That entity sits between the parent company and its=20 existing multinational power-generating subsidiary, Edison Mission Energy.= =20 Edison first disclosed a month ago that it was considering such a plan.=20 "The purpose of the financing was not to do anything for the utility," said= =20 Jo Ann Goddard, a vice president with the parent company. "It was to provid= e=20 financing to pay off the maturing debts of Edison International."=20 Edison International's stock was unchanged Monday at $11 a share.=20 The Bee's Dale Kasler can be reached at (916) 321-1066 or dkasler@sacbee.co= m.=20 Jim Sanders of The Bee Capitol Bureau contributed to this report. Energy digest: FERC broadens El Paso Gas probe (Published June 12, 2001)=20 WASHINGTON -- The Federal Energy Regulatory Commission is expanding its=20 ongoing probe into whether El Paso Natural Gas and its marketing subsidiary= =20 colluded to drive up natural gas prices in California.=20 In a 23-page opinion Monday, the commission reversed a March order and said= =20 it now wants an administrative law judge presiding over the case to delve= =20 into whether El Paso and its subsidiary, El Paso Merchant, exchanged secret= =20 information that permitted the marketing subsidiary to obtain more than 1= =20 billion cubic feet of pipeline capacity.=20 "This is the first ray of hope for California," said California Public=20 Utilities Commission President Loretta Lynch. "I'm really gratified that=20 apparently a new FERC is taking a new look at El Paso."=20 The PUC and the state's two largest utilities, Pacific Gas and Electric and= =20 Southern California Edison, have long contended that the sweetheart deal=20 between the two companies was largely responsible for the unusually high=20 natural gas prices in California over the last year.=20 Under the arrangement, according to state and utility allegations, the=20 companies kept other suppliers from pushing their own gas through the=20 pipeline, thus constraining the supply into the state to drive up prices an= d=20 enrich themselves. The companies have strenuously denied the charges.=20 --David Whitney Public furious at 19% rate hike=20 PUC holds hearings, says its hands are tied By Craig D. Rose and Anne Krueger=20 UNION-TRIBUNE STAFF WRITERS=20 June 12, 2001=20 California tends to unanimity when it comes to electricity deregulation: Th= e=20 legislature passed it unanimously in 1996, and people who testified at rate= =20 hike hearings yesterday voiced unanimous opposition.=20 Speakers at public hearings in San Diego and El Cajon alternately demanded= =20 and implored the California Public Utilities Commission to reject an averag= e=20 19 percent rate hike that the commission says it is obligated by state law = to=20 pass along to SDG&E electricity customers.=20 Perhaps the loudest applause from an audience that approached 100 at the=20 downtown San Diego hearing yesterday afternoon came in response to calls fo= r=20 the state to exercise its power of eminent domain and seize power plants.= =20 Guy Mock, a Navy enlisted man who was among those calling for such takeover= s,=20 said many in military service are finding rising utility costs a significan= t=20 burden, pushing some to use food stamps.=20 "Remember, people in the military have no choice about being here," Mock=20 said.=20 Waving computer printouts from research he said he conducted on the Interne= t,=20 Mock said generators were charging outrageous prices, noting in particular= =20 the recent revelation that at one point Duke Energy had charged nearly $3,9= 00=20 a megawatt-hour for its electricity. Last spring, a megawatt-hour sold for= =20 less than $30.=20 "Let's take it over," Mock suggested as a solution to the power crisis.=20 An overflow crowd of about 250 people attended a hearing at the El Cajon=20 Community Center that at times took on the flavor of a church revival.=20 Audience members cheered, clapped and called out comments in support of=20 almost 50 people who spoke at the hearing.=20 "There are a couple of hundred here who are very irritated," said Chris=20 Medicus of El Cajon. He said he has been conserving energy even before call= s=20 to cut back on power use.=20 "Who's going to do something for me since I can conserve no more?"=20 Edy Mason, a retired nurse who lives in El Cajon, said she can't afford her= =20 rising rent and utility bills on the $732 she receives each month.=20 "This is legal rape. I'm tired of being raped. This has to stop," Mason sai= d.=20 Dan McKenna, chief of the Rural Fire Protection District that serves=20 unincorporated areas of the county, said fire and emergency medical service= s=20 will be hurt if there is a rate increase. Fire departments are already havi= ng=20 to spend large portions of their budgets on energy costs, he said.=20 "That's unacceptable, sir," he said as members of the audience clapped and= =20 called out, "That's right."=20 Despite the appeals for tough action, Carl Wood, the only member of the=20 California Public Utilities Commission in attendance at yesterday's hearing= s,=20 insisted that the commission was obligated to pass along the proposed 19=20 percent rate hike demanded by the California Department of Water Resources.= =20 Under legislation passed earlier this year, the department began purchasing= =20 power for state utility customers. The same legislation gave the department= =20 the right to self-judge the reasonableness of its rate hike requests, a=20 function formerly allocated to the utilities commission.=20 That leaves the PUC with a limited role in the rate hike process, Wood=20 acknowledged.=20 "We are here to spread the pain," said the commissioner, who noted that=20 customers who use 130 percent or less of the baseline amount are shielded= =20 from any rate hike by state law. The baseline allowance, which is printed o= n=20 utility bills, is a subsistence amount of electricity that varies by locati= on=20 and climate.=20 But Wood also said later, "We have to (raise rates) if we want to keep powe= r=20 flowing."=20 San Diego County Supervisor Dianne Jacob was not persuaded. Jacob said the= =20 duty of the commission is to ensure just and reasonable utility rates for= =20 Californians.=20 "The only way for the commission to fulfill its mission is to disobey the= =20 (water department)," Jacob said. "I urge the commission to refuse the $915= =20 million rate increase request from the DWR."=20 Nearly all other speakers agreed, with many blasting the notion that=20 consumers should be forced to pay for the fallout of a deregulation plan th= ey=20 said was designed by major energy corporations for their own benefit.=20 "They spent the money, they had the party and now they are asking the littl= e=20 guys to clean up the mess," said Frank Jordan.=20 Another speaker said the utilities commission would find options to the rat= e=20 hike if it tapped into public outrage over the electricity crisis.=20 "Don't throw more money at the problem," said Robert Womack of La Mesa. "Gi= ve=20 us the chance to throw our weight around -- and we have plenty of weight to= =20 throw around."=20 Holly Duncan of Clairement was as upset over the rate hike process as she w= as=20 over the increase itself. Duncan noted that the water department -- which i= n=20 effect ordered the rate hike -- was declining to release its power purchase= =20 contracts. That left her, she said, in the position of paying for something= =20 that was negotiated in secret.=20 "Where is our systems of checks and balances?" Duncan asked.=20 The commission is expected to have a proposed rate hike plan ready by June= =20 21, with a final vote on the increase slated for June 28.=20 Additional public hearings will be held at 1 p.m. today at the Country Inn= =20 Hotel, 35 Via Pico Plaza, San Clemente, and at 7 p.m. today at the Californ= ia=20 Center for the Arts, Escondido, 340 N. Escondido Blvd.=20 Temporary takeovers to be spelled out in bill=20 By Bill Ainsworth=20 UNION-TRIBUNE STAFF WRITER=20 June 12, 2001=20 SACRAMENTO -- Like nuclear weapons in the Cold War, the takeover of power= =20 plants by the state has loomed in the background of the electricity crisis = as=20 a weapon so scary and extreme it could never be responsibly used.=20 Assemblyman Juan Vargas, D-San Diego, wants to change that.=20 Vargas is promoting a plan that he says will avoid huge costs and years of= =20 litigation by allowing the state to take over electricity generating plants= =20 temporarily.=20 Once the electricity crisis has passed, the state would give back the plant= =20 to its owner and pay rent for using it, rather than the high price of buyin= g=20 it outright. Call it plant seizure lite.=20 The freshman lawmaker will present his plan today to the Assembly Judiciary= =20 Committee, which is expected to approve the measure along party lines.=20 "It's a big deal to take over a person's property," said Vargas. "But this = is=20 reasonable. It's rational. They forced us into it and it's time to fight=20 back."=20 Some believe the state, by seizing power plants, could obtain electricity f= or=20 less than it pays in the existing market, which is widely deemed to be=20 overpriced.=20 But Gary Ackerman, executive director of the Western Power Trading Forum, a= =20 group of power generating companies, said the Vargas plan would hurt the=20 state's efforts to build enough plants to ease the crisis.=20 "I don't think there is such a thing as seizure lite," he said. "Any=20 discussion of plant seizures for a day or a lifetime has a devastating effe= ct=20 on the business climate."=20 Even a temporary state takeover would discourage investors who want to buil= d=20 new generating plants to increase the supply of electricity, he said. It=20 would also discourage bond investors whom the state wants to tap to repay= =20 state taxpayers for buying high-priced electricity on the spot market.=20 Vargas admits that the governor could temporarily take over plants now=20 without waiting for legislative action. Still, he said, a bill would give t= he=20 governor more support.=20 "It gives the idea legitimacy," he said.=20 At issue are the generating plants sold by the state's major utilities,=20 mostly to southern-based companies. Those companies have made huge profits= =20 while charging skyrocketing prices that have caused the financial collapse = of=20 the state's two major utilities.=20 Davis has portrayed those companies as ruthless price gougers that maximize= =20 profits at the expense of California's economy. He has threatened to seize= =20 plants, but then backed away. Few believe the centrist Democrat wants to ri= sk=20 such a move that could alienate the business community, especially now when= =20 the energy market is showing signs of stabilizing.=20 Additionally, a permanent takeover could force the state to pay billions of= =20 dollars for an outdated, aging facility, said Vargas, because the value of= =20 the plant would be determined by the high prices the plant is now charging= =20 for electricity.=20 In his research, Vargas said he found that the U.S. Supreme Court in 1949= =20 held that the state needs only to pay the rental value of a property it=20 seizes temporarily. On top of that, he said, the law specifies that the=20 Public Utilities Commission, controlled by Davis appointees, would determin= e=20 the value of the rent.=20 New law bypasses PUC rate review=20 Water agency can set own prices By Craig D. Rose=20 UNION-TRIBUNE STAFF WRITER=20 June 11, 2001=20 SDG&E customers begin treading a path today to two rate increases likely to= =20 raise their bills 35 percent, or about $1.7 billion, during the next year.= =20 As if that were not irritation enough, consumer advocates and others famili= ar=20 with the process say it violates long-standing principles of public=20 disclosure and oversight.=20 Public hearings today in San Diego and El Cajon and tomorrow in Escondido a= nd=20 San Clemente will focus on a proposed increase of about 19 percent sought b= y=20 the California Department of Water Resources.=20 This is unrelated to a request by San Diego Gas & Electric for a rate=20 increase of about 16 percent, which will be considered later this year.=20 The state water agency says it needs an increase to cover the cost of=20 procuring power. The department began buying power earlier this year when= =20 utilities ran into financial trouble.=20 Until now, proposals for electricity rate increases have come before the=20 California Public Utilities Commission, a state constitutional body charged= =20 with reviewing the proposals, taking public input, and setting rates at a= =20 level that is just and reasonable.=20 Not this time.=20 The same law that authorized the Department of Water Resources to buy power= =20 also empowered the department to judge the merits of its own rate increase= =20 proposals. The department has determined its request for what amounts to $9= 15=20 million is reasonable.=20 The water department also has informed the utilities commission that it wil= l=20 not provide the contracts under which it is purchasing electricity. The sta= te=20 needs the increases to cover its costs under the contracts.=20 Gov. Gray Davis insists keeping these agreements secret is essential to=20 protect the state's position in bargaining for additional electricity=20 supplies.=20 The state utilities commission, meanwhile, is left to determine only how to= =20 disperse the department rate increase among SDG&E customers, not how much o= f=20 an increase is appropriate. The commission calculates that the Department o= f=20 Water Resources' increase will add an average of 2.8 cents to the existing= =20 rate of 14.4 cents per kilowatt-hour. That total includes a 6.5-cent charge= =20 for power purchases plus fees for distribution and other costs.=20 Consumer advocates and critics say this a perversion of the commission's=20 purpose. The PUC was created to protect utility customers.=20 "SDG&E customers will be paying higher rates without any member of the publ= ic=20 knowing the basis for the increase and without anyone allowed to see the=20 costs that we are paying for or the terms of the deal," said Doug Heller of= =20 the Foundation for Taxpayer and Consumer Rights. "There is supposed to be a= n=20 identifiable, calculable basis for any rate increase."=20 Attorney Michael Aguirre, who is representing Lt. Gov. Cruz Bustamante in a= =20 lawsuit against power suppliers, said the process raises serious legal=20 questions.=20 "The governor has denigrated the PUC's function to that of a rate launderer= ,"=20 said Aguirre, a former federal prosecutor. "The legislature has passed a la= w=20 that interferes with the constitutional function of the PUC."=20 Carl Wood, a member of the PUC who will attend the sessions today, agreed= =20 that the process surrounding the department's rate increase is unusual. But= =20 he said there is still opportunity for the public to comment on how to=20 allocate the increase.=20 Wood noted that the commission sought to shield low-and middle-income=20 customers from the brunt of similar increases recently imposed in areas=20 served by Pacific Gas and Electric and Southern California Edison. He said= =20 the hikes in those areas are also "steeply tiered" to hit hardest those who= =20 use the most power.=20 But Wood, a former utility workers union official who opposed deregulation,= =20 conceded discomfort with the role that has fallen to the PUC.=20 "I would rather be in a more orderly, regulated world where the PUC had=20 sufficient authority to ensure reasonable rates," Wood said.=20 Jim Bell, a member of the Coalition for Affordable Power, a San Diego-based= =20 citizens group, also blasted the process.=20 "Every newspaper in the country is saying these rates are rip-offs and the= =20 energy companies are crooks," Bell said. "Then to have a non-transparent=20 process that shoves the rate hikes down our throats is outrageous."=20 Later this year, the PUC will consider a separate rate increase proposal fr= om=20 SDG&E. The utility is seeking a surcharge of about 2.3 cents per=20 kilowatt-hour -- about $800 million -- to cover losses it says it incurred= =20 purchasing power on behalf of its customers before the Department of Water= =20 Resources took over.=20 The two increases could exceed the amount spent for power by SDG&E customer= s=20 last year, when the cost reached $1.6 billion as deregulation dissolved int= o=20 crisis. SDG&E spent less than $500 million for power in 1999. Report warns of natural gas shortages this summer=20 By Seth Hettena ASSOCIATED PRESS=20 June 11, 2001=20 SAN DIEGO =01) California's energy crisis could overwhelm supplies of natur= al=20 gas, which fires most power plants, leading to shortages this summer, the= =20 state's energy planning and policymaking agency has warned.=20 A severe drought in the Pacific Northwest has cut hydroelectric power=20 supplies and forced natural gas-fired plants to make up the shortfall. The= =20 demand for gas has strained the ability of existing pipelines to supply it.= =20 In the event of even stronger demand this summer, the California Energy=20 Commission says, utilities could be forced to interrupt supplies to some=20 power generators.=20 "Under the high gas use scenario for electric generator demand, curtailment= s=20 and diversions of natural gas will be necessary this summer and into the=20 winter of 2001-2002," according to a draft report by the commission.=20 While reliable gas supplies are available, many electric generators are=20 relying on less costly, interruptible supplies of natural gas, putting them= =20 at risk of having gas supplies curtailed during high demand periods, the=20 report states. California generators are responsible for purchasing and=20 storing their own supplies of natural gas.=20 "Curtailment of natural gas supplies to electric generators could exacerbat= e=20 rolling blackouts this summer," the commission found. "At the same time=20 curtailments of industrial customers could increase the economic impacts fr= om=20 lost production."=20 The commission's draft report was released last month but has received litt= le=20 notice. A final report is expected by the end of this month, Michal Moore,= =20 one of the five members of the California Energy Commission, said Monday. H= e=20 said that even though gas prices have fallen in recent weeks the possibilit= y=20 of shortages this summer remains.=20 The system is most strained in Southern California, where bottlenecks could= =20 force utilities, such as Southern California Gas Co., the nation's largest= =20 gas utility, "to choose between serving electric generators and storing=20 sufficient gas for the winter."=20 San Diego Gas & Electric, which gets all its gas from SoCal Gas, "will like= ly=20 have to curtail natural gas delivery this summer to electric generators" th= at=20 can switch from gas to fuel oil. Over the past winter, the demand on SDG&E'= s=20 system exceeded supply on 11 days, requiring the utility to curtail=20 deliveries to some electric generators, the commission reported.=20 Duke Energy, which gets gas for its 760-megawatt South Bay power plant in= =20 Chula Vista from SDG&E, said the scenario of gas shortages this summer is= =20 "very valid," said Tom Williams, a company spokesman. The plant has had its= =20 supply interrupted several times over the last nine months and is prepared= =20 for more curtailments this summer, he said.=20 "It's a big problem," Williams said. "When we are curtailed it's a very=20 critical time for power as well. You're removing megawatts from the grid at= =20 the time it's most needed."=20 Sempra Energy, the San Diego-based parent company of both SDG&E and SoCal= =20 Gas, took issue with the conclusions of the report in a letter June 5 to th= e=20 commission.=20 SoCal Gas is confident in its ability to meet electric generators' demands= =20 for natural gas both this summer and have enough gas in storage to satisfy= =20 customer needs this winter. The utility, which claims it has not interrupte= d=20 service over the past 10 years, says it is expanding its system to meet the= =20 demand, said Sempra spokeswoman Denise King.=20 The company also said it does not agree with the portrayal of SDG&E's natur= al=20 gas supply, but did not deny that shortages would be likely this summer.=20 Californians have been hit with skyrocketing natural gas bills. State=20 residents paid $6.6 billion for natural gas in 1999, $12.3 billion last yea= r,=20 and $7.9 billion through March 2001, according to a report by a state=20 Assembly subcommittee.=20 Members of the subcommittee laid the blame at the feet of natural gas=20 suppliers, such as El Paso Corp., which they said cornered enough of the=20 pipeline capacity in California to drive up prices.=20 But the California Energy Commission found that the high prices are at thei= r=20 root, one of inadequate infrastructure.=20 While gas retailers may have manipulated prices, the absence of any surplus= =20 or "slack" capacity has squeezed out competitors that could have offered ga= s=20 at lower prices.=20 "When their is no slack capacity, customers lose the benefits of competitio= n,=20 and prices increase overall or spike upward," the report states.=20 Political pressure eases for Davis as power prices dip=20 By Alexa Haussler ASSOCIATED PRESS=20 June 11, 2001=20 SACRAMENTO =01) California Gov. Gray Davis is getting his first glimpse of= =20 relief after months under the political cloud of soaring electricity prices= =20 and rolling blackouts.=20 A series of events =01) from plummeting wholesale energy and natural gas pr= ices=20 to the unexpected shift in the U.S. Senate =01) has left Davis declaring th= at=20 the state has "turned a corner" in its power woes.=20 But politically, he still must weather the hottest summer months, the arriv= al=20 of rising electricity bills at homes and a recent dive in his popularity=20 ratings.=20 "Some irreparable damage has been done to his image and his popularity," sa= id=20 Bruce Cain, director of the Institute of Governmental Studies at the=20 University of California, Berkeley.=20 Two statewide polls recently showed Davis' approval rating plummeted to its= =20 lowest marks since he took office while electricity rates climbed.=20 Meanwhile, Davis fought to shed his image as a middle-of-the-road leader,= =20 adopting a new, confrontational style in dealing with the crisis.=20 He hired high-powered crisis control specialists Chris Lehane and Mark=20 Fabiani, trained at the Clinton White House and in the Al Gore presidential= =20 campaign. He declared "war" on Texas-based energy wholesalers.=20 Davis also attacked the Bush administration for opposing price controls on= =20 wholesale electricity.=20 Soon after, the crisis-weary governor's fortunes started to shift.=20 Vermont Sen. James Jeffords announced he would defect from the GOP, handing= =20 the majority and committee chairmanships to Democrats who favor price caps = on=20 wholesale electricity.=20 President Bush, who had been criticized for failing to visit the state sinc= e=20 he took office, traveled to the state and met with Davis.=20 On a scorching afternoon in late May, the state came within the brink of=20 blackouts, but dodged them. The state Energy Commission announced that=20 Californian's had cut power use by 11 percent in May over the year before,= =20 which Davis called a personal victory because he has called for residents a= nd=20 businesses to conserve 10 percent.=20 Last week, the price of wholesale electricity and natural gas plunged to it= s=20 lowest price in a year. Davis aides called that a direct result of Davis=20 signing long-term contracts with energy providers.=20 "We may still have some difficult days ahead of us in the summer but it's= =20 pretty clear that the governor's strategy has now borne some fruit," said= =20 Garry South, chief campaign adviser to Davis.=20 Still, the energy crisis has battered the governor once considered a=20 potential presidential contender in 2004.=20 His state, heavily reliant on the fortunes of the technology sector to fill= =20 its treasury, is facing its toughest budget crunch in years.=20 Also, some experts said Davis has called a premature victory in the energy= =20 crisis. The state has yet to sell $13.4 billion worth of bonds to repay the= =20 state for power buys, and California still relies heavily on the spot power= =20 market to make up for electricity shortages.=20 California Republicans, meanwhile, are fortifying their campaign against=20 Davis and the Democrats that control both houses of the legislature and all= =20 but one statewide office. The state party hired veteran consultant Rob=20 Stutzman to counter Davis' hiring of Lehane and Fabiani.=20 Stutzman worked for former insurance commissioner Chuck Quackenbush, who=20 resigned under the threat of impeachment last year. Stutzman said Davis has= =20 little for which to take credit.=20 "The governor is like a little kid that breaks his mother's china and then= =20 wants credit for gluing half of it back together," Stutzman said.=20 In California, Davis' short-term fortunes look better because of his=20 fragmented opposition. He holds strong leads over the two Republicans who= =20 have announced they will challenge him, Secretary of State Bill Jones and L= os=20 Angeles businessman William E. Simon Jr.=20 Plus, Republicans in Washington and a large chunk of the state's Republican= =20 congressional delegation have tried to lure outgoing Los Angeles Mayor=20 Richard Riordan into the governor's race, afraid that Jones and Simon lack= =20 the necessary star power to oppose Davis.=20 Whoever runs against Davis will find an incumbent with more than $26 millio= n=20 raised for next year and a team of campaign advisers already using focus=20 groups and polling to gauge public reaction to the power crisis.=20 California ; Metro Desk=20 Davis Eases Power Plant Pollution Rules Electricity : Order will allow more= =20 production from heavily polluting 'peaker' facilities. DAN MORAIN ?=20 06/12/2001=20 Los Angeles Times=20 Home Edition=20 Page B-1=20 Copyright 2001 / The Times Mirror Company=20 SACRAMENTO -- Gov. Gray Davis agreed Monday to lift air emission limits on= =20 heavily polluting power plants and allow them to run at capacity this summe= r=20 as long as the electricity they produce is sold in the state.=20 State officials said the plants must be pressed into use to avoid blackouts= .=20 Davis' executive order lets the generators build the cost of air pollution= =20 fines into the price the state pays for electricity produced by natural=20 gas-fired power plants, said Catherine Witherspoon of the California Air=20 Resources Board.=20 Municipal utility districts--including the Los Angeles Department of Water= =20 and Power--and independent power companies could supply as much as 1,200=20 megawatts from so-called peaker plants, facilities that generally are=20 permitted to operate for only a few hundred hours a year because they pollu= te=20 so heavily. That is enough power for more than 1 million homes.=20 Other gas-fired power plants that have been shut down because of air=20 pollution restrictions also could be started up as a result of the order.= =20 In a news conference Monday, state officials said the order will have the= =20 effect of lowering air pollution by limiting the use of far dirtier diesel= =20 generators, which industry could use if power supplies are threatened.=20 "If we don't get every last megawatt we can [from natural gas-fired plants]= ,"=20 said Witherspoon of the air board, "we will see people turning to diesel mo= re=20 frequently."=20 Added Kellan Fluckiger, a top energy advisor to Davis: "If you don't run=20 these, you're either going to have outages or you're going to run something= =20 dirtier."=20 Fluckiger said the order expands "the number of hours these things can run= =20 and the amount of energy they can produce."=20 New natural gas-fired power plants emit about half a pound per megawatt-hou= r=20 of operation of ozone-producing pollutants. The plants affected by the orde= r=20 emit between two and five pounds of oxides of nitrogen per megawatt-hour.= =20 If the plants are pressed into operation for 200,000 megawatt-hours this=20 summer, there will be between 400,000 and 1 million additional pounds of=20 oxides of nitrogen emitted into the air.=20 The state probably will end up paying the fees associated with the extra=20 pollution through higher electricity prices. The fees amount to $7.50 per= =20 pound of oxides of nitrogen--or $7.5 million if the plants operate for=20 200,000 hours--and $1.10 per pound of carbon monoxide emissions. The money= =20 would be used to reduce air pollution from other sources.=20 "Under this order, dirty power plants can run as long as they want and=20 pollute as much as they want so long as they pay into a fund," said Gail=20 Ruderman Feuer, senior attorney with the Natural Resources Defense Council.= =20 "Our concern is that there's no guarantee that the fund will result in=20 emission reductions any time soon."=20 A Ventura County air pollution control official said that running one peaki= ng=20 power plant operated by Reliant Energy for one hour is the equivalent of=20 adding 20,000 new cars to Ventura County highways for an hour. Reliant Ener= gy=20 could not be reached for comment Monday night.=20 "To the extent that they run when not needed for an emergency, it's going t= o=20 put more air pollution into Ventura County skies and it's going to make our= =20 air dirtier," said Dick Baldwin, air pollution control officer for Ventura= =20 County.=20 Los Angeles DWP Director David Wiggs hailed the order, saying it was needed= =20 so the city can sell the state as much as 1,000 megawatts of power this=20 summer.=20 "This was the issue we had to have solved or we could not offer any of our= =20 excess capacity to the state," Wiggs said.=20 He added, however, that the city and state have not yet agreed on a price f= or=20 the power. Wiggs said the city is "negotiating to get our cost as low as we= =20 can legally charge" so that customers of the city utility district are not= =20 subsidizing consumers in the rest of the state. Municipal utility districts= =20 elsewhere in the state also are expected to benefit from the order.=20 Though the order was aimed at spurring municipal utilities to sell power to= =20 the state, it also applies to independent power producers such as Reliant= =20 Energy of Houston and Duke of North Carolina--both of which have called on= =20 Davis to ease air pollution restrictions on their old natural gas-fired=20 facilities.=20 "This puts more money in the Texans' pockets and more air pollution in=20 Ventura County residents' lungs," said Baldwin of Ventura County.=20 Doug Allard, a Santa Barbara County air pollution control officer, also sai= d=20 it seems as if the governor is giving private power generators much of what= =20 they had sought.=20 "We have serious concerns about the order," said Feuer of the Natural=20 Resources Defense Council. "It's taking the discretion away from local air= =20 districts to regulate power plants in their region."=20 *=20 Times staff writer Nancy Vogel contributed to this story.=20 RELATED STORY=20 Utility: Edison plans to raise $1 billion in debt restructuring. C1=20 Business; Financial Desk=20 Edison Devises Complex Debt Restructuring Plan Energy: New subsidiary creat= ed=20 to sell bonds would issue the proceeds as dividends to the parent of utilit= y=20 SCE. JERRY HIRSCH ?=20 06/12/2001=20 Los Angeles Times=20 Home Edition=20 Page C-1=20 Copyright 2001 / The Times Mirror Company=20 Edison International plans to raise $1.2 billion in a complex transaction= =20 that would tap the borrowing capacity of its only significant profit=20 center--a move critical to the firm's financial health.=20 The financing would pay off $618 million in Edison bank debt that comes due= =20 June 30. Additionally, the offering would be used to pay off $600 million o= f=20 floating rate notes due by year's end.=20 Mission Energy Holding Co., a company created by Edison International for t= he=20 sole purpose of issuing these bonds, will offer the notes. The assets of=20 Edison Mission Energy, a subsidiary that owns a network of power plants=20 across the United States and in Asia, Australia and New Zealand, will secur= e=20 the debt.=20 Mission Energy Holding plans to issue the proceeds to Rosemead-based Edison= =20 International in the form of dividends, giving the parent company funds to= =20 pay off a substantial portion of its debt.=20 Despite the backing of such heavy hitters as Wall Street investment bank=20 Goldman Sachs Group, some analysts question whether there is enough=20 investment interest to make the deal work.=20 "I am not sure what type of appetite the market will have for this," said J= on=20 Cartwright, a bond analyst with Raymond James & Associates in St. Petersbur= g,=20 Fla.=20 The financing plan comes as the firm is struggling to keep its ailing=20 Southern California Edison electric utility out of Bankruptcy Court. Edison= =20 International can pursue the deal because of its byzantine corporate=20 structure, designed to reduce the risk that Edison Mission Energy would be= =20 dragged into any potential bankruptcy of either the parent company or=20 corporate sibling SCE.=20 The question, Cartwright said, is whether that separation, erected under a= =20 financial legal doctrine called "ring fencing," provides enough protection = to=20 make lending money palatable to investors.=20 "What price are you willing to get for a security that looks like it will= =20 have to be tested in Bankruptcy Court?" Cartwright asked.=20 Edison International, which declined to comment about the offering, plans t= o=20 start pitching it on Wall Street this week.=20 Even if the offering were completed, Edison International probably would pa= y=20 a high price for its borrowing.=20 Cartwright said a similarly rated bond at another company would pay an=20 interest rate of about 9.67%, but given the risk he would expect investors = to=20 demand a higher yield.=20 The notes will have a credit rating of BB-minus and come due in 2008, said= =20 Standard & Poor's, the bond rating agency. That's slightly higher than the= =20 near-default CC rating now carried by Edison International.=20 Standard & Poor's said the transaction could raise Edison International's= =20 credit rating to a CCC-plus grade--better but still considered a junk ratin= g=20 by the investment community.=20 In issuing its rating for the offering Monday, Standard & Poor's said that= =20 "the prospects of a bankruptcy filing by or against SCE remain high."=20 That reflects the rating agency's assessment that it is increasingly unlike= ly=20 that the state will complete a rescue plan devised by Edison and Gov. Gray= =20 Davis, which calls for the state to purchase SCE's transmission lines for= =20 nearly $2.8 billion and issue up to $3.5 billion in ratepayer-secured bonds= =20 to pay off debts from purchasing electricity at higher rates than it was=20 allowed to charge customers.=20 Edison International shares closed unchanged Monday at $11 on the New York= =20 Stock Exchange. The stock has fallen 30% this year.=20 Business; Financial Desk=20 California State's Rating Still Seen 'at Risk' Bonds: Standard & Poor's=20 reaffirms its A+ grade but warns it may be cut again. ?=20 06/12/2001=20 Los Angeles Times=20 Home Edition=20 Page C-2=20 Copyright 2001 / The Times Mirror Company=20 Credit-rating agency Standard & Poor's Corp. reaffirmed its A+ rating of=20 California 's general obligation debt Monday, but warned that the grade=20 remains at risk of being cut again.=20 S&P issued its statement ahead of the state's expected sale today of $1=20 billion in general obligation bonds. The securities are unrelated to the=20 record $12.5-billion electricity revenue bond offering the state will make= =20 this summer.=20 In April, S&P cut California 's bond rating by two notches, from AA to A+,= =20 citing "the mounting and uncertain cost" of the state's electric power=20 crisis.=20 The rating reduction left California with one of the lowest credit grades= =20 among the 50 states. S&P's rating of AAA is the highest grade a state can= =20 get.=20 On Monday, S&P said it maintained the A+ rating because of the state's=20 "still-positive" general fund balance, the "deep and diverse economy" and= =20 "the possibility that [the electricity -bond offering] will reimburse the= =20 general fund for power purchases already made" on behalf of the state's=20 beleaguered utilities.=20 However, the rating agency warned that "substantial uncertainty remains as = to=20 the final cost to the state of the power crisis." S&P said higher costs=20 incurred directly by the state, and/or deeper problems for the California= =20 economy because of power woes, could result in another rating downgrade.=20 Business; Financial Desk=20 California Williams May Be Required to Refund $11 Million for Power Nancy Rivera Brooks ?=20 06/12/2001=20 Los Angeles Times=20 Home Edition=20 Page C-2=20 Copyright 2001 / The Times Mirror Company=20 A major electricity marketer in California , Williams Cos., said Monday tha= t=20 it may be required to refund $11 million for electricity sold in the state= =20 this year at prices deemed too high by federal regulators.=20 Williams of Tulsa, Okla., markets nearly 4,000 megawatts of electricity=20 produced by three Southern California power plants owned by AES Corp. of=20 Arlington, Va.=20 Williams has been ordered by the Federal Energy Regulatory Commission to=20 justify prices for $30 million of electricity sold in California during Sta= ge=20 3 power emergencies from January to April.=20 FERC set a price cap for times of extreme electricity shortages during each= =20 of those four months and found that prices charged by power plant owners an= d=20 marketers, including Williams, exceeded the caps by $124.6 million in all.= =20 The companies were told to justify those prices or refund them.=20 "Williams has filed justification for its prices with the FERC and calculat= ed=20 its refund liability under the methodology used by the FERC to compute refu= nd=20 amounts at approximately $11 million," Williams said in a filing with the= =20 Securities and Exchange Commission. Williams said it continues to object to= =20 refunds in any amount.=20 National Desk=20 THE NATION U.S. Broadens Inquiry Into Alleged Gas Monopoly RICARDO ALONSO-ZALDIVAR ?=20 06/12/2001=20 Los Angeles Times=20 Home Edition=20 Page A-17=20 Copyright 2001 / The Times Mirror Company=20 WASHINGTON -- In a departure from a previous ruling, federal regulators=20 Monday broadened a high-profile inquiry into allegations that a Texas energ= y=20 company manipulated California 's natural gas market.=20 The Federal Energy Regulatory Commission is already conducting a trial-like= =20 hearing into allegations that Houston-based El Paso Corp. acquired=20 monopolistic power in California last year, adding an estimated $3.7 billio= n=20 to the state's total energy bill.=20 On Monday, FERC's governing board ordered its chief judge also to gather=20 evidence on whether two subsidiaries of El Paso violated agency rules on=20 arms-length conduct when they entered into a controversial contract last=20 year. The subsidiaries are El Paso Merchant Energy, which sells natural gas= ,=20 and El Paso Natural Gas Co., which owns a major pipeline system serving=20 California .=20 "This order . . . expands the scope of the hearing in this proceeding to=20 include the issue of whether El Paso pipeline or El Paso Merchant . . .=20 violated commission standards in bidding for or awarding the El Paso=20 contracts," FERC Chairman Curt Hebert wrote in supporting the unanimous=20 decision. "I recognize the seriousness of natural gas prices in the=20 California market and I am committed to providing all commission resources = to=20 determine the actuality of that price situation."=20 The ruling appears to be part of a shift toward a more assertive course by= =20 FERC, its five-member board bolstered by two new commissioners who advocate= =20 closer oversight of industry.=20 "It's about time," California Public Utilities Commission President Loretta= =20 Lynch said of FERC's action. "What this shows is that it may well be a new= =20 commission. . . . They're going to give our day in administrative court."= =20 In a separate action Monday, the commission scheduled a potentially=20 significant meeting next week on its strategy for helping California keep t= he=20 lights on this summer at a reasonable cost. FERC is facing heavy political= =20 pressure from the new Democrat-controlled Senate and from House Republicans= =20 to expand the modest measures it has adopted to limit electricity costs.=20 In the El Paso case, FERC's governing board had previously ruled that the t= wo=20 companies did not violate agency standards when they entered into a deal to= =20 ship as much as 1.2-billion cubic feet of natural gas a day to California= =20 --as much as 17% of the state's supply.=20 As recently as March, the FERC board had ruled there was "no merit" to=20 allegations that the bidding on the contract was skewed in El Paso Merchant= 's=20 favor and no evidence that the two subsidiaries entered into anything other= =20 than an arms-length contract.=20 "We knew all along there was a major problem here," said Harvey Morris, a= =20 lawyer for the California PUC. "We're glad that FERC has finally seen the= =20 light and set this issue for a hearing."=20 The PUC and California utilities have accused the El Paso subsidiaries of= =20 pursuing a coordinated strategy to raise the price of natural gas by=20 withholding supply during much of last year. El Paso Corp. has steadfastly= =20 denied the allegations, saying California 's high natural gas prices were t= he=20 result of weather, demand from power plants and other factors.=20 El Paso spokeswoman Norma Dunn said she was sure that FERC would reaffirm i= ts=20 previous opinion. Lawyers for El Paso had unsuccessfully battled to keep th= e=20 proceedings more narrowly focused.=20 The commission broadened the inquiry after Chief Judge Curtis L. Wagner Jr.= =20 asked for clarification of its March ruling.=20 Plaintiffs in the case say still-sealed documents allegedly indicate that E= l=20 Paso Merchant executives believed the deal would give the company substanti= al=20 influence over the California market.=20 Southern California natural gas prices have plunged since the El Paso=20 contract ran out May 31 and some 30 different shippers acquired the capacit= y=20 previously held by Merchant alone.=20 Meanwhile, Congress continues to ratchet up pressure on FERC for stricter= =20 limits on electricity prices.=20 The issue may come to a head at a meeting scheduled for Monday. The agency = is=20 running out of time to finalize a plan for helping California this summer.= =20 *=20 Times staff writer Dan Morain in Sacramento contributed to this story.=20 Air standards lowered for power plants=20 DAVIS ORDER: They can run overtime=20 Robert Salladay, Lynda Gledhill, Chronicle Sacramento Bureau Tuesday, June 12, 2001=20 ,2001 San Francisco Chronicle=20 URL: http://www.sfgate.com/cgi-bin/article.cgi?f=3D/c/a/2001/06/12/MN215029= .DTL=20 Gov. Gray Davis eased California's air pollution standards for power plants= =20 yesterday with an executive order that will allow some to run overtime this= =20 summer and squeeze out extra electricity.=20 Energy advisers said the governor's order actually would cause less polluti= on=20 in the coming months because it allows natural-gas powered plants to run=20 longer and reduce the need to run dirtier diesel-powered generators often= =20 used as backups.=20 "If you don't run these, you're either going to have outages, or you're goi= ng=20 to run something dirtier," said Davis adviser Kellan Fluckiger.=20 Under the current state of emergency, the governor has sweeping powers to= =20 make changes in the law.=20 The Davis administration roughly estimated that about 1,200 megawatts in=20 extra power could be produced and sold to California, enough to supply an= =20 estimated 1.2 million homes. The Los Angeles Department of Water and Power,= =20 which has been selling its extra electricity to the state, said it might be= =20 able to supply 1,000 megawatts alone.=20 Under the current law, power plants in California are allowed to emit=20 specific amounts of major pollutants -- nitrogen oxides and carbon monoxide= =20 -- and then must shut down when they reach a federal and state quota.=20 The executive order allows power plants in California to bypass those=20 environmental standards as long as they sell the extra power to the state o= r=20 another California-based utility. The order lasts until Davis rescinds it.= =20 EXEMPTION TRADE-OFFS In exchange for the exemptions, the power generators must pay penalties for= =20 the extra pollution they cause. The fines would probably range around $37.5= 0=20 for every megawatt produced during these peak periods, according to Catheri= ne=20 Witherspoon with the California Air Resources Board.=20 Although prices are falling, a megawatt hour has sold on the daily market f= or=20 more than $500 -- at one point soaring to as much as $1,900.=20 Money from the fines would be put into local pollution-control accounts and= =20 used to reduce emissions elsewhere, Witherspoon said. She said the governor= 's=20 order was the best way to get more power and still maintain environmental= =20 standards.=20 Witherspoon said the federal Environmental Protection Agency, which needs t= o=20 approve the new standards set by Davis, had been "very cooperative."=20 "Bringing the maximum amount of power out of natural gas capacity is really= =20 going to help," Witherspoon said. "If we don't get every last megawatt we= =20 can, we will see people turning to diesel more frequently."=20 The South Coast Air Quality District, which is the largest and most pollute= d=20 area of the state, already has been allowing power plants to produce more= =20 power in exchange for higher fines, said Ralph Cavanagh of Natural Resource= s=20 Defense Council.=20 "The key is whether the mitigation fund being set up will actually be used = to=20 offset pollution," he said. The "jury is still out" on how successful the= =20 program has been, Cavanagh said.=20 Cavanagh agreed that using natural gas plants was much better than diesel,= =20 something the Davis administration is considering. "Clearly we want to=20 suppress the operation of diesel," he said. "To the extent that it reduces= =20 diesel, that is a benefit."=20 The state's municipal utilities have for months been asking Davis for=20 yesterday's exemption so they can run their natural-gas-powered plants=20 longer, and presumably make some money off the increase in sales. Power=20 prices are at their highest in history.=20 Davis has previously threatened the public utilities takeover because of th= e=20 high prices being charged the state, which has spent about $8.3 billion to= =20 purchase power since January. The utilities have said they are only passing= =20 along the high cost of the natural gas used to produce the electricity.=20 "This was the issue we had to have solved or we could not offer any of our= =20 excess capacity to the state," said David Wiggs, general manager of the L.A= .=20 Department of Water and Power.=20 The price of the extra power is "being negotiated now with the governor's= =20 people at the direction of Mayor (Richard) Riordan to get the cost as low a= s=20 possible," Wiggs said. "We have not reached an agreement."=20 Tell us what you think -- What are your suggestions for saving energy? Send= =20 your best tips to Energy Desk, San Francisco Chronicle, 901 Mission St., Sa= n=20 Francisco, CA 94103; or put your ideas in an energy-efficient e-mail to=20 energysaver@sfchronicle.com.=20 E-mail the reporters at rsalladay@sfchronicle.com and=20 lgledhill@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 1=20 U.S. panel steps up probe of supplier=20 NATURAL GAS: Charges of price fixing=20 Bernadette Tansey, Zachary Coile, Chronicle Staff Writers Tuesday, June 12, 2001=20 ,2001 San Francisco Chronicle=20 URL: http://www.sfgate.com/cgi-bin/article.cgi?f=3D/c/a/2001/06/12/MN120567= .DTL=20 Federal regulators widened their investigation yesterday of a Texas natural= =20 gas firm accused of inflating statewide energy prices, reversing an earlier= =20 order that had partially exonerated the company.=20 The Federal Energy Regulatory Commission's 4-to-0 ruling in the investigati= on=20 of El Paso Corp., backed by Pat Wood, the Bush administration's new=20 appointee, was greeted by California's chief energy regulator as a turning= =20 point in the commission's attitude toward state complaints of price gouging= .=20 The commission's action "signals a whole new chapter of vigilant=20 enforcement," said Loretta Lynch, president of the state Public Utilities= =20 Commission.=20 The federal commission reopened the question of whether El Paso rigged the= =20 bid for a huge block of capacity on its gas pipeline in favor of its own=20 marketing affiliate, thus stifling competition that could have prevented=20 natural gas prices from soaring to the levels they reached last winter.=20 In the past year, gas from the Southwest has sold at the California border = at=20 prices as much as 10 times the nationwide average, driving up the price of= =20 consumers' heating bills and of electricity produced at power plants that r= un=20 on natural gas.=20 In March, before Wood was appointed, the commission cleared El Paso of=20 complaints by California officials that the firm had engineered the takeove= r=20 by its marketing arm of more than one-third of the space on its pipeline in= to=20 California. That pipeline supplies half of the state's gas.=20 In the same ruling, however, the commission ordered a trial-like hearing on= =20 the separate question of whether El Paso exercised near-monopoly market pow= er=20 to boost its profits.=20 The PUC, Pacific Gas and Electric Co. and Southern California Edison say El= =20 Paso's pipeline affiliate and its marketing subsidiary combined to prevent= =20 competing shippers from importing natural gas, jacking up prices.=20 The hearing, which has already stretched from an original schedule of four= =20 days to more than five weeks, will now be expanded for evidence on=20 accusations that l Paso broke federal regulations against preferential=20 treatment for affiliates.=20 COMPANY NOT WORRIED El Paso spokeswoman Norma Dunn said the probe would reinforce the=20 commission's original decision that El Paso was innocent of rigging the=20 pipeline bid.=20 "We're confident they'll use the same information to reach the same=20 conclusion," Dunn said.=20 Harvey Morris, the PUC's lead attorney in the case, said the order could le= ad=20 to harsher penalties against El Paso if an administrative law judge found= =20 wrongdoing.=20 Lynch said last week that El Paso should be forced to pay back California f= or=20 what the state considers its excess costs during the 15-month contract=20 between the company and its marketing arm, El Paso Merchant Energy. The sta= te=20 has never estimated that figure, but consultants for Edison say the alleged= =20 market manipulation cost California an extra $3.7 billion.=20 The PUC first asked the federal commission to void the contract in April=20 2000. By the time the commission ordered a hearing, the contract was close = to=20 its expiration date -- this past May 31.=20 Wood, who was sworn in to the commission last week, said in a concurring=20 opinion yesterday that such cases should be investigated promptly.=20 "In the framework of active energy markets, it is critical that the=20 commission act expeditiously on complaints," Wood wrote.=20 RAISING THE BAR Wood's remark "seems to raise the bar for FERC" in its role as a market=20 watchdog, Lynch said.=20 There has been much speculation about how Wood's presence will affect the= =20 federal commission, which has been at odds with California officials over= =20 virtually every area of energy policy.=20 Wood, a 38-year-old lawyer, was nominated to the Texas Public Utilities=20 Commission by then-Gov. George W. Bush in 1995. At the time, Bush said that= =20 Wood "shares my conservative philosophy" and would bring a free-market=20 approach to regulation.=20 Bush administration officials have hinted that Wood will replace Curt Heber= t=20 as chairman of the federal commission, though White House spokesman Ari=20 Fleischer dampened the speculation last week, saying Hebert was not in dang= er=20 of losing his job.=20 On his recent trip to the state, Bush said he had assigned Wood to=20 investigate the high cost of natural gas delivered to California.=20 Wood has spoken to Gov. Gray Davis twice on the phone about the energy=20 crisis. The two plan to meet in Washington on June 20, said Steve Maviglio,= a=20 spokesman for Davis.=20 "The governor was enthusiastic about Pat Wood after his conversations with= =20 him," Maviglio said. "He feels the commissioner understands the issues out= =20 here, and he promises to provide some relief in one form or another."=20 Davis declined to comment on yesterday's decision until he had time to read= =20 it.=20 The PUC's Morris said that it was no coincidence that gas prices in=20 California had dropped dramatically since El Paso Merchant Energy's contrac= t=20 expired May 31, and 30 competing shippers started to share the pipeline=20 capacity.=20 "It's no longer the 800-pound gorilla on the El Paso system," Morris said.= =20 El Paso spokeswoman Dunn said prices had dropped because of a wide range of= =20 factors, including mild weather, increased hydroelectric power production a= nd=20 a lower demand for gas.=20 E-mail Bernadette Tansey at btansey@sfchronicle.com. and Zachary Coile at= =20 zcoile@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 1=20 Developments in California's energy crisis=20 The Associated Press Tuesday, June 12, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/06/12/s= tate1 040EDT0140.DTL=20 (06-12) 07:40 PDT (AP) --=20 Developments in California's energy crisis:=20 TUESDAY: * No power alerts Tuesday as power reserves stay above 7 percent.=20 MONDAY: * Gov. Gray Davis signs an executive order letting natural gas-fired power= =20 plants operate in excess of usual air emission limitations. The plants must= =20 pay a mitigation fee to local air districts. Municipal utilities and other= =20 power facilities say the order could produce up to 1,200 megawatts of=20 additional power this summer by expanding the number of hours the plants ca= n=20 operate.=20 * Davis says 12 state senators have agreed to hold hearings on his proposal= =20 to help embattled Southern California Edison avoid bankruptcy. Davis met wi= th=20 the dozen Democrats Monday.=20 * Attorney General Bill Lockyer briefs Davis on his criminal investigation = of
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