Energy Issues

Please see the following articles:

San Diego Union, 3/19: "Panel eases curbs on power plant"

San Diego Union, 3/19: "State may have claim on further overbilling"

LA Times, Sun. 3/18: "OPEC cut cited in call to boost US Oil Output"

LA Times, Sun, 3/18: "Groups looking for Silver Lining in Energy Crisis"

LA Times, Sat, 3/17: "Power firms told to justify prices or refund $55
million"

SF Chron, Sun, 3/18: "Hard-Boiled Bidding for Kilowatts
Water agency said to be in over its head as a trader"

SF Chron, Sat., 3/17: "Creditors Threaten Utilities' Finances
Suppliers try to force Edison into bankruptcy "

SF Chron, Sat., 3/17: "Regulators Find More Possibilities of Gouging"

SF Chron, Sat., 3/17: "Thousands Lose Immunity From Rolling Failures 'Block
50' update swapping homes on PG&E's blackout checkerboard"

SF Chron, Sat., 3/17: Commentary "PG&E's Service A Turnoff
A good customer put through hell "

San Jose Mercury, Sat., 3/17: Opinion "Bombast obscures energy's ebb and
flow "

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Panel eases curbs on power plant

UNION-TRIBUNE
March 17, 2001
Besides paying soaring electricity rates, San Diego County residents also
probably will have to breathe dirtier air this summer in order to keep the
lights on and air conditioners humming.
That's one expected result of a county board's decision yesterday to allow
the former Encina power plant in Carlsbad to churn out several times more air
pollutants, called oxides of nitrogen, than allowed before the power crisis.
The county Air Pollution Control District Hearing Board made the decision by
a 4-1 vote.

State may have claim on further overbilling
Continuing coverage: California's Power Crisis
?

The five-unit Encina plant is now called the Cabrillo plant, owned by
Cabrillo Co. The pollutants, called NOX, help form the region's most
widespread air pollutant -- ozone.
If the Cabrillo plant can burn natural gas all this year, its excess NOX
emissions will be offset by new NOX controls on other businesses. No
additional days of unhealthy ozone would occur, said Steven Moore, senior
engineer for the county air district.
But natural gas is expected to be in short supply, partly because several
smaller plants that require gas are expected to begin operating in San Diego
County this summer.
When gas is cut off to Cabrillo, it must switch to burning more polluting
fuel oil.
"If they burn fuel oil, it will be a different story. There will be
significant ozone increases," Moore said.
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State may have claim on further overbilling

Leaders fault FERC, call for tougher action
By Craig D. Rose
UNION-TRIBUNE STAFF WRITER
March 17, 2001
Federal energy regulators said again yesterday that California may have paid
too much for power, this time citing some $55 million in possible overcharges
during February that could be subject to refund.
But like last week -- when the Federal Energy Regulatory Commission found
possible January overcharges of $69 million -- a broad spectrum of state
leaders said the new refund is a pittance compared with the billions of
dollars that power companies are extracting from the state each month for
electricity.
The January electricity bill for San Diego Gas and Electric and the state's
two other major utilities was $5.2 billion. February's total is expected to
be higher.
Federal regulators said yesterday that they notified six electricity
suppliers that sales exceeding $430 per megawatt-hour during Stage 3 alerts
-- emergencies called when power reserves are nearly exhausted -- would be
subject to refunds, unless the suppliers can justify the sale prices on the
basis of costs.
A FERC official said whatever refunds were ordered would probably be in the
form of credits to utility companies, used to offset other power purchases.
Houston-based Dynegy faces the largest possible payment, with a potential
liability of $23 million for the month. A spokesman said the company was
still studying the FERC finding, which was issued yesterday.
"What we have said all along is that, given the market conditions, the prices
we have charged will be found to be just and reasonable," said Dynegy
spokesman Steve Stengel.
A spokeswoman for Williams Energy Services Corp., which faces possible refund
payments of $22 million, said the Tulsa-based company was unsure whether the
price level set by FERC was adequate for recovering all the costs associated
with producing power.
Other suppliers facing possible refunds are Duke Energy, Portland General
Electric Co., Reliant Energy and Mirant, formerly a unit of Southern Co.
Under federal law, regulators must assure that wholesale power prices remain
"just and reasonable." Despite repeated pleas from state leaders to cap
prices, FERC allowed prices in California's deregulated power market to soar
from $40 per megawatt-hour last spring to 10 times that level in recent
months.
The costs have created a state crisis of monumental proportion, leading Gov.
Gray Davis and state lawmakers to plan a repair package that is expected to
include more than $20 billion in state borrowing and possibly rate increases
for consumers. The state is buying electricity on behalf of the utilities.
Last week, FERC said it would order refunds for all Stage 3 sales above $273
per megawatt-hour in January, unless generators can justify their prices. The
federal commission said it allowed a higher threshold for February because of
increased costs for natural gas, the primary fuel for producing electricity.
But consumer groups said the $430 cutoff for possible power refunds belied
FERC's insistence that it's policing the deregulated market. For an SDG&E
customer using 500 kilowatt hours monthly, for example, a $430 per
megawatt-hour charge would translate to an electricity bill of $250.
"What I see is that FERC wants to present the appearance that it is
disciplining the market, but what they are doing is coddling," said Michael
Shames, executive director of the Utility Consumers' Action Network.
"If I were a power generator, I would be thrilled."
Harvey Rosenfield, president of the Foundation for Taxpayer & Consumer Rights
in Santa Monica, criticized the FERC refund finding as "laughable."
"In attempting to protect energy generators against greater retribution, FERC
has acknowledged that deregulation has failed, that there is no free market
and the public has been gouged," Rosenfield said. "The only question now is,
how much?"
The state's grid operator, which recently said California may have been
overcharged by more than $500 million during December and January, indicated
that it might challenge the FERC findings, in order to press for larger
refunds.
For one thing, the Independent System Operator said it had evidence of
overcharging during periods other than Stage 3 emergencies. The state's grid
manager also noted that the FERC established its refund price threshold by
considering only the power industry's most inefficient generating facilities.
"We are encouraged by FERC's actions of late, but they have not gone far
enough," said Steve Greenleaf, director of regulatory policy for the
Independent System Operator.
Davis, who has pressed FERC to set firm limits on the wholesale price of
power, agreed with the ISO.
"At long last, FERC is finally recognizing what we have been saying for
months -- that generators have been unfairly soaking California ratepayers,"
he said. "However FERC is taking only baby steps."
Attempts to reach FERC Chairman Curtis Hebert were unsuccessful. Commissioner
William Massey, who has called for lower price caps, said that the FERC
orders are allowing the vast majority of power sales to be excluded from
possible refund.
Massey added that the power bill for California's three major utilities,
which leaped to $28 billion last year from $7 billion in 1999, could soar far
higher.
"The projection for this year is $70 billion," Massey said. "This agency
needs to wake up because this is turning into a disaster."
Rep. Bob Filner, D-San Diego, said he believed FERC was beginning to yield to
pressure from the state for action.
"It is clear they are under pressure, but they are using data that is most
favorable to the industry," Filner said. "But their action gives credibility
to those of us who have said all along these generators are gouging the
state."
In other action yesterday:
?PG&E Corp. said it would transfer $1.1 billion from a federal tax refund to
its troubled utility unit, which is seeking billions in compensation for
costs it says it incurred buying power for its customers.
The parent companies of PG&E and Southern California Edison have been
criticized for draining billions from their respective utility units in
recent years.
Consumer groups and others oppose additional payments to the utilities, but
the governor has said he will not allow them to go bankrupt.
?Davis will spend more than $51 million over two years on consultants to help
negotiate power contracts and on an advertising campaign to educate the
public about energy conservation.
The Governor's Office released copies of the contracts yesterday afternoon.
They range from $25,000 to $40 million in cost and include contracts for
legal and financial assistance.
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OPEC Cut Cited in Call to Boost U.S. Oil Output
Energy: Cartel's decision to trim production by 4% could raise fuel prices as
summer approaches.

By DAVID WILLMAN, Times Staff Writer

?????WASHINGTON--With consumers facing a possible increase in gasoline prices
at the pump, President Bush's Energy secretary said Saturday that the
decision by major foreign oil producers to slash output emphasizes the need
to increase production within the United States.
?????"OPEC's decision [late Friday] demonstrates the importance of increasing
America's domestic production and developing a national energy policy that
will ensure a stable, reliable, affordable and diverse supply of energy,"
Energy Secretary Spencer Abraham said. He added: "There is an urgent need to
strengthen America's energy security."
?????Abraham's comments came in reaction to an agreement by the Organization
of Petroleum Exporting Countries to cut its targeted oil output by 4%--1
million barrels a day. The action by the 11-nation cartel could raise prices
for crude oil and the refined gasoline that powers Americans' automobiles and
trucks.
?????The cutback will take effect April 1, OPEC said. The nations' output
quota will fall to 24.2 million barrels a day from the current level of 25.2
million barrels. OPEC members pump almost 40% of the world's oil.
?????Abraham called OPEC's action "disappointing." His staff said he would
assess what he termed America's "energy crisis" at a conference Monday in
Washington, hosted by the U.S. Chamber of Commerce.
?????For Americans who remember well the long lines at gasoline pumps and the
inflationary spiral driven by energy prices of the 1970s, current conditions
may seem short of crisis proportions. But the specter of higher gasoline
prices as the summer travel season approaches--combined with the ongoing
power crunch in California and other Western states--presents the Bush
administration with a serious challenge.
?????Sen. Charles E. Schumer (D-N.Y.) called on Bush to consider using the
nation's Strategic Petroleum Reserve to ease the effect of the foreign
producers' announced cutback.
?????"With the U.S. economy sagging, the net result of this decision [by
OPEC] will only fuel speculation about a possible recession," Schumer said
Saturday. "Higher oil prices mean more of a financial burden for everyday
consumers, which would likely mean economic stress in the very countries OPEC
counts on to buy its oil."
?????Former President Clinton authorized tapping the strategic reserve during
the 2000 presidential campaign, when pump prices rose to more than $2 a
gallon in some areas after years of stability.
?????The OPEC production announcement comes just days after Bush renounced a
pledge he made during that campaign to trim America's emissions of carbon
dioxide, the odorless gas suspected of contributing to a warming of the
Earth's atmosphere. Bush's turnabout pleased U.S. business leaders who viewed
the decision as prudent for the domestic economy--but others saw it as a
potential step backward from leadership on the threat of global warming.
?????Abraham did not specify how or where he would like to see the U.S.
increase its energy production. But Bush has made clear that he favors a
broad approach, including opening the pristine Arctic National Wildlife
Refuge to exploration.
?????Bush's position puts him at odds with environmental organizations that
have long opposed opening the refuge. Over the last week, for instance, the
Audubon Society has placed television ads calling for opposition to drilling
in the refuge, located on Alaska's North Slope.
?????A Gallup survey conducted early this month questioned 1,060 Americans
about the seriousness with which they viewed the nation's "energy situation."
The response: 31% viewed it as "very serious," 59% chose "fairly serious" and
9% said "not at all serious."
?????Other responses in the same poll suggested that Bush faces a challenge
if he is to persuade Americans to back increased production to meet energy
needs. When asked to choose from three "potential solutions," 56% favored
more conservation by consumers, compared with 33% who favored emphasizing
production of more oil, gas or coal. And 8% said they favored "both equally."
The poll's margin of error was plus or minus 3 percentage points.
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Groups Look for Silver Lining in Energy Crisis
Power: From auto makers to water officials, they cite the electricity
situation in their efforts to reverse government decisions and rules they
oppose.

By JULIE TAMAKI and JENIFER WARREN, Times Staff Writers

?????SACRAMENTO--While legislators and lobbyists groan that the energy crisis
is monopolizing the spotlight this year, some enterprising folks have seized
on events to advance their agendas.
?????Exhibit A is an effort by auto makers to dodge a state mandate requiring
them to offer thousands of electric cars, beginning with the model year 2003.
?????Manufacturers call the cars impractical and unmarketable, and have
resisted the mandate for a decade. So when the state Air Resources Board
began considering a proposal to weaken their demand for smog-free cars
recently, auto makers sensed an opening.
?????Reminding the board of California's energy crunch, industry
representatives said recharging thousands of electric cars would only
exacerbate the problem.
?????But the California Energy Commission disputed that notion, saying the
cars would have a trivial effect on power supplies. The cars are typically
recharged at night, when demand for power is low, the commission notes. And
most of them won't be on the road until after 2003, when several new power
plants should be on line.
?????S. David Freeman, general manager of the Los Angeles Department of Water
and Power, accused the auto makers of "playing off public uncertainties and
blackout threats."
?????As it turned out, the air board reaffirmed its mandate by a unanimous
vote.
?????"It is really time to get on with the business of progress," board
member William Friedman told a General Motors official before the vote. "And
progress will be made when we stick it to you to make you do what you need to
do."
?????Another group looking for an angle in the energy crisis is the
California Manufacturers & Technology Assn., which has asked Gov. Gray Davis
to reconsider the state's overtime rule.
?????The rule requires many employers to pay their workers higher wages after
an 8-hour day. But, citing the energy crisis, the manufacturers want Davis to
reconsider it.
?????"We hope that some flexibility . . . will be addressed as a means to
offset aggressive conservation programs," said Gino DiCaro, the group's
spokesman. "If we have companies that . . . shut down for half the day, they
may want to make up production later."
?????A coalition of labor, consumer and environmental groups have fired back,
opposing any efforts by "corporate interests to capitalize on the crisis
mentality to weaken labor and environmental protections."
?????No word from the Davis administration so far.
?????In the San Joaquin Valley, the giant Westlands Water District cites
power woes in its lawsuit to block former U.S. Interior Secretary Bruce
Babbitt's decision to bolster flows to Northern California's Trinity River.
?????The suit cites diminished supplies for power users and farmers as
reasons the decision should be blocked. Sacramento Municipal Utility District
officials contend the amount of water at stake generates enough energy to
supply 31,000 Sacramento-area homes when it flows through hydroelectric
plants in the Sacramento River Basin.
?????Westlands' actions have drawn the ire of Indian tribes that fish for
salmon and Trinity County officials.
?????"It's hypocritical for Westlands and others to claim harm to
California's power resources from increased Trinity River fishery flows when
the state and federal water project pumps into the Delta enough power to keep
a city the size of San Francisco lit up," said Tom Stokely, Trinity County's
senior planner.
?????Bush administration officials say they are prepared to defend Babbitt's
decision. A court hearing on Westland's lawsuit is scheduled for Monday.
?????"It is appropriate that the Department of Interior maintain the position
it had and allow the court to now make its decision," said Sue Ellen
Wooldridge, deputy chief of staff for Interior Secretary Gale A. Norton.
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Power Firms Told to Justify Prices or Refund $55 Million
Electricity: Regulators act after issuing a similar order last week for $69
million in payments. Lawmakers say the action doesn't go far enough.

By RICHARD SIMON and NANCY RIVERA BROOKS, Times Staff Writers

?????Federal energy regulators on Friday ordered six wholesale power
suppliers to refund an additional $55 million to California if they cannot
justify the prices they charged in February.
?????The order by the Federal Energy Regulatory Commission was the agency's
second in two weeks responding to accusations by California officials that
energy companies have reaped excessive profits from the electric supply
shortage in the West.
?????FERC last week ordered 13 power suppliers to justify or refund $69
million to California utilities for power sold in January.
?????The proposed refunds represent a small portion of what California
officials are seeking.
?????Also on Friday, news that some alternative energy producers may be
lining up to shove Southern California Edison into Bankruptcy Court sent the
stocks of the parent companies of Edison and Pacific Gas & Electric Co.
plunging.
?????Edison executives said they believe they stand a good chance of
deflecting an involuntary bankruptcy petition, if one is filed, but
acknowledged that they need to resolve their money problems soon.
?????"There's no doubt about it, time is not our friend here," said Ted
Craver, chief financial officer of Edison International, parent of Southern
California Edison.
?????Wholesale electricity prices skyrocketed last May and never returned to
earth, prompting accusations that electricity suppliers were gouging
Californians and harvesting hundreds of millions in windfall profits. Edison
and PG&E have amassed $13.8 billion in electricity debts that have left them
unable to pay their bills.
?????Electricity company officials said Friday they are prepared to defend
the prices charged in each month. But on Capitol Hill, California lawmakers
complained that the FERC action did not go far enough, saying the prospective
refunds should have been much larger.
?????"This sounds like a step backward instead of the aggressive action we
need from FERC," said Sen. Dianne Feinstein (D-Calif.).
?????She questioned FERC's decision to order possible refunds only for
electricity sold in excess of $430 per megawatt-hour during Stage 3 alerts in
February.
?????"Before the energy crisis started in California, electricity was selling
at an average wholesale price of $30 a megawatt-hour," she said. "And now
FERC is saying a baseline of $430 a megawatt-hour is a reasonable cost.
Something is really wrong here."
?????FERC officials did not respond to requests for an explanation of how
they arrived at the figure of $430 per megawatt-hour. By contrast, they had
determined that $273 per megawatt-hour was the highest reasonable price the
suppliers should have charged in January.
?????The FERC order cited a complex formula that based the price for February
on such factors as natural gas prices and higher costs for generators to
comply with air pollution rules.
?????In other action, FERC announced plans to hold an April 6 meeting in
Boise, Idaho, to discuss price volatility in the West with state and energy
officials.
?????A number of California officials have accused FERC of acting timidly in
response to the high energy costs that have left PG&E and Edison on the edge
of fiscal collapse.
?????But Rep. Bob Filner (D-San Diego) welcomed Friday's action on refunds.
"The overcharges have been so egregious that even FERC, which doesn't want to
admit it, has to say something went wrong.
?????"It's a start," Filner added, "and it may help to change minds on
Capitol Hill" in support of government-imposed price controls on wholesale
power supplies. But he said refunds are far from certain.
?????Indeed, the energy companies said they expect to persuade FERC to uphold
the prices charged in February and January.
?????Steve Stengel, a spokesman for Houston-based Dynegy, which was asked to
justify $23.4 million in charges, said his firm has been running its power
plants nonstop and deferring maintenance to help California through the
energy crunch.
?????"Dynegy has done everything it could do to be part of the solution,"
Stengel said. "We feel that what we have charged has been just and
reasonable."
?????Richard Wheatley, a spokesman for Houston-based Reliant Energy, which
faces $7.4 million in potential refunds, echoed that sentiment. "We've
conducted our operations legally and ethically," he said.
?????Asked about the company's profits, Wheatley said, "I think it's high
time that the generation companies quit apologizing for good management."
?????Tom Williams, a spokesman for North Carolina-based Duke Energy, said his
company's prices were justified by premiums for environmental penalties and
fears of the lack of credit-worthiness in California. Duke was asked to
justify $2.1 million in charges.
?????Also ordered to justify their prices were Williams Energy Services
Corp., $21.6 million; Portland General Electric Co., $73,600; and Mirant,
$826,000. The wholesalers have until next Saturday to make their case to FERC.
?????In Sacramento, Steve Greenleaf, director of regulatory policy for the
California Independent System Operator, which runs the power grid for 75% of
the state, said: "We're encouraged by FERC's action of late." But he added,
"Quite honestly, it doesn't go far enough."
?????Gary Stern, director of market monitoring for Edison, said the FERC
order is flawed because "it applies refunds only to hours of Stage 3 alerts,
which . . . excuses millions of dollars in excessively priced [power]."
?????A Stage 3 alert is declared when electricity reserves fall below 1.5%.
?????Edison and PG&E have stopped paying most bills, including money owed to
producers of alternative energy. Creditors are becoming increasingly
irritated at the failure of the utilities and Gov. Gray Davis to reach a
settlement that will allow the utilities to pay their bills.
?????One such producer, Coram Energy Group, a small windmill farm in
Tehachapi, said it will sign a petition that could force Edison into
involuntary bankruptcy proceedings. At least two other creditors must sign
the petition before Edison can be forced into Bankruptcy Court.
?????In another potential precursor to bankruptcy, an alternative energy
producer called Caithness Energy won a lien Wednesday in federal court in
Nevada against Edison's stake in the Mohave power plant near Laughlin, Nev.
?????The turmoil sent investors fleeing Friday. The stock of PG&E Corp.
dropped $1.50, or 11.6%, to $11.42, while Edison International tumbled $1.35,
or 9.9%, to $12.24. Both trade on the New York Stock Exchange.
?????If an involuntary petition were filed, Edison believes it could persuade
a bankruptcy judge during the mandated 20-day waiting period not to accept
the case, said Edison lawyer Barbara Matthews.
?????"We believe we have solid ground to oppose, not the least of which is
the Bankruptcy Court doesn't need to intervene" because solutions are being
pursued in the Legislature and in the governor's office, Matthews said.
?????PG&E executives said that the San Francisco company has no utility
assets outside of California that creditors can seek to attach and is aware
of no petitions circulating among creditors to put PG&E into involuntary
bankruptcy.
?????California law forbids placing a lien against utility assets without a
prior approval by state regulators.
?????In fact, bankruptcy talk has reinvigorated negotiations with advisors to
Davis to sell the PG&E transmission grid to the state as part of a broader
settlement, said Peter Darbee, PG&E Corp. chief financial officer.
?????Edison reached a tentative agreement three weeks ago to sell its
transmission lines, but has yet to reach a final deal.
?????"We think there's reason to be cautiously optimistic," Darbee said.
?????In other developments Friday:
?????* Preparing for a summer of tight energy supplies, the Public Utilities
Commission proposed an overhaul of a controversial program in which
businesses won reduced rates in exchange for having to go dark during power
shortages. The "interruptible" program had caused businesses to lay off
employees when their power was cut for weeks at a time.
?????The PUC said new members of the program would not have power cut for
more than four hours a day or 40 hours a month; existing customers' cuts
would be limited to six hours a day.
?????* A day after Energy Secretary Spencer Abraham predicted long blackouts
this summer, the PUC also tinkered with the way power is cut in California.
The commission asked utilities to tell customers what block of circuits they
are on. If that block must be blacked out, they could be warned by the news
media.
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?????Simon reported from Washington and Rivera Brooks from Los Angeles. Times
staff writer Nicholas Riccardi contributed to this story.
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Hard-Boiled Bidding for Kilowatts
Water agency said to be in over its head as a trader
David Lazarus, Chronicle Staff Writer
Sunday, March 18, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/03/18/M
N159243.DTL

Sacramento -- The last line of defense in coping with California's energy
crisis is a narrow, windowless room in a former department store on the
outskirts of the state capital.
There, a handful of men and women huddle over computer screens on a couple of
folding tables for as long as 14 hours a day. Junk-food wrappers and bags of
candy share the cluttered space with detailed charts and analyses.
The numbers flash across the monitors -- offering prices from power companies
stretching from Canada to Texas. There is little time to think. Within
seconds, the traders are committing millions of dollars in public funds to
secure enough electricity to keep California's lights on.
This is, most people agree, not a good way for the state to be buying
electricity.
"I'm sure we've made a lot of mistakes," said Thomas Hannigan, director of
the state Department of Water Resources, which has been delegated by Gov.
Gray Davis to purchase power on behalf of near-bankrupt utilities.
By nearly all accounts, the luckless bureaucrats at the DWR are being torn to
shreds by professional energy traders, who see in California's power-
purchasing plan a golden opportunity to make off with billions in extra
profits.
"It's like being in a lion cage or a snake pit, however you want to define
it," Hannigan said. "We've definitely gotten burned. That goes without
saying."
In fact, state officials estimated last week that the DWR is shelling out
roughly $350 million a week on the volatile electricity "spot" market and
will have spent almost $4 billion by the end of the month.
At this rate, the state will use up by the end of July the entire $10 billion
authorized by the Legislature for power purchases.
CALPIRG CALLS IT GOUGING
"The state is clearly being taken advantage of," said Dan Jacobson, consumer
program director of the California Public Interest Research Group. "It looks
like the power generators are gouging us for as much as they can."
Leading power companies deny that they are artificially driving electricity
prices higher or that they are gouging California consumers. But not one was
willing to speak on the record about how well the DWR is doing in the
frequently cutthroat energy business.
Several industry sources said they had been advised not to discuss the DWR's
performance since a trading manager at Bonneville Power Administration in
Portland, Ore., was quoted as saying that California's new electricity buyers
"agree to prices that make you wonder."
The manager, David Mills, told the Wall Street Journal that the DWR is so out
of its depth that he has instructed Bonneville's traders "to cut California
some slack" by occasionally offering cut-rate prices.
A Bonneville spokesman said last week that Mills had been misquoted, but the
damage already was done: The DWR is now widely perceived in energy circles as
a pushover.
'NO LEVERAGE IN THE MARKET'
This does not sit well with DWR workers, who insist they are doing the best
they can under highly difficult conditions.
"We have done a good job considering that we have no leverage in the market,
" said Viju Patel, executive manager of the DWR's power systems department.
"We are dealing with very aggressive traders, and they have the advantage.
It's a seller's market."
This is new for the DWR, which oversees the state's water assets --
aqueducts, dams, irrigation -- and until now has confined its power buying
largely to long-term contracts needed to keep pumps operating during
electricity shortfalls.
That changed in December when the Independent System Operator, manager of
California's power network, contacted the department during a shortage and
asked the DWR to buy about $20 million worth of juice to help avert
blackouts.
Subsequent purchases placed the DWR almost $43 million in the hole. It has
yet to recoup its costs from the ISO and the utilities that ultimately used
the power for customers -- and which subsequently have defaulted on paying
their power bills.
"We made that deal only on a handshake," said Hannigan, the DWR's director.
"But we couldn't say no, could we?"
As California's troubles worsened, and as Pacific Gas and Electric Co. and
Southern California Edison grew increasingly unable to meet customer demand,
the governor realized a state agency would have to ride point in tackling the
energy crisis.
Davis turned to the DWR. Simply put, the department's admittedly limited
experience in the electricity market was still the most extensive he could
find.
"This was all new to us," Hannigan said. "When the crisis landed in our lap,
we reacted basically by applying a flood-management mentality to it. Crisis
management is crisis management."
SECRET LOCATION, INFORMATION
Thus, the DWR responded to the governor's marching orders by establishing an
emergency center in the brick-covered facility it shares with branches of the
U.S. Fish and Wildlife Service and the National Weather Service.
The so-called Joint Operations Center occupies a renovated department store
in an otherwise mundane Sacramento shopping mall.
DWR workers deliberately ask reporters not to say where exactly the facility
is located. They're concerned that disgruntled consumers will vent their
frustration over high energy prices by attacking the building, as the man who
rammed a truck into the state Capitol in January allegedly did.
The makeshift "Grid Operations Center," where power is now being purchased,
is tucked away behind a locked door on the third floor. Sonny Fong, the DWR's
emergency preparedness manager, watched nervously as a recent visitor cast
his eyes over the whiteboards on the room's walls.
The boards list all the power companies with which the DWR is trading and the
prices that each is charging California for electricity.
"Don't write any of that down," Fong admonished. "It's secret information. We
can't let any of that get out."
Keeping a lid on its activities has become a full-time job for the DWR. For
example, Fong adamantly refuses to allow anyone to speak with the
department's traders, even during breaks in the action.
"If I let you do it," he said, "I'd have to let everyone do it."
Similarly, Patel, the power systems manager, said he could not under any
circumstances open his desk drawer and show a visitor one of the 40 long-term
contracts signed by the DWR this month with generators.
SEEKING ACCESS TO CONTRACTS
Access to the contracts, involving about $40 billion in public funds, has
been sought by lawmakers, consumer groups and a number of media
organizations, including The Chronicle.
In response, the governor's office has insisted that disclosure of specific
contract terms would jeopardize the DWR's bargaining position and thus be
contrary to "public interest."
"If I let you see them, I would have to let everyone see them," Patel said.
He did acknowledge, though, that the contracts contain so much legal
gobbledygook that "you probably would not understand them in any case."
It's Hannigan, as head of the department, who has signed his name to each of
the contracts. Yet even he admits he has only a loose grasp of the details,
which were hammered out by teams of lawyers.
"We got the best deal we could get," Hannigan said.
He observed, however, that the DWR's negotiating stance was weakened by the
generators' awareness that blackouts will not be tolerated by California's
leaders -- even with a summer of dire shortages on the horizon.
This allowed the power companies to really tighten the screws in seeking the
best possible sales terms.
"They know this summer will be one big barbecue," Hannigan said. "They won't
stop until they drain all our resources."
LEARNING TO BE ADVERSARIAL
The DWR is unaccustomed to adversarial relationships in tackling a crisis. In
the event of a flood or earthquake, the department's crisis teams normally
meet with full cooperation from others when organizing countermeasures.
But with the current energy crisis, the DWR is scrambling to mount a suitable
offense while simultaneously playing defense against profit-hungry power
companies.
"It's been a learning experience for us," said Fong, who has been helping
coordinate emergency responses at the department for years. "We didn't know
what we would be up against.
"With a flood," he added, "you can see the direct impact. With this, you
can't really get a handle on things."
Fong and other DWR officials are quick to note that the department has
brought in outside energy experts from Navigant Consulting and Deloitte &
Touche.
"We may not be up to the task," Fong said. "We may not know how to play the
market. But we've brought in people who do."
Dominic Young, the Deloitte partner helping guide the DWR through the jungle
of the energy business, sees the department's burgeoning street smarts as a
work in progress.
"Does the DWR have a trading floor like Duke or Reliant?" he asked, citing
two of the biggest players in the power game. "No, they do not. If they want
to stay in this business, they clearly need to improve."
NEW FACILITY
The department is trying to do just that. Next week, the DWR's electricity
traders are expected to move from their folding tables to a brand-new,
25,000- square-foot facility on another floor.
Whether the trades remain under the aegis of the DWR is another matter.
Hannigan said he doesn't want his department to remain in the energy business
for years to come. Given his choice, he said he would prefer power purchases
being made by a newly created state energy authority, as proposed by
legislation now on the drawing board.
While some at the DWR appear to enjoy the department's newfound notoriety,
Hannigan, 60, is not one of them.
He said he is looking forward to retirement and spending more time with his
family. Being at the center of California's energy storm is clearly a
headache he'd rather not have at this point in his career.
"I know we're outgunned," he said. "I just don't know how badly."
The Power Cycle
1. Electricity Providers
Power companies stretching from Canada to Texas offer electricity to
shortage-plagued California. They have been accused of gouging consumers by
charging sky-high wholesale rates.
2. Department of Water Resources
Department of Water Resources state bureaucrats are spending $350 million a
week purchasing electricity on behalf of utilities. One energy trader said
the DWR willingly agrees to pay "prices that make you wonder."
3. Troubled Utilities
PG&E and Edison say they do not have enough money to purchase power for
customers. So they let the DWR do the buying and then PG&E and Edison pass
along the electricity -- and costs -- to millions of consumers.
4. The Consumers
California's energy woes ultimately will be born by consumers, either in the
form of higher rates or higher taxes. Consumers will be accountable for all
money that goes to buy electricity. Source: Chronicle research Chronicle
Graphic
E-mail David Lazarus at dlazarus@sfchronicle.com.
,2001 San Francisco Chronicle ? Page?A - 1
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Creditors Threaten Utilities' Finances
Suppliers try to force Edison into bankruptcy
David Lazarus, Chronicle Staff Writer
Saturday, March 17, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/03/17/M
N147053.DTL
California's cash-poor utilities faced a renewed threat of financial
catastrophe yesterday as impatient creditors for the first time moved to
start bankruptcy proceedings.
"The California power crisis is now back on red alert," said Steven
Fleishman, Merrill Lynch's influential energy analyst. "If the stakes were
already high, now they're higher still."
Efforts by power companies to recover costs from the utilities could derail
efforts by Gov. Gray Davis to remedy California's energy mess by purchasing
the utilities' power lines.
The talks are still slogging through a pea soup of issues and legal details.
Pacific Gas and Electric Co. is reluctant to sell its transmission lines, and
to part with them at all the company wants considerably more than the $5
billion the state is believed to be offering.
While the creditors are going after Southern California Edison, which owes
millions of dollars to smaller power companies, analysts said similar
bankruptcy proceedings against PG&E could follow at any time.
The heightened potential for one or both of California's two biggest
utilities going bankrupt sent a chill through investors. Shares of PG&E Corp.
fell almost 12 percent yesterday to $11.42, while Edison International
dropped 10 percent to $12.24.
Moving quickly to stem Wall Street's jitters, PG&E's chief financial officer,
Kent Harvey, said in a conference call that the utility will pay off a
portion of its debts to power companies and intends to make good to all
creditors.
"The message they're trying to send is that they're in a better position than
Edison," said Paul Patterson, an analyst at Credit Suisse First Boston. "They
wanted to make clear that no one is threatening them with bankruptcy."
Not yet. For the moment, all eyes are on Edison.
Coram Energy Group, an alternative energy provider that supplies electricity
to the Southern California utility, said it is owed as much as $350,000 for
past transactions.
Frustrated by the slow pace of Davis' efforts to resolve the situation, Coram
said it will initiate a petition to force Edison into bankruptcy. The company
would need the cooperation of only two other generators to bring the matter
to a bankruptcy judge.
"It will be fairly easy for Coram to collect the two other signatures,"
Patterson said.
Kevin Kelley, an Edison spokesman, declined to comment on the creditors'
move. "We're doing everything we can to avoid bankruptcy," he said.
DISCONTENT AMONG SMALL FIRMS
Growing discontent among smaller power companies, known in the industry as
"qualifying facilities," represents a new challenge for the governor, who has
been struggling to keep the firms in line as he deals with PG&E and Edison.
"We're on the phone all the time with these guys," said Steve Maviglio, a
spokesman for Davis. "We've been trying to work something out."
If more creditors cut loose and seek redress in bankruptcy court, any state
bailout of the utilities, which are saddled with more than $13 billion in
debt,
could quickly unravel.
A bankruptcy court, for example, could block the sale of transmission lines
and order higher rates for consumers.
SOME PLANTS SHUT DOWN
At the same time, analysts said the creditors -- some of which have had to
shut down plants due to unpaid bills -- may view bankruptcy proceedings as
the only way to recoup even a portion of past expenses before they too face
financial ruin.
"Involuntary bankruptcy is something done by people who are fed up and want
to send a message," said Wesley Avery, a Los Angeles bankruptcy lawyer.
However, he noted that several obstacles still would have to be overcome to
force either Edison or PG&E into bankruptcy. First, a bankruptcy court would
have to decide whether to even accept the creditors' petition.
If it does, the judge subsequently could rule that the creditors' losses are
not significant enough to merit forcing an entire utility into bankruptcy.
The judge also could postpone acting on the matter until the governor has had
a chance to complete his negotiations with the utilities and seek an
alternative remedy.
On the other hand, Avery noted that Edison and PG&E already meet one of the
key criteria for involuntary bankruptcy: "They are regularly missing
payments."
A company forced into bankruptcy has less control over its fate than one that
voluntarily seeks Chapter 11 protection. Avery thus said the likely strategy
for both Edison and PG&E would be to wait until an involuntary bankruptcy
looks imminent and then to quickly file voluntary papers.
BANKRUPTCY LAWYERS RETAINED
PG&E retained bankruptcy lawyers from the New York firm of Weil, Gotshal &
Manges last August. Sources within the utility said bankruptcy papers already
have been drawn up and are ready to be filed at a moment's notice.
The governor has had to face such pressure in negotiating to purchase PG&E's
power lines and coastal property. Sources familiar with the talks said the
utility keeps sending mixed signals on its commitment to actually cutting a
deal.
For example, the sources said PG&E's chairman, Robert Glynn, will agree to
various terms offered by Davis. But the next day, they said, a team of PG&E
lawyers will backpedal from the accord.
Update
-- Pressure: Small power companies initiated moves that could force
California's two biggest utilities into bankruptcy.
-- At stake: Gov. Gray Davis tried to prevent small creditors from pursuing
bankruptcy proceedings that could undermine his plan to bail out
cash-strapped utilities.
-- Worries: Shares of PG&E Corp. and Edison International dropped sharply on
fears of bankruptcy.
-- Scramble: PG&E, hoping to reassure investors, says it will pay off part of
the utility's debt.
E-mail David Lazarus at dlazarus@sfchronicle.com.
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Regulators Find More Possibilities of Gouging
Greg Lucas, Robert Salladay, Chronicle Sacramento Bureau
Saturday, March 17, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/03/17/M
N170717.DTL
Sacramento -- Power generators may have overcharged Californians $55 million
in wholesale electricity sales during February, federal regulators said
yesterday.
The Federal Energy Regulatory Commission ordered six energy suppliers to
explain their pricing by Friday. If the commission doesn't accept the
explanations, it could order the firms to refund the money.
The order marked the third time in a week that the commission accused
generators of overcharging or manipulating prices during California's energy
crisis.
Last Friday, it ordered 13 suppliers to justify their prices or refund as
much as $69 million for sales in January. On Wednesday, the commission
demanded to know why two generators withheld power from two of their
so-called must-run plants last spring, forcing power grid operators to buy
electricity at higher rates from other plants operated by the companies.
Critics of the commission said the potential refund described in yesterday's
order is too small, particularly when the state paid more than $1. 5 billion
to buy electricity in February.
"The significance is how insignificant the proposed refund is," said Michael
Shames, executive director of the Utility Consumer Action Network in San
Diego.
"(The commission) is doing less than something," Shames said. "The proposed
order creates a sham that FERC is providing some kind of discipline on this
out-of-control market, when in fact it's not."
Two companies, Dynegy and Williams Energy, accounted for a combined $45
million of the possible $55 million in overcharges cited by the commission
yesterday.
They also represent more than 10,105 of the 11,204 transactions that the
regulators said may have been overpriced.
Other companies named were Duke Energy, Portland General Electric Company,
Reliant and Mirant.
Power suppliers have steadfastly denied price gouging, saying that short
supply and the weak financial condition of the state's two largest utilities
led to increased prices.
State politicians have repeatedly said that part of California's power woes
are caused by generators taking advantage of the state's plight.
Yesterday the same politicians complained that the way the regulatory
commission calculates possible overcharging is too generous to the
generators.
The commission's methodology is based on several variables, such as the price
of natural gas. It also counts sales only during Stage 3 power alerts, when
electricity reserves are extremely low.
In its January ruling, the regulators set a baseline price of $273 a megawatt
hour and questioned deals in which energy companies charged more than that.
Changes in gas and other prices pushed that figure to $430 a megawatt hour in
February.
"Before the energy crisis started in California, electricity was selling at
an average wholesale cost of $30 a megawatt hour. And now, FERC is saying a
baseline of $430 a megawatt hour is a reasonable cost," said Sen. Dianne
Feinstein, D-California. "Something is really wrong here."
Richard Wheatley, a spokesman for the Texas company Reliant Energy, said that
given the billions of dollars in power sales to California, the relatively
low amount of alleged overpricing suggests a small problem.
"What this tells me and others is that the FERC found the majority of those
transactions to be appropriate," Wheatley said.
E-mail Greg Lucas at glucas@sfchronicle.com. and Robert Salladay at
bsalladay@sfchronicle.com.
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Thousands Lose Immunity From Rolling Failures
'Block 50' update swapping homes on PG&E's blackout checkerboard
Bernadette Tansey, Chronicle Staff Writer
Saturday, March 17, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/03/17/M
N240182.DTL

There will be an extra little unpleasant surprise for hundreds of thousands
of people in their next PG&E bills -- they're being thrown into the pool of
Californians vulnerable to rolling blackouts.
On the other hand, a lot of PG&E's customers who have been in danger of
having the lights go out are suddenly exempt -- thanks to the utility's
refiguring of who belongs in blackout-free zones.
The net effect is to decrease, by about 120,000 customers, the number of
people who would be victimized by rolling blackouts that even the Bush
administration said this week are a virtual certainty during summer in
California.
Pacific Gas and Electric Co. said yesterday that about 810,000 of the 1.9
million customers who used to be exempt from rolling blackouts are losing
their coveted spot in "Block 50" -- a collection of neighborhoods immune from
the shut-offs because they share a power circuit with a hospital, police
station or other customer deemed to be essential.
Those public services are kept running during electricity shortages -- and so
are homes served by the same wires.
PG&E bumped the customers off the lucky list to reflect changes in
distribution lines. In all, 360 circuits no longer power essential services.
But about 690,000 other households will receive news that they have been
added to Block 50, perhaps because a fire station or other public safety
building has been built in the area, said PG&E spokesman Jon Tremayne.
PG&E said it started reviewing who was in Block 50 to get ready for the
likely summer blackouts. However, the changes will do little to reduce the
overall percentage of customers spared from rolling blackouts.
In two days of blackouts in Northern and Central California in January, 43
percent of customers were on Block 50 and had nothing to worry about. The
latest change drops that to 42 percent.
By looking at the block number on their bills, customers can tell whether
they will have to take their turn sitting in the dark for as long as two
hours during power shortages as the utilities reduce the demand for
electricity through staged shut-offs.
For safety's sake, Tremayne said, PG&E doesn't release the locations of
blocks that could suddenly be plunged into the dark. "The bad guys in this
world can go there and do bad things," he said.
Like an instant lottery winner, Helen Hearne, 79, of Berkeley found out she
is one of the thousands of new Block 50 customers when she scanned her new
bill yesterday. She has no idea why, but she is not asking any questions.
"I'm relieved," Hearne said. "Everything we have is electric."
Bill Giacometti of Oakland's Montclair neighborhood, who was jubilant when he
learned in January he was exempt from the blackouts, faced the possibility of
being banished from Block 50. But the bill that arrived yesterday brought
good news -- he is still in, thanks to the fire station up the street.
"I'm elated, of course," Giacometti said. "I would say I don't need as
extensive an emergency plan."
But he said he is mainly relieved that he won't have to reset the clocks on
VCRs and other appliances.
"You have to run around putting everything back to normal -- and then nobody
remembers how to do it," Giacometti said.
PG&E divides blackout-eligible customers into 14 blocks in Northern and
Central California. To spread the inconvenience equally, every one of the
blocks takes its turn.
Residents in part of Block 9 are next in line to suffer through a power loss.
Blocks 1 through 8, as well as half of Block 9, were shut off either during
the blackouts in January or during a rolling blackout last June.
Each block contains about 200,000 customers.
The possibility of power shortages still looms as Gov. Gray Davis tries to
line up reliable supplies of electricity under long-term contracts.
Davis also is hoping to get Californians to conserve at least 10 percent of
energy usage as the weather heats up and air conditioners click on, and he is
hoping to get enough power plants online to add 5,000 megawatts to the grid.
Each megawatt can supply power for 1,000 homes.
E-mail Bernadette Tansey at btansey@sfchronicle.com.
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PG&E's Service A Turnoff
A good customer put through hell
Ken Garcia
Saturday, March 17, 2001
,2001 San Francisco Chronicle
URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/03/17/M
NW226237.DTL
San Francisco -- As if officials from Pacific Gas and Electric Co. haven't
done enough to ruin their image by soaking consumers for billions of dollars
and helping California's leaders look like a bunch of dim bulbs.
Now it looks like they're determined to inflict their special brand of
customer service on people who actually pay their bills.
That's how Ken Zankel and his employees ended up in the dark on Tuesday, not
a good spot for people involved in the restaurant business, who rely on
things like electricity, customers and tips. And it's not so good for the
food either, unless you happen to like your quesadillas baked in the sun.
Zankel is the sole owner and proprietor of two well-received and popular
eating establishments in the Marina district -- one called Alameda whipsnake,
and the other called the Grove. They have been around for seven and six
years, respectively, which means they are well beyond the restaurant failure
curve, a ranking generally accorded to places that offer good food and
service and have a proven track record of paying their bills.
But a lot has changed in the continually more costly restaurant business
since PG&E decided to make a rather public showing of its corporate
shortsightedness and power rates went through the roof. And it certainly
wasn't made any easier when the utility giants begun charging countless
numbers of customers for back payments resulting from PG&E's own failure to
properly monitor monthly billing.
Zankel discovered this in January, when, in spite of his squeaky clean record
of on-time payments, he was hit with a $6,000 increase for power use at the
Grove, an upgrade that did not elude his bookkeeper. The corporate titans at
PG&E might not notice when the zeros light up, but when Zankel found his bill
jumping from $1,200 to $7,200 in 30 days, it registered on the meter.
His bookkeeper inquired. Officials at the utility company's so-called
customer service center checked deeper and said that new software installed
by PG&E the previous summer had under-billed numerous customers for the
previous six months and that the January invoice was correct.
But because PG&E had made the mistake, thanks to its Hal-like computer, it
would happily work out a payment plan for Zankel that could accommodate the
restaurant owner and the accounting-challenged power provider.
The deal was that Zankel would pay $1,000 extra on his monthly utility bill
for the next six months without interest, PG&E being ever so gracious,
because,
the customer rep said, it was indeed their mistake.
And what good is a utility without public outreach?
So Zankel paid, three extra zeros for the first two months, when he received
another loving note from PG&E on Feb. 21 that if he did not pay his bill in
the next 48 hours, his power would be shut off.
A frightened Zankel checked in with the friendly customer service center to
discover that, in fact, another mistake had been made. "There should be no
worries," his service representative assured him, especially since they were
able to track down his Feb. 9 check for $2,176. He was told his next payment
was due on March 15. And thanks so much for calling.
Then, about 9 a.m. Tuesday, PG&E sent a service technician out to Zankel's
Chestnut Street location and cut off his power.
Zankel's manager called him at home, where he reacted with the cool of a
roasted jalapeno pepper. "It's always great for business when your customers
are sitting in the dark, your staff can't work and there's nothing you can do
about it," he said.
So he called PG&E's customer service center, where he was told by a nice
young woman that they couldn't find any problems for why his electricity was
shut down. "This shouldn't have happened," she told him, but it would
probably be a few hours before they could send someone out to restore his
power.
Zankel asked why he didn't get a notice saying the utility was contemplating
shutting off his service, and he was told the previous notice was all they
needed to provide.
"You mean if you send out a notice that was mistaken, that's all the company
feels it needs to do?" he asked. Yes, she replied, that was her understanding
of company policy.
He blurted out something about suing PG&E. Her response: "If you're going to
sue us, then I can't help you anymore and you'll have to go through the PUC
to get your power turned back on."
No, no, no, he said. Let's just take care of this and get my power turned
back on.
Zankel raced down to the PG&E center on Mission Street and wrote a check for
the full remaining balance of his bill, $4,445.85, "just so I wouldn't have
to deal with it anymore." Then the clerk informed him that there would be a
$20 turn-on charge. He fished a $20 bill out his pocket and handed it to her.
The receipt noted this transaction, and the check amount, with the parting
words: "The easy way to pay PG&E."
"There is no easy way to pay PG&E," Zankel said. "I'm just lucky that we're
in good financial shape. Some restaurants might go under because of something
like this. Maybe PG&E would be better off financially if they learned to bill
people correctly."
But PG&E spokesman Jon Tremayne said that although he didn't know the
specifics of Zankel's case, it must have been a mistake.
"The last thing we want to do is to shut power off for some business," he
said. "We're very flexible in working with customers on a payment program. I
don't know what happened in this case, but it's our policy to go out of our
way to avoid things like this."
That's not going to happen anytime soon. Zankel's latest bill came in showing
a charge for $366.40, once again, at least $1,000 off the actual amount. That
darn software. You just never know when it's going to act up.
The company is once again threatening blackouts this summer. Chances are a
lot of people won't have to wait that long.
You can reach Ken Garcia at (415) 777-7152 or e-mail him at
kgarcia@sfchronicle.com.
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Bombast obscures energy's ebb and flow
Published Monday, March 19, 2001, in the San Jose Mercury News
THE electricity crisis has dimmed the lights at car dealerships and sapped
the confidence of California consumers. But it's provided a jolt of energy to
a hardy perennial of politics: parochialism.
Announcing yet another investigation into electricity prices, several state
senators condemned ``out-of-state generators.'' Their greed, said one, has
produced a ``massive transfer of wealth'' out of California.
Gov. Gray Davis in his state-of-the-state speech intoned: ``Never again can
we allow out-of-state profiteers to hold California hostage.''
In the hysterical high point of this line of argument, Sen. Steve Peace, D-El
Cajon, one of the architects of electricity restructuring, took to the Senate
floor to declare that unless California moved into public ownership of power
it might as well ``raise the Lone Star flag atop the Capitol.''
About the only thing right about this rant is the geography. The energy
companies are indeed out of state, with a group of them in Texas. Dynegy,
Reliant and Enron are based in Houston; Duke, in Charlotte; Mirant in
Atlanta; and Williams Energy, in Tulsa.
As for the rest of the argument, it appears to be based on a Fort Knox
concept of where money is: Profits sit in vaults, until spent to benefit the
state in which they repose.
I'm not denying there is reason to at least investigate the profits made by
generators of power. But some who have done well -- Calpine and the Los
Angeles Department of Water and Power, to name two -- are based in
California. What difference does location make? Victims of muggings do not
generally express relief if told the robbers were fellow Californians. ``Oh
good, the money will stay in the community,'' no one has ever told the
police.
First, let's establish the scale of this alleged transfer of wealth. The
obscene profit is often put at $15 billion. I'm no economist, but I think
this is somewhere between buckets of money and a boatload. Compared with the
$1 trillion California economy, however, it's 1.5 percent.
The transfer that matters doesn't cross political boundaries, but business
ones. It is from companies that consume electricity to make products or offer
services, to those that produce electricity. Rising energy prices inflate the
cost of most goods and services.
The second fallacy in the ``massive transfer of wealth'' is that the money
goes to some other state and stays there. Not in today's economy.
Duke Energy, for instance, is proposing to invest more than $1 billion to
modernize power plants at Moss Landing and Morro Bay.
Even if most of the money California spends on electricity goes to companies
out of state, why would that matter? Most of the money California spends on
cars goes to companies headquartered in Michigan, Germany and Japan. No
legislation or investigation is pending.
Profits made by companies in California or elsewhere go to shareholders, who
might live anywhere. Or they go into bank accounts, to be invested wherever
the bank thinks is profitable. Or they are used to expand the company, which
could happen in its home state or anywhere else it does business.
One of California's energy companies, Pacific Gas & Electric, has made
investments nationwide.
The reason I raise this issue, other than in a hopeless quest for precision
in political discourse, is that parochialism could cause the state to make
bad decisions about electricity.
Already legislators are muttering about prohibiting generators in California
from selling their electricity outside the state, unless California is
assured a sufficient supply. But there's much evidence that a Western
regional market would be more efficient than one in California alone.
And, looking at the flow the other way, California should not hesitate to
obtain power from companies based out of state if they offer the best prices.
There are reasons to locate the actual power plants close to the users; they
don't apply to the company headquarters.
The political boundaries that define the state of California are not likely
to be the logical physical or financial boundaries of the electricity market,
just as they are not the boundaries of the lettuce or microprocessor market.
California should protect itself from being gouged by generators no matter
where they are located. And if the generators are doing business fairly,
Californians should no more worry about where the money they spend on
electricity is going than they worry about where the money they spend on cell
phones is going.

Phil Yost is chief editorial writer of the Mercury News.
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