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Sac Bee, Tues, 5/10: No deal in energy refund talks Sac Bee, Tues, 5/10: Third power plant opens: But the Los Medanos=20 facility isn't pouring out electricity yet Sac Bee, Tues, 5/10: State reveals high-priced power deals Sac Bee, Tues, 5/10: Government finds ways to conserve: The Santa Rita=20 Jail goes solar as agencies get creative to cut costs SD Union, Tues, 5/10: Energy talks reach no settlement; state threatens sui= t SD Union, Tues, 5/10: Refunds in jeopardy as talks fail SD Union, Tues, 5/10: State's massive outlays detailed SD Union, Tues, 5/10: State releases early spot market energy purchases LA Times, Mon, 5/9: FERC Judge Says State Owed No More Than $1 Billion LA Times, Tues, 5/10: Electricity Cost Data Spread the Blame LA Times, Tues, 5/10: Duke Energy Asked to Allow Release of Data LA Times, Mon, 5/9: Concern Over Price of Long-Term Power Pacts Grows SF Chron, Tues, 5/10: State's refund demand rejected=20 Judge ends rebate talks, rebukes $9 billion claim=20 SF Chron, Tues, 5/10: Davis opens another new power plant=20 Pittsburg facility will generate 555 megawatts SF Chron, Tues, 5/10: California rejects B.C. Hydro $125 million settlement SF Chron, Tues, 5/10: Davis' criticism of Texas misdirected, report finds SF Chron, Tues, 5/10: Developments in California's energy crisis SF Chron, Tues, 5/10: Energy talks reach no settlement; state threatens sui= t SF Chron, Tues, 5/10: Toxic fumes not linked to blackouts=20 Backup power OK in facilities, report says Mercury News, Tues, 5/10: Power suppliers, state fail to agree on refund to= tal Mercury News, Tues, 5/10: Power purchase bills exceed $7.5 billion Biggest suppliers are not from Texas OC Register, Tues, 5/10: Refund outlook dims OC Register, Tues, 5/10: State reveals details of power purchases OC Register, Tues, 5/10: Ghost of Bob Citron roaming halls of capital Gray Davis is following footsteps of former O.C. treasurer into fiscal=20 chaos (Commentary) Individual.com (PRnewswire), Tues, 5/10: Calpine's Los Medanos Energy Cente= r=20 Adds Needed Generation to California Second New Major Base Load Generator for=20 California=20 NY Times, Tues, 5/10: California and Generators Still Split After 2-Week Ta= lks Wash. Post, Tues, 5/10: Energy Refund Talks Fail In Calif.; Federal Agency'= s=20 Judge To Propose Settlement WSJ, Tues, 5/10: California and Energy Companies Miss Deadline ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ----------------- No deal in energy refund talks=20 By David Whitney Bee Washington Bureau (Published July 10, 2001)=20 WASHINGTON -- Negotiations to settle a tangle of issues arising out of=20 California's electricity debacle sputtered to an end Monday with the sides= =20 light-years apart on refunds for overpriced wholesale power sales.=20 The impasse raises the specter of years of litigation, with a regulatory=20 judge proposing a formula that could limit refunds to about $1 billion whil= e=20 California is seeking at least $8.9 billion and perhaps much more.=20 Federal Energy Regulatory Commission administrative judge Curtis Wagner sai= d=20 that within a week he'll urge the five FERC commissioners to begin=20 fact-finding hearings on how much is truly owed, following guidelines he=20 outlined sketchily Monday.=20 Among them would be limiting the time when refunds are allowed -- something= =20 that could reduce state claims by about one-third -- and changing the way= =20 power plant costs are calculated to a formula more favored by generators.= =20 Gov. Gray Davis said he was heartened by the judge's belief that California= =20 is due some amount of refund money, rejecting the generators' arguments for= =20 no refunds.=20 With the 15-day negotiation session nearly moribund, generators and power= =20 traders had offered up $716 million in proposed refunds in the final days.= =20 But Wagner indicated that that would have to be offset by money the state= =20 still owes power companies, meaning no cash would actually change hands.=20 The judge held out the possibility that at least two parties, including San= =20 Jose-based Calpine Corp., could reach separate agreements with the state.= =20 "From what I know, it looks like we can reach an agreement," Calpine=20 spokesman Bill Highlander confirmed Monday. But he said he could not disclo= se=20 any details under Wagner's gag order on participants in the negotiations.= =20 Enron Corp., one of the nation's highest-profile power traders, said=20 California officials killed the talks by never budging from their claims th= at=20 the state's consumers deserved at least $8.9 billion in refunds for=20 overcharges.=20 "These talks never had a chance," said Enron spokesman Mark Palmer. "Their= =20 political skins are worth more than $716 million that the taxpayers of=20 California could have used. It was about creating and maintaining a tool fo= r=20 a witch hunt."=20 Of the $716 million compromise offer, $510 million was put on the table by= =20 what Wagner called the "Big Five" generators -- Reliant, Duke, Mirant,=20 Williams and Dynegy -- some of whom are under state investigation. Another= =20 $125 million was offered by BC Hydro, British Colombia's government utility= ,=20 which is not under FERC jurisdiction, and $16.5 million was offered by six= =20 California municipal utilities.=20 The Sacramento Municipal Utility District, the state's second-largest=20 municipal utility, also declined to comment on the talks or any settlement= =20 amount it may have offered, but said it would outline its position in writi= ng=20 Thursday, the judge's deadline for comments on his proposal.=20 Consumer advocates and some industry officials said the judge's brief publi= c=20 remarks make it difficult to predict exactly what the impacts could be on t= he=20 state's troubled electric scene.=20 "If the judge is saying that the refund is topped at a billion that's=20 outrageous," said Nettie Hoge, head of The Utility Reform Network. "If=20 they're going to start doing some fact finding, hallelujah."=20 Hoge said the talks had been unrealistic from the start, because there was = no=20 effort by FERC to determine how high the overcharges had actually been and= =20 then work toward a compromise from there.=20 The state used a formula calculated by its nonprofit grid operator, the=20 Independent System Operator, which was attacked by marketers as wildly high= =20 even while the state called it conservatively low.=20 Joel Newton, representing all five of the big generators, said Monday that= =20 the ISO has consistently based its demand on "sketchy and incomplete" data.= =20 The face-off between Davis and power merchants began last fall, as wholesal= e=20 electricity costs were soaring and California utilities warned that they=20 could be driven into bankruptcy.=20 The governor said generators and traders took advantage of the state's powe= r=20 shortage to manipulate markets and gouge consumers. Generators said they=20 followed all laws and were only deriving fair profits in a scarcity=20 situation.=20 FERC, which entered the picture because by law it has to ensure that=20 electricity rates are "just and reasonable," has made repeated, unsuccessfu= l=20 efforts to craft a solution that could appease both sides.=20 State Assembly Speaker Robert Hertzberg, D-Sherman Oaks, said Monday that t= he=20 failure of the settlement talks to agree on a refund figure "comes as no=20 surprise."=20 Negotiators representing generators "refused to even acknowledge the=20 inescapable fact that they have profited enormously by exploiting a=20 dysfunctional market -- at California's expense," he said.=20 Davis, who had accused the generators of failing to negotiate in good faith= =20 with state representatives, said that although FERC commissioners have been= =20 slow to respond to his requests for refunds and for price caps on wholesale= =20 electricity, they "now have the opportunity to redeem themselves."=20 He suggested the commissioners can opt to award California more than is=20 recommended by the judge.=20 Wagner, after mediating talks that continued throughout the weekend, seemed= =20 resigned to the fact that trying to bring more than 50 government, utility= =20 and power generating entities together proved to be an exercise in futility= .=20 Michael Kahn, head of the California delegation and consultant to the=20 California ISO, nonetheless came away thinking the state had fared pretty= =20 well.=20 "We came here wanting $8.9 billion," Kahn said. "In all candor, we didn't= =20 receive any meaningful settlement offers and so the negotiations were not a= s=20 helpful as we had hoped they would be. But our positions were vindicated"= =20 because refunds were offered.=20 Meanwhile, Pacific Gas and Electric Co. and Southern California Edison=20 sounded the call for more talks.=20 "We're willing to talk to anyone, anytime about a settlement," said Steve= =20 Pickett, general counsel of Southern California Edison. PG&E said in a=20 prepared statement that the sessions "provide a solid basis for further=20 negotiations."=20 How much money the state might eventually receive remains the big question= =20 mark. Wagner said settlement offers of $716 million suggest that eventual= =20 refunds will amount to "hundreds of millions of dollars, maybe a billion."= =20 But he also stressed that he would recommend no specific figure to FERC=20 commissioners and does not know how big refunds might eventually be.=20 Other recommendations Wagner said he would make to the commission were a=20 mixed bag for the state.=20 The judge said he would recommend refunds no further back than Oct. 2, 2000= ,=20 an action that Kahn said would immediately slice $3 billion off the state's= =20 refund analysis that stretched back to May 2000.=20 But Kahn said that was no defeat for the state, which would turn to the=20 courts to recover that and any other sums excluded from a final refund orde= r.=20 "We still have a viable litigation claim for the remainder," Kahn said.=20 Brent Bailey, vice president and general counsel of Duke Energy of North=20 America, said he felt the formula laid out by Wagner would generate a refun= d=20 order in the range of $1 billion to $1.5 billion.=20 "It's a reasonable amount in the context of these settlement talks," Bailey= =20 said.=20 The Bee's David Whitney can be reached at (202) 383-0004 or=20 dwhitney@mcclatchydc.com.=20 Staff writers Emily Bazar and Dale Kasler contributed to this report. Third power plant opens: But the Los Medanos facility isn't pouring out=20 electricity yet.=20 By Carrie Peyton Bee Staff Writer (Published July 10, 2001)=20 The flood of new electricity being welcomed by Gov. Gray Davis was only a= =20 trickle at the latest power plant that the governor opened on Monday,=20 according to sources close to California's energy crisis.=20 Heralded by Davis as part of a "powerful one-two-three punch" that will bri= ng=20 California closer to energy independence, the Los Medanos Energy Center in= =20 Pittsburg spit out no more than 20 megawatts on its opening day, they said.= =20 That is less than 5 percent of the plant's 555-megawatt operating capacity.= =20 Los Medanos could generate a couple of hundred megawatts later this week bu= t=20 is not expected to reach its full output for two to three weeks, according = to=20 knowledgable sources.=20 Representatives for Calpine and the governor's office, when pressed for=20 details, acknowledged that the plant was not running at full tilt but said= =20 they did not know how much electricity was actually produced Monday.=20 Calpine, which will bill someone for whatever electricity it sells from Los= =20 Medanos, is keeping track of the production but the figure wasn't immediate= ly=20 available for the media, spokeswoman Katherine Potter said.=20 "Even if it was two megawatts, that's two more megawatts that we didn't hav= e=20 yesterday," said Davis spokesman Steve Maviglio.=20 He said the opening was "largely ceremonial," timed for the convenience of= =20 the governor and Calpine's top executive.=20 But consumer advocate Harvey Rosenfield called the media event "a deception= ."=20 It was the third highly publicized power plant launch the governor has=20 attended in the past two weeks.=20 "It's the governor trying to convince people he's hard at work solving the= =20 problem when it's all for show," Rosenfield said. "He's governing by sound= =20 bite. He's certainly getting his money's worth from the consultants he=20 hired."=20 Davis political adviser Garry South said last week that the governor's new= =20 radio ad campaign will highlight the efforts to produce more power in=20 California.=20 "Generation comes up in our polls as being the No. 1 thing people want us t= o=20 do -- build more power plants," South said then. "People want the sense tha= t=20 progress is being made -- that this is not spiraling out of control."=20 The other two plants that Davis kicked off -- Sunrise in Kern County and=20 Sutter near Yuba City -- have since been running at maximum capacity.=20 Calpine anticipates pumping the full 550 megawatts out of Los Medanos withi= n=20 a week to 10 days, company officials said.=20 "In the first month of these new plants, there are always stops and starts,= "=20 said Calpine spokesman Bill Highlander. "Sometimes we shut down altogether.= "=20 Including the three just-opened facilities, new or expanded power plants ar= e=20 expected to add 1,500 megawatts to the state's struggling electric grid by= =20 the end of July, and 870 megawatts of that is already in place, according t= o=20 the state Independent System Operator.=20 Another 1,000 megawatts is anticipated for the end of August and 1,100 more= =20 for the end of September, under a rough timetable that is likely to see som= e=20 plants zip ahead of schedule and others fall behind.=20 The Bee's Carrie Peyton can be reached at (916) 321-1086 or=20 cpeyton@sacbee.com. State reveals high-priced power deals=20 By Dale Kasler and Chris Bowman Bee Staff Writers (Published July 10, 2001)=20 The state Monday released details of its adventures in buying electricity o= n=20 the spot market, revealing a chaotic world in which prices fluctuate wildly= =20 within minutes.=20 The Department of Water Resources, which has been criticized for keeping it= s=20 power-purchasing practices a secret, released 1,770 pages of invoices and= =20 trade confirmations that provided the most detailed look yet of its purchas= es=20 since it jumped into the energy-buying business Jan. 17. The information wa= s=20 released a week after state Controller Kathleen Connell put out details of= =20 the state's long-term power contracts over the objections of Gov. Gray Davi= s,=20 her political nemesis.=20 The state has committed about $8.1 billion to buying power on behalf of=20 California's crippled utilities, straining the budget surplus and raising= =20 questions from lawmakers and others about Davis' policies for resolving the= =20 state's energy crisis. In turn, state officials have accused many suppliers= =20 of gouging California to the tune of several billion dollars.=20 When it came to the spot market, the water department was at the mercy of a= =20 business run amok. The state paid upward of $300 a megawatt-hour for days i= n=20 January and February -- months when electricity normally should be a lot=20 cheaper. Water officials said prices have dropped to the $100 range largely= =20 because they've signed a slew of long-term contracts, reducing their=20 dependence on spot sales.=20 "Our exposure earlier this year to the spot market was at the maximum," sai= d=20 Oscar Hidalgo, spokesman for the water department.=20 The information released Monday covered the first three months of the year= =20 and didn't include the highest price the water department has paid for=20 electricity: $1,900 a megawatt-hour in May to Reliant Energy Inc., a Texas= =20 generator that owns several plants in the state. Duke Energy Corp. of North= =20 Carolina charged even more for power in January, $3,880 a megawatt hour, bu= t=20 that sale was made to the Independent System Operator, which runs the state= 's=20 transmission grid.=20 The documents show that while the state's stricken utilities no longer buy= =20 power for themselves, their sister companies have sold expensive power.=20 Through May 31, the state paid a trading arm of Sempra Energy, the parent o= f=20 San Diego Gas & Electric, some $429 million for power. It paid PG&E Energy= =20 Trading, an unregulated sister company of Pacific Gas and Electric Co., abo= ut=20 $23.7 million.=20 Among others, the Los Angeles Department of Water and Power was paid $331= =20 million through May 31; Canadian utility BC Hydro was paid $1.05 billion;= =20 Atlanta's Mirant Corp. $1.24 billion; the federal government's Bonne=0F'vil= le=20 Power Administration $167 million; and the Sacramento Municipal Utility=20 District $80.7 million.=20 Generally, the more desperate the state was for power, the higher the price= s.=20 For instance, Oklahoma-based generator Williams Cos. commanded $565 a=20 megawatt-hour March 20, when blackouts struck more than 1 million=20 Californians.=20 Location also was critical. On March 8 the state paid the PG&E trading unit= =20 $250 but only $180 to Arizona-based Pinnacle West Capital Corp. The=20 difference was that PG&E's power was delivered to energy-starved Northern= =20 California, while Pinnacle's was sent to Southern California where energy= =20 wasn't so scarce.=20 Split-second timing was also crucial. At 9:09 a.m. Feb. 14, the state paid= =20 $400 to Mirant for power to be delivered the next day. By 10 a.m. it was=20 paying Mieco Inc., a Long Beach trading firm, $475 for the same product.=20 "That's the spot market -- it's the most volatile market in the world, and = it=20 changes on a second-by-second basis," said Enron Corp. spokesman Mark Palme= r.=20 For all the criticism leveled at Duke, Reliant and other big corporations,= =20 government-owned entities were among the most aggressive at charging high= =20 prices.=20 BC Hydro, the electric utility owned by the Canadian province of British=20 Columbia, submitted bills for up to $1,000 a megawatt-hour. The city of=20 Glendale charged $375 a megawatt-hour for power in January, while SMUD=20 charged $309 a megawatt-hour in March. The city of Eugene, Ore., averaged= =20 $450 a megawatt-hour in February.=20 "We play by the rules of the electricity trade marketplace," said BC Hydro= =20 spokesman Wayne Cousins. "Our traders worked very hard to find additional= =20 sources of electricity to keep the lights on in California. Had we not come= =20 through and stepped forward with these supplies, the consequences to=20 California customers would have been severe."=20 The state also said it has spent $14.4 million on administrative costs in= =20 buying power.=20 The Bee's Dale Kasler can be reached at (916) 321-1066 or dkasler@sacbee.co= m. Government finds ways to conserve: The Santa Rita Jail goes solar as agenci= es=20 get creative to cut costs. By Cheryl Miller Bee Correspondent (Published July 10, 2001)=20 To Matt Muniz, the solar panels sprouting on the rooftop of the Santa Rita= =20 Jail in Dublin aren't just energy-makers; they're money in the bank.=20 When all 4,000 panels are completely installed this month, the 500-kilowatt= =20 photovoltaic system -- the largest rooftop project ever constructed in the= =20 United States -- will cut the jail's demand on the electric grid by up to 2= 0=20 percent, according to Muniz, Alameda County's energy program manager.=20 That sun power, combined with conservation projects already completed at th= e=20 jail, will slash about $300,000 a year from the facility's energy bill. Mun= iz=20 is already scouting other county rooftops for solar potential.=20 "With the cost of electricity going up, you can start looking at it as a=20 business decision, just investing your money," said Muniz. "There's virtual= ly=20 no maintenance on this equipment. It just sits on your roof and converts=20 right into electricity that you're using as soon as you generate it. I thin= k=20 (solar) is the wave of the future, even though it's been around 30 or 40=20 years."=20 The Santa Rita Jail project is among the largest, and perhaps most=20 conspicuous, examples of steps government agencies are taking to cut=20 electricity use in response to skyrocketing power bills and Gov. Gray Davis= '=20 call for public entities to conserve.=20 Among the examples:=20 San Francisco leaders are pondering a bond measure to finance solar-powered= =20 rooftop projects around the city.=20 The Tulare County town of Lindsay will open City Hall two hours earlier -- = at=20 6 a.m.-- and close at 4:30 p.m. Monday through Thursday this summer so=20 offices can stay dark all day Friday and during peak-use afternoon hours.= =20 Sacramento County has instituted a casual dress policy so employees can=20 better withstand office temperatures that climb as high as 78 degrees.=20 Workers have also set sprinklers to run at night so that electric water pum= ps=20 operate during low demand.=20 "When you start to see the bills going up and you start to hear concerns fr= om=20 some citizens, that obviously raises the threshold of wanting to help out,"= =20 said Jolena Voorhis, an energy analyst at the California State Association = of=20 Counties. "Certainly (counties) stepped up to the plate when they were aske= d=20 to increase conservation efforts. They've done about as much as humanly=20 possible."=20 Kings County leaders thought they made a great deal in 1992 when they signe= d=20 up for Southern California Edison's interruptible load program, which=20 promises customers lower rates in exchange for agreeing to shut down=20 electrical services in times of shortage.=20 Then California's power crisis hit full-force this year. Since January,=20 Edison has called on the Central Valley county to cut electricity at its=20 Hanford government center 16 times -- for up to six hours each cycle.=20 At times that meant no lights to greet the public, no computers to process= =20 food stamp requests and during the Valley's foggy winter days, no heat to= =20 warm many of the 1,200 employees.=20 "We had one week in January when we were virtually shut down," said Chief= =20 Administrative Officer Larry Spikes. "We just decided we couldn't function= =20 that way."=20 So Kings County supervisors bought a $550,000 diesel-powered generator to= =20 match those already at the jail and juvenile center. They also decided to= =20 open and close administrative offices one hour earlier this summer so=20 buildings can power down before high demand hits the grid around 4 p.m.=20 The new hours, dimmed hallways and moments of darkness that occur when the= =20 generators kick on have become a routine part of doing government business= =20 these days, Spikes said.=20 So far, most counties have been able to absorb higher energy costs without= =20 cutting into programs because of relatively healthy budgets in recent years= ,=20 Voorhis said.=20 Public agencies' power troubles have proved a boon to some businesses.=20 Revenues at PowerLight, the Berkeley company that installed the Santa Rita= =20 Jail photovoltaic system, have tripled since last year.=20 "The last six months have been particularly intense," said Janice Lin,=20 director of business development for PowerLight. "In some ways the energy= =20 crisis in California has been a call to action."=20 The Sacramento Municipal Utility District, which already boasts the largest= =20 photovoltaic program in the country, has a 2,000-customer waiting list for= =20 solar projects and plans to bring sun power to the state Capitol, said Don= =20 Osborn, SMUD's solar program manager.=20 Back in Dublin, the 3,600 inmates at the Santa Rita Jail still receive thre= e=20 meals, air conditioning and hot showers -- powered now, in part, by the=20 plentiful sun in this relatively fog-free part of the East Bay.=20 The $4 million project, financed entirely with state and utility subsidies,= =20 should generate enough savings to pay for itself within the decade, Muniz= =20 said.=20 "It's a good investment for the money we're putting up front," he said. Energy talks reach no settlement; state threatens suit=20 By Mark Sherman ASSOCIATED PRESS=20 July 10, 2001=20 WASHINGTON =01) With talks between the state and power generators stalled,= =20 California may go to court to help win the $8.9 billion state officials=20 believe it was overcharged for electricity.=20 "I think we have demonstrated very clearly both to the FERC and to the judg= e=20 that the state is owed $8.9 billion and will settle for nothing less," said= =20 Roger Salazar, a spokesman for Gov. Gray Davis.=20 With negotiations at an impasse, the administrative law judge for the Feder= al=20 Energy Regulatory Commission said California is probably owed no more than = $1=20 billion in refunds. "The numbers were too far apart," said Curtis Wagner, the FERC chief=20 administrative law judge.=20 California, Wagner said, may receive nothing at all, because generators may= =20 be owed more than they have to return for any overcharges.=20 He placed the refunds owed the state at between $716 million and $1 billion= .=20 Power providers had offered $716 million as part of an overall settlement,= =20 while California state officials sought $8.9 billion, Wagner said.=20 He said California officials had not made the case for $8.9 billion in=20 refunds.=20 Salazar, however, said the state would go to court and may ask for $20=20 billion.=20 Separately, Wagner split off claims of overcharges from the Pacific=20 Northwest, saying he has not had time to consider those allegations under t= he=20 short timetable ordered by FERC last month.=20 Wagner served as a mediator during the 15 days of negotiations and will=20 recommend a settlement to FERC by next Monday. The commission ordered the= =20 talks last month in an effort to resolve differences between producers and= =20 the state over the breakdown of California's deregulated electricity market= .=20 Consumer advocates assailed the judge's recommendation and urged the state = to=20 continue its attempt to get refunds from what they say are profiteering pow= er=20 companies.=20 "It's like catching a bank robber, but instead of making him give back all = of=20 it, you only make him give back 5 percent of what he stole," said Douglas= =20 Heller, spokesman for the Santa Monica-based Foundation for Taxpayer and=20 Consumer Rights.=20 Power generators, however, were generally pleased with Wagner's comments.= =20 Brent Bailey, general counsel for Duke Energy, said even if the formula=20 Wagner recommends produces $1.5 billion in refunds, "that's a reasonable=20 amount in the context of these settlement talks."=20 California officials, negotiating on behalf of utilities, the Public=20 Utilities Commission and state power buyers, accused the producers of=20 manipulating supply to unfairly drive up prices.=20 The producers have acknowledged prices are high, but blame jumps in the pri= ce=20 of natural gas, which fuels many power plants, and the workings of the free= =20 market.=20 The bill for wholesale power in California soared to $27 billion last year= =20 from $7 billion the year before. Davis has estimated the state could spend = as=20 much as $50 billion this year.=20 The producers reiterated Monday that California's numbers are grossly=20 inflated. Attorneys for the five major generators =01) Duke Energy, Dynegy,= =20 Mirant, Reliant Energy and the Williams Cos. =01) said in a statement that = they=20 have made a "very substantial global settlement offer."=20 Reliant would agree to no more than $50 million in refunds as part of an=20 overall settlement that also would have to include protection from addition= al=20 legal claims, said John H. Stout, a company senior vice president.=20 But Stout also said, "Reliant's fundamental position has been and remains= =20 that no refunds are justified."=20 Refunds in jeopardy as talks fail=20 Judge sees possibility of offsets equal to the billions sought by state By Toby Eckert=20 COPLEY NEWS SERVICE=20 July 10, 2001=20 WASHINGTON -- Settlement talks between California and power providers accus= ed=20 of electricity price gouging collapsed yesterday, and the judge who will no= w=20 hand the case over to federal regulators set a course far from favorable to= =20 the state's demand for $8.9 billion in refunds.=20 "There are refunds due that total hundreds of millions of dollars and maybe= a=20 billion dollars," Curtis L. Wagner Jr., chief administrative law judge for= =20 the Federal Energy Regulatory Commission, said in previewing the=20 recommendations he will make to the commission.=20 But Wagner, who mediated the talks, also suggested that power sellers are= =20 still owed sums for electricity "that probably are higher than any=20 overcharges" for which they may have to pay refunds.=20 That opened the possibility that California could see no cash refunds, only= a=20 reduction in the billions of dollars the power generators and marketers cla= im=20 they are owed by state entities and utilities.=20 Wagner said he would recommend that FERC hold a "fast-track hearing" to try= =20 to untangle the complex financial claims and counterclaims arising from=20 California's power crisis.=20 Wagner also outlined a method that he said FERC should use for calculating= =20 refunds.=20 While his proposed formula includes part of one method the state used, it= =20 contains several elements for calculating electricity costs that were favor= ed=20 by power sellers, who maintain that California's numbers are wildly=20 exaggerated.=20 "I would suspect that would result in a number much below $8.9 billion," sa= id=20 Joe Ronan, vice president of Calpine, a San Jose-based electricity generato= r.=20 "I think (Wagner's method) reflects more accurately what actually happened"= =20 in the state's dysfunctional power market.=20 But Michael Kahn, the state's lead negotiator, said Wagner "vindicated"=20 California's core arguments.=20 "The hundreds of people who came here on the other side had argued to the= =20 mediator that there should not be any refunds, and that position was loudly= =20 rejected," said Kahn, chairman of the organization that manages most of=20 California's power grid.=20 "We think the numbers, even using the judge's formula, are going to be in t= he=20 multiple billions. Whatever amount of money .?.?. is awarded to us, we will= =20 have viable claims in state court and other jurisdictions for the remainder= .=20 So what we have here is a situation where California will get its $8.9=20 billion."=20 Power sellers acknowledged that the threat of litigation remains worrisome = to=20 them. They sought an end to investigations of their conduct, and immunity= =20 from legal action as part of their bargaining position.=20 During two weeks of negotiations ordered by FERC, the two sides came nowher= e=20 near bridging their differences. Wagner said a number of power sellers had= =20 put forward offers that totaled $716.1 million.=20 "That's a long way from splitting the difference," he said. "In 15 days, yo= u=20 can't work miracles."=20 Yesterday -- the deadline for completing the talks -- the ill will between= =20 the two sides broke into the open as Wagner allowed reporters into the=20 previously closed hearings.=20 Each side essentially accused the other of bargaining in bad faith and=20 failing to put forward realistic proposals.=20 John H. Stout, a senior vice president at Reliant Energy Wholesale Group,= =20 said the state used "biased calculations" to arrive at its $8.9 billion=20 refund demand. He also said that Reliant offered to knock $50 million off t= he=20 $300 million it claims it is still owed for power sold into the state.=20 Kahn shot back that Reliant made the offer confidentially to Wagner and nev= er=20 approached the state.=20 Figures scrutinized "This is the first time we've heard any of this information. And to give th= e=20 impression that somehow there's been cooperation or forthcomingness, I thin= k=20 is misleading," Kahn said.=20 The state's refund calculations were scrutinized repeatedly during the talk= s.=20 The $8.9 billion figure emerged from a study by the California power grid= =20 operator of charges for electricity between May 2000 and May 2001, a period= =20 when wholesale power prices soared.=20 Kahn said the figure was essentially duplicated when the state went back an= d=20 calculated what power costs would have been if a pricing method instituted = by=20 FERC last month had been in effect for the entire yearlong period.=20 FERC ordered the pricing method in a bid to tame wholesale prices in the=20 West.=20 In a partial win for the state, Wagner said he would recommend that FERC us= e=20 the order retroactively as a basis for calculating refunds, an approach=20 resisted by the power sellers.=20 But he said that FERC should only scrutinize charges going back to October= =20 2000, and should make several key changes in how power-generating costs are= =20 calculated.=20 For instance, he said, FERC should determine the actual amount of gas heat = it=20 takes to generate a megawatt of electricity and use spot market prices in= =20 Northern and Southern California to determine the cost of gas, rather than = a=20 statewide average cost, computed monthly.=20 Fewer overcharges? Those and other parts of the complex formula Wagner will recommend could=20 increase the benchmark cost of producing power and drive down the amount of= =20 overcharges.=20 Kahn said that applying FERC's pricing method only back to October would pu= t=20 about $3 billion of the state's refund claim off-limits.=20 Brent Bailey, vice president and general counsel for Duke Energy North=20 America, said, "We think (Wagner's) modifications are certainly a vast=20 improvement over FERC's June 19 order and also certainly over (the state's)= =20 model."=20 America.=20 In Sacramento, Gov. Gray Davis issued a statement characterizing the=20 electricity suppliers as pirates who refused to negotiate in good faith.=20 "While in the past the FERC has shown little, if any, interest in consumers= ,=20 they now have the opportunity to redeem themselves by returning the $8.9=20 billion California has demonstrated it is owed," Davis said.=20 Despite the harsh rhetoric, both sides indicated that they would continue= =20 trying to reach one-on-one settlements.=20 Ronan of Calpine said the generator was close to making a deal with the=20 state. Bailey said that while Duke would continue to push for a "global=20 settlement" between all the parties, "We've had serious settlement talks wi= th=20 the state over the last few days and hope to continue."=20 State's massive outlays detailed=20 Energy bill exceeded $100 million on 3 days By Jennifer Coleman=20 ASSOCIATED PRESS=20 July 10, 2001=20 SACRAMENTO -- On three days in May, California's daily power spending toppe= d=20 $100 million, according to a report released yesterday by state power=20 traders.=20 The California Department of Water Resources report, which addressed spot= =20 market electricity purchases since January, was released along with 1,770= =20 pages of documents that specifically detailed the first three months of=20 last-minute power purchases.=20 Such power buys on the spot market typically get the most expensive=20 electricity available.=20 The report details the department's electricity spending since Jan. 17, whe= n=20 the state took over electricity purchases for Pacific Gas and Electric Co.,= =20 San Diego Gas & Electric Co., and Southern California Edison.=20 The utilities had amassed billions in debts and were no longer creditworthy= =20 enough to purchase power. Since then, the state has spent nearly $8 billion= =20 to keep the lights on.=20 The state's daily spending peaked May 10 at $102.4 million. The=20 second-highest daily total was May 23, when the state spent $101.8 million.= =20 The day before, the state spent $100 million.=20 But since May, spot market prices have dropped, due in part to moderate=20 weather, lower natural gas prices, increased conservation which lowered=20 demand and because of increased scrutiny by lawmakers and investigators int= o=20 possible price manipulation. Gov. Gray Davis has said long-term contracts= =20 also drove the price down.=20 "It does look like some of the spot market prices have gone down, but it=20 looks like it's primarily due to natural gas prices," said Jamie Fisfis,=20 spokesman for Assembly Republicans.=20 The slight reduction in spot market prices "underscores questions about the= =20 strategy of locking us into long-term contracts, if natural gas prices=20 continue to drop," Fisfis said.=20 Most of the long-term contracts run for 10 years, with one lasting for 20= =20 years.=20 "It's unfortunate that it looks like we'll never get out from under these= =20 contracts," Fisfis said.=20 Davis has already released details of the state's long-term power contracts= =20 after losing a court battle with Republican legislators and several news=20 organizations, including The Associated Press and The Copley Press, which= =20 publishes The San Diego Union-Tribune.=20 Davis released copies of those contracts, but wanted to delay the release o= f=20 the spot market buys and short-term contracts. Releasing those details too= =20 soon after the purchases would reveal the state's buying strategy and could= =20 cause generators to raise their already sky-high prices, Davis said.=20 The number of spot market buys will lessen, the Davis administration says, = as=20 more long-term contracts are signed, reducing the state's exposure to the= =20 high-priced purchases.=20 The governor's office will release future short-term contracts and spot=20 market buys will be released on a quarterly basis, with a 90-day lag time.= =20 Second quarter information will be released in October and third quarter=20 documents will be available in January.=20 Davis maintains the delay is needed to protect its ability to negotiate=20 further spot-market power buys.=20 According to the water department, Canadian Powerex, the marketing arm of B= C=20 Hydro, has been paid $1.05 billion for spot market purchases as of May 31.= =20 But Atlanta-based Mirant Corp. topped that list, getting $1.24 billion as o= f=20 the end of May.=20 The newly released short-term contracts also show what the state had to pay= =20 when it needed power the most.=20 On March 19 and 20, when rolling blackouts hit California again, the state= =20 was forced into paying above-average prices in its largest short-term=20 contracts.=20 For example, Mirant sold the state 650 megawatts an hour at off-peak usage= =20 times on March 20 for $345 a megawatt hour, more than $70 above the average= =20 price of $272.96.=20 The day before, Mirant charged $343 a megawatt hour at off-peak in northern= =20 California when the average cost was $254.52.=20 Also on March 19, Mirant charged the state about $96 above the average pric= e=20 for power in Northern California on a sale of 6,400 megawatt hours during= =20 off-peak times.=20 Other top-selling generators, as of May 31:=20 ?Sempra Cos., $429 million.=20 ?Los Angeles Department of Water and Power, $331 million.=20 ?Dynegy, $296 million.=20 ?TransAlta Energy, $202 million.=20 ?Bonneville Power, $168 million.=20 ?Duke Energy, $164 million.=20 State releases early spot market energy purchases=20 By Jennifer Coleman ASSOCIATED PRESS=20 July 10, 2001=20 SACRAMENTO =01) On three days in May, California's daily power allowance to= pped=20 $100 million, according to a report released Monday by state power traders.= =20 However, the source of those high prices was from not solely from Texas, ho= me=20 to many of the power marketers and wholesalers Gov. Gray Davis has blamed f= or=20 much of California's power woes.=20 Public and private power companies such as Canada's B.C. Hydro, the Los=20 Angeles Department of Water and Power and Sacramento's public utility also= =20 were high on the list.=20 The California Department of Water Resources released the report, along wit= h=20 1,770 pages of documents that also detailed the last-minute power purchases= =20 the state made on the spot market in the first three months of the year.=20 Last-minute power buys on the spot market typically get the most expensive= =20 electricity available.=20 The report details the department's electricity spending since Jan. 17, whe= n=20 the state took over electricity purchases for Pacific Gas & Electric Co., S= an=20 Diego Gas & Electric Co., and Southern California Edison.=20 The utilities had amassed billions in debts and were no longer creditworthy= =20 enough to purchase power. Since then, the state has spent nearly $8 billion= =20 to keep the lights on.=20 The state's daily spending peaked May 10 at $102.4 million. The=20 second-highest daily total was May 23, when the state spent $101.8 million.= =20 The day before, the state spent $100 million.=20 But since May, spot market prices have dropped, due in part to moderate=20 weather, lower natural gas prices, increased conservation which lowered=20 demand and because of increased scrutiny by lawmakers and investigators int= o=20 possible price manipulation. Gov. Gray Davis has said long-term contracts= =20 also drove the price down.=20 "It does look like some of the spot market prices have gone down, but it=20 looks like it's primarily due to natural gas prices," said Jamie Fisfis,=20 spokesman for Assembly Republicans.=20 The slight reduction in spot market prices "underscores questions about the= =20 strategy of locking us into long-term contracts, if natural gas prices=20 continue to drop," Fisfis said.=20 Most of the long-term contracts run for 10 years, with one lasting for 20= =20 years.=20 "It's unfortunate that it looks like we'll never get out from under these= =20 contracts," Fisfis said.=20 Davis has already released details of the state's long-term power contracts= =20 after losing a court battle with Republican legislators and several news=20 organizations, including The Associated Press, who said keeping the contrac= ts=20 veiled violated the state's open records law.=20 Davis released copies of those contracts, but wanted to delay the release o= f=20 the spot market buys and short-term contracts. Releasing those details too= =20 soon after the purchases would reveal the state's buying strategy and could= =20 cause generators to raise their already sky-high prices, Davis said.=20 The number of spot market buys will lessen, the Davis administration says, = as=20 more long-term contracts are signed, reducing the state's exposure to the= =20 high-priced purchases.=20 The governor's office will release future short-term contracts and spot=20 market buys will be released on a quarterly basis, with a 90-day lag time.= =20 Second quarter information will be released in October and third quarter=20 documents will be available in January.=20 Davis maintains DWR needs the delay to protect its ability to negotiate=20 further spot-market power buys.=20 According to the DWR, Canadian Powerex, the marketing arm of BC Hydro, has= =20 been paid $1.05 billion for spot market purchases as of May 31.=20 But Atlanta-based Mirant Corp. topped that list, getting $1.24 billion as o= f=20 the end of May.=20 The newly released short-term contracts also show what the state had to pay= =20 when it needed power the most.=20 On March 19 and 20, when rolling blackouts hit California again, the state= =20 was forced into paying above-average prices in its largest short-term=20 contracts.=20 For example, Mirant sold the state 650 megawatts an hour at off-peak usage= =20 times on March 20 for $345 a megawatt hour, more than $70 above the average= =20 price of $272.96. The day before, Mirant charged $343 a megawatt hour at=20 off-peak in northern California when the average cost was $254.52.=20 Also on March 19, Mirant charged the state about $96 above the average pric= e=20 for power in Northern California on a sale of 6,400 megawatt hours during= =20 off-peak times.=20 Other top selling generators, as of May 31:=20 =01) Sempra Companies, $429 million.=20 =01) Los Angeles Department of Water and Power, $331 million.=20 =01) Dynegy, $296 million.=20 =01) TransAlta Energy, $202 million.=20 =01) Bonneville Power, $168 million.=20 =01) Duke Energy, $164 million.=20 FERC Judge Says State Owed No More Than $1 Billion From Associated Press July 9 2001 WASHINGTON -- California is owed no more than "a billion dollars" from powe= r=20 wholesalers, a federal regulatory judge said today at the end of 15 days of= =20 settlement talks in the state's electricity crisis. Curtis Wagner, the Federal Energy Regulatory Commission's chief=20 administrative law judge, said that at the same time the power suppliers=20 probably are owed more than that. The net effect of his preliminary recommendation is that California probabl= y=20 will receive no refunds from wholesalers. Wagner said power generators had offered $761 million in refunds. The state= =20 has asked for $8.9 billion since May 2000. Wagner said he will not recommen= d=20 refunds for power sales that occurred before Oct. 2. It was not immediately clear what impact the judge's preliminary=20 recommendation would have on efforts to settle the dispute. Both sides said before the judge's announcement that they expected a=20 protracted legal battle in the event the talks did not produce a settlement= . Michael Kahn, Gov. Gray Davis's representative in the talks, has said the= =20 state would seek more than twice the claimed overcharges if the dispute mov= ed=20 from mediated talks to a courtroom. The producers reiterated today that California's numbers are grossly=20 inflated. Attorneys for the five major generators-- Duke Energy, Dynegy,=20 Mirant, Reliant Energy and the Williams Cos.-- said in a statement that the= y=20 have made a "very substantial global settlement offer." John H. Stout, a senior vice president for Reliant Energy, said his company= =20 would agree to no more than $50 million in refunds, as part of an overall= =20 settlement that also would have to include protection from additional legal= =20 claims. But Stout also said, "Reliant's fundamental position has been and remains= =20 that no refunds are justified." FERC ordered the talks last month in an effort to resolve differences betwe= en=20 producers and the state over the breakdown of California's deregulated=20 electricity market. The state has accused the producers of manipulating supply to unfairly driv= e=20 up prices. The producers have acknowledged that prices are high, but blame= =20 jumps in the price of natural gas, which fuels many power plants, and the= =20 workings of the free market. The bill for wholesale power in California soared to $27 billion last year= =20 from $7 billion the year before. Davis has estimated that the state could= =20 spend as much as $50 billion this year. ---- On the Net: Federal Energy Regulatory Commission: http://www.ferc.fed.us/=20 Copyright 2001, Los Angeles Times=20 Electricity Cost Data Spread the Blame Power: Many suppliers charged more than the firms that Davis has pilloried,= =20 records show. RICH CONNELL and ROBERT J. LOPEZ and DOUG SMITHS TIMES STAFF WRITER July 10 2001 SACRAMENTO -- California's energy meltdown involves a far more diverse grou= p=20 of wholesale electricity merchants than suggested by Gov. Gray Davis, who h= as=20 aggressively blamed a handful of Texas companies, state records show. During the first three months of this year--one of the worst stretches of= =20 power shortages during the crisis--an assortment of public and private=20 entities charged the state prices averaging well above some of those paid t= o=20 Texas firms, according to documents released to The Times on Monday by the= =20 Department of Water Resources, which now buys power for California. Among those setting and collecting some of the highest average prices per= =20 megawatt-hour were a Canadian public utility, a subsidiary of San Diego Gas= &=20 Electric's parent company, and the Los Angeles Department of Water and Powe= r,=20 the report shows. Their average prices ranged from $498 a megawatt-hour=20 charged by Powerex, the trading arm of British Columbia's BC Hydro, to $292= =20 an hour by the DWP. In fact, some of the biggest private power companies=20 singled out for criticism by Davis and other state officials--Dynegy Inc.,= =20 Duke Energy and Mirant--charged less than the average prices the state paid= =20 for the period. Those companies' average prices ranged from $146 to $240 pe= r=20 megawatt-hour, according to an analysis of the documents. The figures cover the various types of spot and longer-term power purchased= =20 by the state during three months that included rolling blackouts and more= =20 than a month of razor-thin reserves, leading to continuous power emergencie= s. Davis spokesman Steve Maviglio said the governor has directed his sharpest= =20 barbs at private out-of-state generators because, in general, they have=20 reaped the highest profits over the longest period. "You have to look at the whole picture," Maviglio said. "The governor was expressing his displeasure with the arrogance of the=20 generators who wear cowboy hats," he said. "Their profits were 100% to 400%= =20 above last year. . . . Just because there are other entities who are chargi= ng=20 us more [per megawatt-hour] doesn't change the fact that we are getting=20 ripped off by companies from Houston, Tulsa, Atlanta or Charlotte." The report by the Department of Water Resources was provided to The Times o= n=20 the same day the state released 1,700 pages of documents on California's=20 electricity purchases on the volatile spot market for the year's first=20 quarter. The records detail how the state spent nearly $8 billion buying power in th= e=20 first five months of the year, and underscore the complexity of the state's= =20 energy problem. They also show that patterns of high prices are not limited= =20 to a few generators. Oscar Hidalgo, a spokesman for the water resources agency, said that the=20 reports together show that prices were extremely volatile early in the year= .=20 "All the prices were high," he said, noting the downward trend in costs sin= ce=20 his agency began buying power in mid-January. The average price per megawatt-hour for all state purchases went from $316 = in=20 January to $243 in May. Spot prices fell from an average of $321 per hour t= o=20 $271, the reports show. In the first quarter of the year, some public entities' prices far exceeded= =20 those of the biggest private companies. For example, Houston-based Enron, o= ne=20 of the nation's biggest power traders, charged an average of $181 per=20 megawatt-hour. And Atlanta-based Mirant, which sold the most to the state, = a=20 total of $706 million, charged an average of $225 per megawatt-hour. By contrast, a Calgary, Canada, firm, TransAlta Energy, averaged $335 a=20 megawatt-hour, and the Sacramento Municipal Utility District had average=20 charges of $330 per megawatt-hour. A spokesman for Enron, Mark Palmer, said recently that the "vilification of= =20 Enron was based on politics, not facts." Spokesmen for BC Hydro could not b= e=20 reached late Monday to comment on its huge sales to the state. In the past,= =20 the utility has defended its pricing practices, saying it has offered=20 last-minute hydroelectric power that helped keep California's lights on. A spokeswoman for Sempra, the parent company of San Diego Gas & Electric,= =20 said late Monday the company was unable to comment because it had yet to se= e=20 the figures released by the state. Officials at DWP, who could not be reach= ed=20 Monday evening, have defended their pricing, saying the costs of producing= =20 the power needed by the state were extremely high. More Power Bought Than Projected Hidalgo, of the Department of Water Resources, said his agency's efforts,= =20 coupled with conservation by business and consumers and falling natural gas= =20 prices, have begun to tame the state's market. Still, the state had to purchase $321 million in power in April and May,=20 about 10% more than Davis' analysts had projected. Hidlago said that was because of hot weather in May and other supply proble= ms=20 in April. He said reports will show that power purchases fell short of stat= e=20 projections in June and early July. The reports also will show that prices paid by the state were down in June= =20 and July, partly because spot prices have fallen sharply, often to well und= er=20 $100 a megawatt-hour. A summary Department of Water Resources report released Monday credited=20 Davis' program of nurturing new power generation and establishing long-term= =20 power contracts with with "moving the California electric energy industry= =20 closer to normalcy."=20 Copyright 2001, Los Angeles Times=20 Duke Energy Asked to Allow Release of Data Power: Senator says the generator is refusing to make public some informati= on=20 crucial to the price-gouging probe. Firm says it's complying. CARL INGRAM TIMES STAFF WRITER July 10 2001 SACRAMENTO -- The chairman of a Senate committee probing suspected price=20 gouging during the California energy crisis charged Monday that Duke Energy= =20 is refusing to allow him to make public information key to his investigatio= n. Sen. Joe Dunn (D-Santa Ana) said Duke has made the price bidding informatio= n=20 from its Chula Vista plant available to committee members and staffers. But= =20 under a federal confidentiality rule, the data cannot be made public withou= t=20 Duke's consent. The documents concern the Chula Vista plant, which former employees have=20 alleged was ramped up and down to drive up power prices during three days i= n=20 January. However, state records show that the agency overseeing the=20 electricity grid ordered those gyrations to keep the power flowing througho= ut=20 the state. Dunn said Duke's refusal thwarts the committee's investigation a= nd=20 efforts to enact possible remedial legislation because the confidential=20 information cannot be shared with others in the Legislature or the public. Dunn said Duke cited a rule of the Federal Energy Regulatory Commission tha= t=20 gives the company the authority to decide which records it makes public and= =20 which stay secret. "The only one who can release the data is Duke. We agreed to be bound by wh= at=20 is provided in the FERC tariff, nothing more or less," he said. Former Employees Tell of Maneuvers Dunn noted that the committee is considering trying to obtain the informati= on=20 elsewhere and "release it over Duke's objections." Three former workers at the Duke plant near Chula Vista testified last mont= h=20 under oath that the plant, among other things, was ramped up and down in wh= at=20 seemed to be an effort to maximize revenue during the Jan. 16-18 emergency. But Duke countered immediately that it had merely obeyed orders of the=20 California Independent System Operator, which keeps the state's electricity= =20 grid in balance. Duke later provided Cal-ISO documents backing up its=20 explanation. Duke executives insisted that the former employees failed to provide a full= =20 picture of the plant's operation during the three days. But Dunn, chairman of the select Senate committee on alleged price gouging,= =20 said Monday that by refusing to authorize release of all the subpoenaed dat= a,=20 Duke was guilty of the same tactics. "Duke is trying to draw the impression that it has [provided] the full=20 picture. But they are fully aware that we cannot draw any final conclusions= =20 until all that data has been released. That hasn't occurred," Dunn said. To make a determination whether the Chula Vista power was withheld to drive= =20 up prices, Dunn said, the committee must publicly examine "the bids Duke=20 submitted from which the ISO issued orders to the plant." They include the= =20 expensive hour-ahead and day-ahead markets, he said. Duke, a North Carolina-based wholesaler that operates several plants in=20 California, noted that it considers the information proprietary and=20 off-limits to legislators not on the committee. Duke spokesman Tom Williams insisted that the generator is attempting to=20 comply with the committee's demands. But he was unable to say whether Duke= =20 would agree to make the bidding documents public along with other records t= he=20 committee plans to turn over. "We are complying now," Williams said. "There is some suggestion that we ar= e=20 leaving stuff out when we have not had a chance to testify. . . . I don't= =20 know what we are ultimately going to do." The committee had threatened to cite eight wholesale generators unless they= =20 provide pricing and bidding documents by Wednesday. Six, including Duke, ha= ve=20 said they would comply to avoid a contempt citation. Two, Enron and Mirant,= =20 were cited. Dunn said the committee on Wednesday likely will give companies that are=20 trying to comply an extra week to do so, but others probably will be formal= ly=20 charged with contempt in a report to the full Senate. The upper house is th= e=20 final arbiter of such issues. Although there is scant precedent for levying penalties against those cited= =20 for contempt, Dunn said he favors imposing severe fines. In 1929, the most= =20 recent case, a cement company executive was sent to jail.=20 Copyright 2001, Los Angeles Times=20 NEWS ANALYSIS Concern Over Price of Long-Term Power Pacts Grows Embedded costs may yield more rate hikes, critics say, and the $43-billion= =20 total could complicate plans to rescue Edison. DAN MORAIN TIMES STAFF WRITER July 9 2001 SACRAMENTO -- Even as the summer progresses without blackouts, and Gov. Gra= y=20 Davis prepares for yet another news conference today to symbolically switch= =20 on a new power plant, the work in the Capitol has shifted to the seemingly= =20 more daunting task of balancing the books. It's a task with potentially far more long-lasting implications for state= =20 coffers, for businesses' bottom lines and for consumers' wallets. In particular, long-term power contracts trumpeted by the governor's office= =20 as helping to bring stability to California's out-of-control electricity=20 market are having the opposite effect politically. A growing concern about= =20 the $43-billion price tag of the contracts is complicating one of Davis' mo= st=20 ambitious energy initiatives: a proposed financial rescue of Southern=20 California Edison, which already faces an uncertain fate in the Legislature= .=20 Questions about the contracts come as California readies a complex=20 $13.4-billion bond sale to reimburse the state's general fund for other pow= er=20 purchases. Critics worry that costs embedded in the contracts, on top of the billions= =20 needed to pay for the Edison rescue, could lead to additional electricity= =20 rate hikes for consumers. Key lawmakers, consumer advocates and business=20 lobbyists are urging that at least some of the pacts be renegotiated. Citing a recent plunge in wholesale energy costs, these critics say the sta= te=20 should work to shorten the duration of the contracts and lower some of the= =20 prices. They argue that the state entered into the deals under duress after= =20 California's utilities neared insolvency and the state Department of Water= =20 Resources took over the purchasing of electricity for more than 25 million= =20 residents. "They are vulnerable," Senate Energy Committee Chairwoman Debra Bowen=20 (D-Marina del Rey) said of deals the state struck with independent power=20 companies when prices were at record highs. Bowen lauds Davis administration negotiators for signing "the best deals th= ey=20 could." But she said that in the crisis atmosphere in which the negotiation= s=20 took place, "the state had two cards and the generators had 50." Contracts Open to Challenges The contracts could be challenged in court or, more immediately, before the= =20 Federal Energy Regulatory Commission in Washington. There, an administrativ= e=20 law judge could direct that the pacts be reworked as part of a settlement o= f=20 allegations by Davis that generators overcharged the state for electricity = by=20 $8.9 billion. "We ought not to say, 'Fine, the contracts were the best we could do,' "=20 Bowen said. For his part, Davis says he is willing to accept partial payment of the $8.= 9=20 billion in the form of contracts with terms more favorable to the state. He= =20 attributes the recent sharp drop in wholesale electricity prices to=20 conservation, the administration's effort to increase power supply and--a= =20 major factor--the long-term contracts, which slashed the state's reliance o= n=20 the volatile daily, or spot, market. "You can see the value of these long-term contracts . . . dramatically=20 shrinking our overall price, which is what matters to Californians," Davis= =20 said, pointing out that the average cost of power plunged 30% from May to= =20 June. Davis energy advisor S. David Freeman, who helped negotiate the contracts,= =20 said they may end up costing less than $43 billion, given the recent declin= e=20 in prices for natural gas, the main fuel for California's=20 electricity-generating plants. Freeman also compared critics to someone who calls the fire department to= =20 douse a blaze. "After the fire is out," he said, "you complain about the=20 water damage." The contracts have other defenders, among them UC Berkeley economics=20 professor Severin Borenstein, who says the deals helped to tame the volatil= e=20 spot market by reducing generators' incentive to drive up prices, while=20 reducing the state's exposure to wild swings in price. "The point of signing long-term contracts is not to get a great price; it's= =20 to reduce risk," Borenstein said. Still, experts have been picking through the pacts ever since a Superior=20 Court judge in San Diego, ruling in a California Public Records Act lawsuit= =20 by news organizations and Republican lawmakers, ordered last month that Dav= is=20 unseal the contracts. An analysis done for the Assembly by three experts--one each representing= =20 Southern California Edison; the Utility Reform Network, a consumer group; a= nd=20 large electricity consumers--concluded that the about $43-billion price tag= =20 announced by the administration may not account for all the costs. When oth= er=20 expenses are factored in--ranging from environmental equipment upgrades to= =20 any new energy-related taxes--the contracts could cost an additional 10% to= =20 20%. "Once the contracts were made public," Senate Republican leader Jim Brulte = of=20 Rancho Cucamonga said, "just about anyone who can read began calling for=20 those contracts to be renegotiated." As buyers' remorse spreads through the Capitol, the contracts increasingly= =20 are seen as a hurdle--or a bargaining chip--as Davis and lawmakers confront= =20 fast-approaching deadlines in their effort to prevent the energy crisis fro= m=20 morphing into a broader financial crisis. A bill pushed by Davis to avert bankruptcy for the financially hobbled=20 Southern California Edison must be approved by Aug. 15. The deadline could = be=2
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