Test.eml

Message-ID: <9848718.1075851633487.JavaMail.evans@thyme>
Date: Tue, 10 Jul 2001 14:35:00 -0700 (PDT)
From: jeff.dasovich@enron.com
To: mday@gmssr.com
Subject: Energy Issues
Mime-Version: 1.0
Content-Type: text/plain; charset=ANSI_X3.4-1968
Content-Transfer-Encoding: quoted-printable
X-From: Jeff Dasovich
X-To: MDay <MDay@GMSSR.com>
X-cc: 
X-bcc: 
X-Folder: \Dasovich, Jeff (Non-Privileged)\Dasovich, Jeff\Sent Items
X-Origin: DASOVICH-J
X-FileName: Dasovich, Jeff (Non-Privileged).pst



Please see the following articles:

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 chao=
s      (Commentary)

 Individual.com (PRnewswire), Tues, 5/10: Calpine's Los Medanos Energy Cent=
er Adds Needed Generation to California Second New Major Base Load Generato=
r for California =09


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 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 Cali=
fornia's electricity debacle sputtered to an end Monday with the sides ligh=
t-years apart on refunds for overpriced wholesale power sales.=20
The impasse raises the specter of years of litigation, with a regulatory ju=
dge proposing a formula that could limit refunds to about $1 billion while =
California is seeking at least $8.9 billion and perhaps much more.=20
Federal Energy Regulatory Commission administrative judge Curtis Wagner sai=
d that within a week he'll urge the five FERC commissioners to begin fact-f=
inding hearings on how much is truly owed, following guidelines he outlined=
 sketchily Monday.=20
Among them would be limiting the time when refunds are allowed -- something=
 that could reduce state claims by about one-third -- and changing the way =
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=
 is due some amount of refund money, rejecting the generators' arguments fo=
r no refunds.=20
With the 15-day negotiation session nearly moribund, generators and power t=
raders had offered up $716 million in proposed refunds in the final days. B=
ut Wagner indicated that that would have to be offset by money the state st=
ill owes power companies, meaning no cash would actually change hands.=20
The judge held out the possibility that at least two parties, including San=
 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 spokes=
man Bill Highlander confirmed Monday. But he said he could not disclose 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 Califo=
rnia officials killed the talks by never budging from their claims that the=
 state's consumers deserved at least $8.9 billion in refunds for overcharge=
s.=20
"These talks never had a chance," said Enron spokesman Mark Palmer. "Their =
political skins are worth more than $716 million that the taxpayers of Cali=
fornia could have used. It was about creating and maintaining a tool for a =
witch hunt."=20
Of the $716 million compromise offer, $510 million was put on the table by =
what Wagner called the "Big Five" generators -- Reliant, Duke, Mirant, Will=
iams and Dynegy -- some of whom are under state investigation. Another $125=
 million was offered by BC Hydro, British Colombia's government utility, wh=
ich is not under FERC jurisdiction, and $16.5 million was offered by six Ca=
lifornia municipal utilities.=20
The Sacramento Municipal Utility District, the state's second-largest munic=
ipal utility, also declined to comment on the talks or any settlement amoun=
t it may have offered, but said it would outline its position in writing Th=
ursday, the judge's deadline for comments on his proposal.=20
Consumer advocates and some industry officials said the judge's brief publi=
c remarks make it difficult to predict exactly what the impacts could be on=
 the state's troubled electric scene.=20
"If the judge is saying that the refund is topped at a billion that's outra=
geous," said Nettie Hoge, head of The Utility Reform Network. "If they're g=
oing to start doing some fact finding, hallelujah."=20
Hoge said the talks had been unrealistic from the start, because there was =
no effort by FERC to determine how high the overcharges had actually been a=
nd then work toward a compromise from there.=20
The state used a formula calculated by its nonprofit grid operator, the Ind=
ependent System Operator, which was attacked by marketers as wildly high ev=
en while the state called it conservatively low.=20
Joel Newton, representing all five of the big generators, said Monday that =
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 electricity costs were soaring and California utilities warned that they =
could be driven into bankruptcy.=20
The governor said generators and traders took advantage of the state's powe=
r shortage to manipulate markets and gouge consumers. Generators said they =
followed all laws and were only deriving fair profits in a scarcity situati=
on.=20
FERC, which entered the picture because by law it has to ensure that electr=
icity rates are "just and reasonable," has made repeated, unsuccessful effo=
rts to craft a solution that could appease both sides.=20
State Assembly Speaker Robert Hertzberg, D-Sherman Oaks, said Monday that t=
he failure of the settlement talks to agree on a refund figure "comes as no=
 surprise."=20
Negotiators representing generators "refused to even acknowledge the inesca=
pable fact that they have profited enormously by exploiting a dysfunctional=
 market -- at California's expense," he said.=20
Davis, who had accused the generators of failing to negotiate in good faith=
 with state representatives, said that although FERC commissioners have bee=
n slow to respond to his requests for refunds and for price caps on wholesa=
le electricity, they "now have the opportunity to redeem themselves."=20
He suggested the commissioners can opt to award California more than is rec=
ommended by the judge.=20
Wagner, after mediating talks that continued throughout the weekend, seemed=
 resigned to the fact that trying to bring more than 50 government, utility=
 and power generating entities together proved to be an exercise in futilit=
y.=20
Michael Kahn, head of the California delegation and consultant to the Calif=
ornia ISO, nonetheless came away thinking the state had fared pretty well.=
=20
"We came here wanting $8.9 billion," Kahn said. "In all candor, we didn't r=
eceive any meaningful settlement offers and so the negotiations were not as=
 helpful as we had hoped they would be. But our positions were vindicated" =
because refunds were offered.=20
Meanwhile, Pacific Gas and Electric Co. and Southern California Edison soun=
ded the call for more talks.=20
"We're willing to talk to anyone, anytime about a settlement," said Steve P=
ickett, general counsel of Southern California Edison. PG&E said in a prepa=
red statement that the sessions "provide a solid basis for further negotiat=
ions."=20
How much money the state might eventually receive remains the big question =
mark. Wagner said settlement offers of $716 million suggest that eventual r=
efunds will amount to "hundreds of millions of dollars, maybe a billion." B=
ut he also stressed that he would recommend no specific figure to FERC comm=
issioners and does not know how big refunds might eventually be.=20
Other recommendations Wagner said he would make to the commission were a mi=
xed bag for the state.=20
The judge said he would recommend refunds no further back than Oct. 2, 2000=
, an action that Kahn said would immediately slice $3 billion off the state=
's refund analysis that stretched back to May 2000.=20
But Kahn said that was no defeat for the state, which would turn to the cou=
rts to recover that and any other sums excluded from a final refund order.=
=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 Am=
erica, said he felt the formula laid out by Wagner would generate a refund =
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=
 said.=20

The Bee's David Whitney can be reached at (202) 383-0004 or dwhitney@mcclat=
chydc.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 ele=
ctricity 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 t=
rickle at the latest power plant that the governor opened on Monday, accord=
ing 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 California closer to energy independence, the Los Medanos Energy Center =
in Pittsburg spit out no more than 20 megawatts on its opening day, they sa=
id.=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 is not expected to reach its full output for two to three weeks, accordin=
g to knowledgable sources.=20
Representatives for Calpine and the governor's office, when pressed for det=
ails, acknowledged that the plant was not running at full tilt but said the=
y did not know how much electricity was actually produced Monday.=20
Calpine, which will bill someone for whatever electricity it sells from Los=
 Medanos, is keeping track of the production but the figure wasn't immediat=
ely 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 yesterday," said Davis spokesman Steve Maviglio.=20
He said the opening was "largely ceremonial," timed for the convenience of =
the governor and Calpine's top executive.=20
But consumer advocate Harvey Rosenfield called the media event "a deception=
." It was the third highly publicized power plant launch the governor has a=
ttended in the past two weeks.=20
"It's the governor trying to convince people he's hard at work solving the =
problem when it's all for show," Rosenfield said. "He's governing by sound =
bite. He's certainly getting his money's worth from the consultants he hire=
d."=20
Davis political adviser Garry South said last week that the governor's new =
radio ad campaign will highlight the efforts to produce more power in Calif=
ornia.=20
"Generation comes up in our polls as being the No. 1 thing people want us t=
o do -- build more power plants," South said then. "People want the sense t=
hat 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 Su=
tter near Yuba City -- have since been running at maximum capacity.=20
Calpine anticipates pumping the full 550 megawatts out of Los Medanos withi=
n a week to 10 days, company officials said.=20
"In the first month of these new plants, there are always stops and starts,=
" said Calpine spokesman Bill Highlander. "Sometimes we shut down altogethe=
r."=20
Including the three just-opened facilities, new or expanded power plants ar=
e expected to add 1,500 megawatts to the state's struggling electric grid b=
y the end of July, and 870 megawatts of that is already in place, according=
 to the state Independent System Operator.=20
Another 1,000 megawatts is anticipated for the end of August and 1,100 more=
 for the end of September, under a rough timetable that is likely to see so=
me plants zip ahead of schedule and others fall behind.=20

The Bee's Carrie Peyton can be reached at (916) 321-1086 or 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 the spot market, revealing a chaotic world in which prices fluctuate wild=
ly within minutes.=20
The Department of Water Resources, which has been criticized for keeping it=
s power-purchasing practices a secret, released 1,770 pages of invoices and=
 trade confirmations that provided the most detailed look yet of its purcha=
ses since it jumped into the energy-buying business Jan. 17. The informatio=
n was released a week after state Controller Kathleen Connell put out detai=
ls of the state's long-term power contracts over the objections of Gov. Gra=
y Davis, her political nemesis.=20
The state has committed about $8.1 billion to buying power on behalf of Cal=
ifornia's crippled utilities, straining the budget surplus and raising ques=
tions from lawmakers and others about Davis' policies for resolving the sta=
te's energy crisis. In turn, state officials have accused many suppliers 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=
 business run amok. The state paid upward of $300 a megawatt-hour for days =
in January and February -- months when electricity normally should be a lot=
 cheaper. Water officials said prices have dropped to the $100 range largel=
y because they've signed a slew of long-term contracts, reducing their depe=
ndence on spot sales.=20
"Our exposure earlier this year to the spot market was at the maximum," sai=
d Oscar Hidalgo, spokesman for the water department.=20
The information released Monday covered the first three months of the year =
and didn't include the highest price the water department has paid for elec=
tricity: $1,900 a megawatt-hour in May to Reliant Energy Inc., a Texas gene=
rator that owns several plants in the state. Duke Energy Corp. of North Car=
olina charged even more for power in January, $3,880 a megawatt hour, but t=
hat sale was made to the Independent System Operator, which runs the state'=
s transmission grid.=20
The documents show that while the state's stricken utilities no longer buy =
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 San Diego Gas & Electric, some $429 million for power. It paid PG&E Energ=
y Trading, an unregulated sister company of Pacific Gas and Electric Co., a=
bout $23.7 million.=20
Among others, the Los Angeles Department of Water and Power was paid $331 m=
illion through May 31; Canadian utility BC Hydro was paid $1.05 billion; At=
lanta's Mirant Corp. $1.24 billion; the federal government's Bonne=07ville =
Power Administration $167 million; and the Sacramento Municipal Utility Dis=
trict $80.7 million.=20
Generally, the more desperate the state was for power, the higher the price=
s. For instance, Oklahoma-based generator Williams Cos. commanded $565 a me=
gawatt-hour March 20, when blackouts struck more than 1 million Californian=
s.=20
Location also was critical. On March 8 the state paid the PG&E trading unit=
 $250 but only $180 to Arizona-based Pinnacle West Capital Corp. The differ=
ence was that PG&E's power was delivered to energy-starved Northern Califor=
nia, while Pinnacle's was sent to Southern California where energy wasn't s=
o scarce.=20
Split-second timing was also crucial. At 9:09 a.m. Feb. 14, the state paid =
$400 to Mirant for power to be delivered the next day. By 10 a.m. it was pa=
ying 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 changes on a second-by-second basis," said Enron Corp. spokesman Mark Pa=
lmer.=20
For all the criticism leveled at Duke, Reliant and other big corporations, =
government-owned entities were among the most aggressive at charging high p=
rices.=20
BC Hydro, the electric utility owned by the Canadian province of British Co=
lumbia, submitted bills for up to $1,000 a megawatt-hour. The city of Glend=
ale charged $375 a megawatt-hour for power in January, while SMUD charged $=
309 a megawatt-hour in March. The city of Eugene, Ore., averaged $450 a meg=
awatt-hour in February.=20
"We play by the rules of the electricity trade marketplace," said BC Hydro =
spokesman Wayne Cousins. "Our traders worked very hard to find additional s=
ources of electricity to keep the lights on in California. Had we not come =
through and stepped forward with these supplies, the consequences to Califo=
rnia customers would have been severe."=20
The state also said it has spent $14.4 million on administrative costs in b=
uying 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 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 =
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=
 photovoltaic system -- the largest rooftop project ever constructed in the=
 United States -- will cut the jail's demand on the electric grid by up to =
20 percent, according to Muniz, Alameda County's energy program manager.=20
That sun power, combined with conservation projects already completed at th=
e jail, will slash about $300,000 a year from the facility's energy bill. M=
uniz 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 bu=
siness decision, just investing your money," said Muniz. "There's virtually=
 no maintenance on this equipment. It just sits on your roof and converts r=
ight into electricity that you're using as soon as you generate it. I think=
 (solar) is the wave of the future, even though it's been around 30 or 40 y=
ears."=20
The Santa Rita Jail project is among the largest, and perhaps most conspicu=
ous, examples of steps government agencies are taking to cut electricity us=
e in response to skyrocketing power bills and Gov. Gray Davis' call for pub=
lic entities to conserve.=20
Among the examples:=20
San Francisco leaders are pondering a bond measure to finance solar-powered=
 rooftop projects around the city.=20
The Tulare County town of Lindsay will open City Hall two hours earlier -- =
at 6 a.m.-- and close at 4:30 p.m. Monday through Thursday this summer so o=
ffices can stay dark all day Friday and during peak-use afternoon hours.=20
Sacramento County has instituted a casual dress policy so employees can bet=
ter withstand office temperatures that climb as high as 78 degrees. Workers=
 have also set sprinklers to run at night so that electric water pumps oper=
ate during low demand.=20
"When you start to see the bills going up and you start to hear concerns fr=
om some citizens, that obviously raises the threshold of wanting to help ou=
t," said Jolena Voorhis, an energy analyst at the California State Associat=
ion of Counties. "Certainly (counties) stepped up to the plate when they we=
re asked to increase conservation efforts. They've done about as much as hu=
manly possible."=20
Kings County leaders thought they made a great deal in 1992 when they signe=
d up for Southern California Edison's interruptible load program, which pro=
mises customers lower rates in exchange for agreeing to shut down electrica=
l services in times of shortage.=20
Then California's power crisis hit full-force this year. Since January, Edi=
son has called on the Central Valley county to cut electricity at its Hanfo=
rd 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 =
food stamp requests and during the Valley's foggy winter days, no heat to w=
arm many of the 1,200 employees.=20
"We had one week in January when we were virtually shut down," said Chief A=
dministrative Officer Larry Spikes. "We just decided we couldn't function t=
hat way."=20
So Kings County supervisors bought a $550,000 diesel-powered generator to m=
atch those already at the jail and juvenile center. They also decided to op=
en and close administrative offices one hour earlier this summer so buildin=
gs 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 =
generators kick on have become a routine part of doing government business =
these days, Spikes said.=20
So far, most counties have been able to absorb higher energy costs without =
cutting into programs because of relatively healthy budgets in recent years=
, 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 =
Jail photovoltaic system, have tripled since last year.=20
"The last six months have been particularly intense," said Janice Lin, dire=
ctor of business development for PowerLight. "In some ways the energy crisi=
s in California has been a call to action."=20
The Sacramento Municipal Utility District, which already boasts the largest=
 photovoltaic program in the country, has a 2,000-customer waiting list for=
 solar projects and plans to bring sun power to the state Capitol, said Don=
 Osborn, SMUD's solar program manager.=20
Back in Dublin, the 3,600 inmates at the Santa Rita Jail still receive thre=
e meals, air conditioning and hot showers -- powered now, in part, by the p=
lentiful sun in this relatively fog-free part of the East Bay.=20
The $4 million project, financed entirely with state and utility subsidies,=
 should generate enough savings to pay for itself within the decade, Muniz =
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        By Mark Sh=
erman ASSOCIATED PRESS  July 10, 2001  WASHINGTON - With talks between the =
state and power generators stalled, California may go to court to help win =
the $8.9 billion state officials believe it was overcharged for electricity=
.  "I think we have demonstrated very clearly both to the FERC and to the j=
udge that the state is owed $8.9 billion and will settle for nothing less,"=
 said Roger Salazar, a spokesman for Gov. Gray Davis.  With negotiations at=
 an impasse, the administrative law judge for the Federal Energy Regulatory=
 Commission said California is probably owed no more than $1 billion in ref=
unds.    "The numbers were too far apart," said Curtis Wagner, the FERC chi=
ef administrative law judge.  California, Wagner said, may receive nothing =
at all, because generators may be owed more than they have to return for an=
y overcharges.  He placed the refunds owed the state at between $716 millio=
n and $1 billion. Power providers had offered $716 million as part of an ov=
erall settlement, while California state officials sought $8.9 billion, Wag=
ner said.  He said California officials had not made the case for $8.9 bill=
ion in refunds.  Salazar, however, said the state would go to court and may=
 ask for $20 billion.  Separately, Wagner split off claims of overcharges f=
rom the Pacific Northwest, saying he has not had time to consider those all=
egations under the short timetable ordered by FERC last month.  Wagner serv=
ed as a mediator during the 15 days of negotiations and will recommend a se=
ttlement to FERC by next Monday. The commission ordered the talks last mont=
h in an effort to resolve differences between producers and the state over =
the breakdown of California's deregulated electricity market.  Consumer adv=
ocates assailed the judge's recommendation and urged the state to continue =
its attempt to get refunds from what they say are profiteering power compan=
ies.  "It's like catching a bank robber, but instead of making him give bac=
k all of it, you only make him give back 5 percent of what he stole," said =
Douglas Heller, spokesman for the Santa Monica-based Foundation for Taxpaye=
r and Consumer Rights.  Power generators, however, were generally pleased w=
ith Wagner's comments.  Brent Bailey, general counsel for Duke Energy, said=
 even if the formula Wagner recommends produces $1.5 billion in refunds, "t=
hat's a reasonable amount in the context of these settlement talks."  Calif=
ornia officials, negotiating on behalf of utilities, the Public Utilities C=
ommission and state power buyers, accused the producers of manipulating sup=
ply to unfairly drive up prices.  The producers have acknowledged prices ar=
e high, but blame jumps in the price of natural gas, which fuels many power=
 plants, and the workings of the free market.  The bill for wholesale power=
 in California soared to $27 billion last year from $7 billion the year bef=
ore. Davis has estimated the state could spend as much as $50 billion this =
year.  The producers reiterated Monday that California's numbers are grossl=
y inflated. Attorneys for the five major generators - Duke Energy, Dynegy, =
Mirant, Reliant Energy and the Williams Cos. - said in a statement that the=
y have made a "very substantial global settlement offer."  Reliant would ag=
ree to no more than $50 million in refunds as part of an overall settlement=
 that also would have to include protection from additional legal claims, s=
aid John H. Stout, a company senior vice president.  But Stout also said, "=
Reliant's fundamental position has been and remains that no refunds are jus=
tified."              Refunds in jeopardy as talks fail        Judge sees p=
ossibility of offsets equal to the billions sought by state By Toby Eckert =
 COPLEY NEWS SERVICE  July 10, 2001  WASHINGTON -- Settlement talks between=
 California and power providers accused of electricity price gouging collap=
sed yesterday, and the judge who will now hand the case over to federal reg=
ulators set a course far from favorable to the state's demand for $8.9 bill=
ion in refunds.  "There are refunds due that total hundreds of millions of =
dollars and maybe a billion dollars," Curtis L. Wagner Jr., chief administr=
ative law judge for the Federal Energy Regulatory Commission, said in previ=
ewing the recommendations he will make to the commission.  But Wagner, who =
mediated the talks, also suggested that power sellers are still owed sums f=
or electricity "that probably are higher than any overcharges" for which th=
ey may have to pay refunds.  That opened the possibility that California co=
uld see no cash refunds, only a reduction in the billions of dollars the po=
wer generators and marketers claim they are owed by state entities and util=
ities.  Wagner said he would recommend that FERC hold a "fast-track hearing=
" to try to untangle the complex financial claims and counterclaims arising=
 from California's power crisis.  Wagner also outlined a method that he sai=
d FERC should use for calculating refunds.  While his proposed formula incl=
udes part of one method the state used, it contains several elements for ca=
lculating electricity costs that were favored by power sellers, who maintai=
n that California's numbers are wildly exaggerated.  "I would suspect that =
would result in a number much below $8.9 billion," said Joe Ronan, vice pre=
sident of Calpine, a San Jose-based electricity generator. "I think (Wagner=
's method) reflects more accurately what actually happened" in the state's =
dysfunctional power market.  But Michael Kahn, the state's lead negotiator,=
 said Wagner "vindicated" California's core arguments.  "The hundreds of pe=
ople who came here on the other side had argued to the mediator that there =
should not be any refunds, and that position was loudly rejected," said Kah=
n, chairman of the organization that manages most of California's power gri=
d.  "We think the numbers, even using the judge's formula, are going to be =
in the multiple billions. Whatever amount of money . . . is awarded to us, =
we will have viable claims in state court and other jurisdictions for the r=
emainder. So what we have here is a situation where California will get its=
 $8.9 billion."  Power sellers acknowledged that the threat of litigation r=
emains worrisome to them. They sought an end to investigations of their con=
duct, and immunity from legal action as part of their bargaining position. =
 During two weeks of negotiations ordered by FERC, the two sides came nowhe=
re near bridging their differences. Wagner said a number of power sellers h=
ad put forward offers that totaled $716.1 million.  "That's a long way from=
 splitting the difference," he said. "In 15 days, you can't work miracles."=
  Yesterday -- the deadline for completing the talks -- the ill will betwee=
n the two sides broke into the open as Wagner allowed reporters into the pr=
eviously closed hearings.  Each side essentially accused the other of barga=
ining in bad faith and failing to put forward realistic proposals.  John H.=
 Stout, a senior vice president at Reliant Energy Wholesale Group, said the=
 state used "biased calculations" to arrive at its $8.9 billion refund dema=
nd. He also said that Reliant offered to knock $50 million off the $300 mil=
lion it claims it is still owed for power sold into the state.  Kahn shot b=
ack that Reliant made the offer confidentially to Wagner and never approach=
ed the state.  Figures scrutinized "This is the first time we've heard any =
of this information. And to give the impression that somehow there's been c=
ooperation or forthcomingness, I think is misleading," Kahn said.  The stat=
e's refund calculations were scrutinized repeatedly during the talks.  The =
$8.9 billion figure emerged from a study by the California power grid opera=
tor of charges for electricity between May 2000 and May 2001, a period when=
 wholesale power prices soared.  Kahn said the figure was essentially dupli=
cated when the state went back and calculated what power costs would have b=
een if a pricing method instituted by FERC last month had been in effect fo=
r the entire yearlong period.  FERC ordered the pricing method in a bid to =
tame wholesale prices in the West.  In a partial win for the state, Wagner =
said he would recommend that FERC use the order retroactively as a basis fo=
r calculating refunds, an approach resisted by the power sellers.  But he s=
aid that FERC should only scrutinize charges going back to October 2000, an=
d should make several key changes in how power-generating costs are calcula=
ted.  For instance, he said, FERC should determine the actual amount of gas=
 heat it takes to generate a megawatt of electricity and use spot market pr=
ices in Northern and Southern California to determine the cost of gas, rath=
er than a statewide average cost, computed monthly.  Fewer overcharges? Tho=
se and other parts of the complex formula Wagner will recommend could incre=
ase the benchmark cost of producing power and drive down the amount of over=
charges.  Kahn said that applying FERC's pricing method only back to Octobe=
r would put about $3 billion of the state's refund claim off-limits.  Brent=
 Bailey, vice president and general counsel for Duke Energy North America, =
said, "We think (Wagner's) modifications are certainly a vast improvement o=
ver FERC's June 19 order and also certainly over (the state's) model."  Ame=
rica.  In Sacramento, Gov. Gray Davis issued a statement characterizing the=
 electricity suppliers as pirates who refused to negotiate in good faith.  =
"While in the past the FERC has shown little, if any, interest in consumers=
, they now have the opportunity to redeem themselves by returning the $8.9 =
billion California has demonstrated it is owed," Davis said.  Despite the h=
arsh rhetoric, both sides indicated that they would continue trying to reac=
h one-on-one settlements.  Ronan of Calpine said the generator was close to=
 making a deal with the state. Bailey said that while Duke would continue t=
o push for a "global settlement" between all the parties, "We've had seriou=
s settlement talks with the state over the last few days and hope to contin=
ue."               State's massive outlays detailed        Energy bill exce=
eded $100 million on 3 days By Jennifer Coleman  ASSOCIATED PRESS  July 10,=
 2001  SACRAMENTO -- On three days in May, California's daily power spendin=
g topped $100 million, according to a report released yesterday by state po=
wer traders.  The California Department of Water Resources report, which ad=
dressed spot market electricity purchases since January, was released along=
 with 1,770 pages of documents that specifically detailed the first three m=
onths of last-minute power purchases.  Such power buys on the spot market t=
ypically get the most expensive electricity available.  The report details =
the department's electricity spending since Jan. 17, when the state took ov=
er electricity purchases for Pacific Gas and Electric Co., San Diego Gas & =
Electric Co., and Southern California Edison.  The utilities had amassed bi=
llions in debts and were no longer creditworthy enough to purchase power. S=
ince then, the state has spent nearly $8 billion to keep the lights on.  Th=
e state's daily spending peaked May 10 at $102.4 million. The second-highes=
t daily total was May 23, when the state spent $101.8 million. The day befo=
re, the state spent $100 million.  But since May, spot market prices have d=
ropped, due in part to moderate weather, lower natural gas prices, increase=
d conservation which lowered demand and because of increased scrutiny by la=
wmakers and investigators into possible price manipulation. Gov. Gray Davis=
 has said long-term contracts also drove the price down.  "It does look lik=
e some of the spot market prices have gone down, but it looks like it's pri=
marily due to natural gas prices," said Jamie Fisfis, spokesman for Assembl=
y Republicans.  The slight reduction in spot market prices "underscores que=
stions about the strategy of locking us into long-term contracts, if natura=
l gas prices continue to drop," Fisfis said.  Most of the long-term contrac=
ts run for 10 years, with one lasting for 20 years.  "It's unfortunate that=
 it looks like we'll never get out from under these contracts," Fisfis said=
.  Davis has already released details of the state's long-term power contra=
cts after losing a court battle with Republican legislators and several new=
s organizations, including The Associated Press and The Copley Press, which=
 publishes The San Diego Union-Tribune.  Davis released copies of those con=
tracts, but wanted to delay the release of the spot market buys and short-t=
erm contracts. Releasing those details too soon after the purchases would r=
eveal the state's buying strategy and could cause generators to raise their=
 already sky-high prices, Davis said.  The number of spot market buys will =
lessen, the Davis administration says, as more long-term contracts are sign=
ed, reducing the state's exposure to the high-priced purchases.  The govern=
or's office will release future short-term contracts and spot market buys w=
ill be released on a quarterly basis, with a 90-day lag time. Second quarte=
r information will be released in October and third quarter documents will =
be available in January.  Davis maintains the delay is needed to protect it=
s ability to negotiate further spot-market power buys.  According to the wa=
ter department, Canadian Powerex, the marketing arm of BC Hydro, has been p=
aid $1.05 billion for spot market purchases as of May 31.  But Atlanta-base=
d Mirant Corp. topped that list, getting $1.24 billion as of the end of May=
.  The newly released short-term contracts also show what the state had to =
pay when it needed power the most.  On March 19 and 20, when rolling blacko=
uts hit California again, the state was forced into paying above-average pr=
ices in its largest short-term contracts.  For example, Mirant sold the sta=
te 650 megawatts an hour at off-peak usage times on March 20 for $345 a meg=
awatt hour, more than $70 above the average price of $272.96.  The day befo=
re, Mirant charged $343 a megawatt hour at off-peak in northern California =
when the average cost was $254.52.  Also on March 19, Mirant charged the st=
ate about $96 above the average price for power in Northern California on a=
 sale of 6,400 megawatt hours during off-peak times.  Other top-selling gen=
erators, as of May 31:   Sempra Cos., $429 million.   Los Angeles Departmen=
t of Water and Power, $331 million.   Dynegy, $296 million.   TransAlta Ene=
rgy, $202 million.   Bonneville Power, $168 million.   Duke Energy, $164 mi=
llion.         State releases early spot market energy purchases        By =
Jennifer Coleman ASSOCIATED PRESS  July 10, 2001  SACRAMENTO - On three day=
s in May, California's daily power allowance topped $100 million, according=
 to a report released Monday by state power traders.  However, the source o=
f those high prices was from not solely from Texas, home to many of the pow=
er marketers and wholesalers Gov. Gray Davis has blamed for much of Califor=
nia's power woes.  Public and private power companies such as Canada's B.C.=
 Hydro, the Los Angeles Department of Water and Power and Sacramento's publ=
ic utility also were high on the list.  The California Department of Water =
Resources released the report, along with 1,770 pages of documents that als=
o detailed the last-minute power purchases the state made on the spot marke=
t in the first three months of the year.  Last-minute power buys on the spo=
t market typically get the most expensive electricity available.  The repor=
t details the department's electricity spending since Jan. 17, when the sta=
te took over electricity purchases for Pacific Gas & Electric Co., San Dieg=
o Gas & Electric Co., and Southern California Edison.  The utilities had am=
assed billions in debts and were no longer creditworthy enough to purchase =
power. Since then, the state has spent nearly $8 billion to keep the lights=
 on.  The state's daily spending peaked May 10 at $102.4 million. The secon=
d-highest daily total was May 23, when the state spent $101.8 million. The =
day before, the state spent $100 million.  But since May, spot market price=
s have dropped, due in part to moderate weather, lower natural gas prices, =
increased conservation which lowered demand and because of increased scruti=
ny by lawmakers and investigators into possible price manipulation. Gov. Gr=
ay Davis has said long-term contracts also drove the price down.  "It does =
look like some of the spot market prices have gone down, but it looks like =
it's primarily due to natural gas prices," said Jamie Fisfis, spokesman for=
 Assembly Republicans.  The slight reduction in spot market prices "undersc=
ores questions about the strategy of locking us into long-term contracts, i=
f natural gas prices continue to drop," Fisfis said.  Most of the long-term=
 contracts run for 10 years, with one lasting for 20 years.  "It's unfortun=
ate that it looks like we'll never get out from under these contracts," Fis=
fis said.  Davis has already released details of the state's long-term powe=
r contracts after losing a court battle with Republican legislators and sev=
eral news organizations, including The Associated Press, who said keeping t=
he contracts veiled violated the state's open records law.  Davis released =
copies of those contracts, but wanted to delay the release of the spot mark=
et buys and short-term contracts. Releasing those details too soon after th=
e purchases would reveal the state's buying strategy and could cause genera=
tors to raise their already sky-high prices, Davis said.  The number of spo=
t market buys will lessen, the Davis administration says, as more long-term=
 contracts are signed, reducing the state's exposure to the high-priced pur=
chases.  The governor's office will release future short-term contracts and=
 spot market buys will be released on a quarterly basis, with a 90-day lag =
time. Second quarter information will be released in October and third quar=
ter documents will be available in January.  Davis maintains DWR needs the =
delay to protect its ability to negotiate further spot-market power buys.  =
According to the DWR, Canadian Powerex, the marketing arm of BC Hydro, has =
been paid $1.05 billion for spot market purchases as of May 31.  But Atlant=
a-based Mirant Corp. topped that list, getting $1.24 billion as of the end =
of May.  The newly released short-term contracts also show what the state h=
ad to pay when it needed power the most.  On March 19 and 20, when rolling =
blackouts hit California again, the state was forced into paying above-aver=
age prices in its largest short-term contracts.  For example, Mirant sold t=
he state 650 megawatts an hour at off-peak usage times on March 20 for $345=
 a megawatt hour, more than $70 above the average price of $272.96. The day=
 before, Mirant charged $343 a megawatt hour at off-peak in northern Califo=
rnia when the average cost was $254.52.  Also on March 19, Mirant charged t=
he state about $96 above the average price for power in Northern California=
 on a sale of 6,400 megawatt hours during off-peak times.  Other top sellin=
g generators, as of May 31:  - Sempra Companies, $429 million.  - Los Angel=
es Department of Water and Power, $331 million.  - Dynegy, $296 million.  -=
 TransAlta Energy, $202 million.  - Bonneville Power, $168 million.  - Duke=
 Energy, $164 million.           FERC Judge Says State Owed No More Than $1=
 Billion From Associated Press  July 9 2001  WASHINGTON -- California is ow=
ed no more than "a billion dollars" from power wholesalers, a federal regul=
atory judge said today at the end of 15 days of settlement talks in the sta=
te's electricity crisis.  Curtis Wagner, the Federal Energy Regulatory Comm=
ission's chief administrative law judge, said that at the same time the pow=
er suppliers probably are owed more than that.  The net effect of his preli=
minary recommendation is that California probably will receive no refunds f=
rom wholesalers.  Wagner said power generators had offered $761 million in =
refunds. The state has asked for $8.9 billion since May 2000. Wagner said h=
e will not recommend refunds for power sales that occurred before Oct. 2.  =
It was not immediately clear what impact the judge's preliminary recommenda=
tion would have on efforts to settle the dispute.  Both sides said before t=
he judge's announcement that they expected a protracted legal battle in the=
 event the talks did not produce a settlement.  Michael Kahn, Gov. Gray Dav=
is's representative in the talks, has said the state would seek more than t=
wice the claimed overcharges if the dispute moved from mediated talks to a =
courtroom.  The producers reiterated today that California's numbers are gr=
ossly inflated. Attorneys for the five major generators-- Duke Energy, Dyne=
gy, Mirant, Reliant Energy and the Williams Cos.-- said in a statement that=
 they have made a "very substantial global settlement offer."  John H. Stou=
t, a senior vice president for Reliant Energy, said his company would agree=
 to no more than $50 million in refunds, as part of an overall settlement t=
hat also would have to include protection from additional legal claims.  Bu=
t Stout also said, "Reliant's fundamental position has been and remains tha=
t no refunds are justified."  FERC ordered the talks last month in an effor=
t to resolve differences between producers and the state over the breakdown=
 of California's deregulated electricity market.  The state has accused the=
 producers of manipulating supply to unfairly drive up prices. The producer=
s have acknowledged that prices are high, but blame jumps in the price of n=
atural gas, which fuels many power plants, and the workings of the free mar=
ket.  The bill for wholesale power in California soared to $27 billion last=
 year from $7 billion the year before. Davis has estimated that the state c=
ould spend as much as $50 billion this year.  ----  On the Net:  Federal En=
ergy Regulatory Commission: http://www.ferc.fed.us/   Copyright 2001, Los A=
ngeles Times       Electricity Cost Data Spread the Blame Power: Many suppl=
iers charged more than the firms that Davis has pilloried, records show. RI=
CH CONNELL and ROBERT J. LOPEZ and DOUG SMITHS TIMES STAFF WRITER  July 10 =
2001  SACRAMENTO -- California's energy meltdown involves a far more divers=
e group of wholesale electricity merchants than suggested by Gov. Gray Davi=
s, who has aggressively blamed a handful of Texas companies, state records =
show.  During the first three months of this year--one of the worst stretch=
es of power shortages during the crisis--an assortment of public and privat=
e entities charged the state prices averaging well above some of those paid=
 to Texas firms, according to documents released to The Times on Monday by =
the Department of Water Resources, which now buys power for California.  Am=
ong those setting and collecting some of the highest average prices per meg=
awatt-hour were a Canadian public utility, a subsidiary of San Diego Gas & =
Electric's parent company, and the Los Angeles Department of Water and Powe=
r, the report shows. Their average prices ranged from $498 a megawatt-hour =
charged by Powerex, the trading arm of British Columbia's BC Hydro, to $292=
 an hour by the DWP. In fact, some of the biggest private power companies s=
ingled out for criticism by Davis and other state officials--Dynegy Inc., D=
uke Energy and Mirant--charged less than the average prices the state paid =
for the period. Those companies' average prices ranged from $146 to $240 pe=
r megawatt-hour, according to an analysis of the documents.  The figures co=
ver the various types of spot and longer-term power purchased by the state =
during three months that included rolling blackouts and more than a month o=
f razor-thin reserves, leading to continuous power emergencies.  Davis spok=
esman Steve Maviglio said the governor has directed his sharpest barbs at p=
rivate out-of-state generators because, in general, they have reaped the hi=
ghest profits over the longest period.  "You have to look at the whole pict=
ure," Maviglio said.  "The governor was expressing his displeasure with the=
 arrogance of the generators who wear cowboy hats," he said. "Their profits=
 were 100% to 400% above last year. . . . Just because there are other enti=
ties who are charging us more [per megawatt-hour] doesn't change the fact t=
hat we are getting ripped off by companies from Houston, Tulsa, Atlanta or =
Charlotte."  The report by the Department of Water Resources was provided t=
o The Times on the same day the state released 1,700 pages of documents on =
California's electricity purchases on the volatile spot market for the year=
's first quarter.  The records detail how the state spent nearly $8 billion=
 buying power in the first five months of the year, and underscore the comp=
lexity of the state's energy problem. They also show that patterns of high =
prices are not limited to a few generators.  Oscar Hidalgo, a spokesman for=
 the water resources agency, said that the reports together show that price=
s were extremely volatile early in the year. "All the prices were high," he=
 said, noting the downward trend in costs since his agency began buying pow=
er in mid-January.  The average price per megawatt-hour for all state purch=
ases went from $316 in January to $243 in May. Spot prices fell from an ave=
rage of $321 per hour to $271, the reports show.  In the first quarter of t=
he year, some public entities' prices far exceeded those of the biggest pri=
vate companies. For example, Houston-based Enron, one of the nation's bigge=
st power traders, charged an average of $181 per megawatt-hour. And Atlanta=
-based Mirant, which sold the most to the state, a total of $706 million, c=
harged an average of $225 per megawatt-hour.  By contrast, a Calgary, Canad=
a, firm, TransAlta Energy, averaged $335 a megawatt-hour, and the Sacrament=
o Municipal Utility District had average charges of $330 per megawatt-hour.=
  A spokesman for Enron, Mark Palmer, said recently that the "vilification =
of Enron was based on politics, not facts." Spokesmen for BC Hydro could no=
t be reached late Monday to comment on its huge sales to the state. In the =
past, the utility has defended its pricing practices, saying it has offered=
 last-minute hydroelectric power that helped keep California's lights on.  =
A spokeswoman for Sempra, the parent company of San Diego Gas & Electric, s=
aid late Monday the company was unable to comment because it had yet to see=
 the figures released by the state. Officials at DWP, who could not be reac=
hed Monday evening, have defended their pricing, saying the costs of produc=
ing the power needed by the state were extremely high.  More Power Bought T=
han Projected  Hidalgo, of the Department of Water Resources, said his agen=
cy's efforts, coupled with conservation by business and consumers and falli=
ng natural gas prices, have begun to tame the state's market.  Still, the s=
tate had to purchase $321 million in power in April and May, about 10% more=
 than Davis' analysts had projected.  Hidlago said that was because of hot =
weather in May and other supply problems in April. He said reports will sho=
w that power purchases fell short of state projections in June and early Ju=
ly.  The reports also will show that prices paid by the state were down in =
June and July, partly because spot prices have fallen sharply, often to wel=
l under $100 a megawatt-hour.  A summary Department of Water Resources repo=
rt released Monday credited Davis' program of nurturing new power generatio=
n and establishing long-term power contracts with with "moving the Californ=
ia electric energy industry closer to normalcy."  Copyright 2001, Los Angel=
es Times       Duke Energy Asked to Allow Release of Data Power: Senator sa=
ys the generator is refusing to make public some information crucial to the=
 price-gouging probe. Firm says it's complying. CARL INGRAM TIMES STAFF WRI=
TER  July 10 2001  SACRAMENTO -- The chairman of a Senate committee probing=
 suspected price gouging during the California energy crisis charged Monday=
 that Duke Energy is refusing to allow him to make public information key t=
o his investigation.  Sen. Joe Dunn (D-Santa Ana) said Duke has made the pr=
ice bidding information from its Chula Vista plant available to committee m=
embers and staffers. But under a federal confidentiality rule, the data can=
not be made public without Duke's consent.  The documents concern the Chula=
 Vista plant, which former employees have alleged was ramped up and down to=
 drive up power prices during three days in January. However, state records=
 show that the agency overseeing the electricity grid ordered those gyratio=
ns to keep the power flowing throughout the state. Dunn said Duke's refusal=
 thwarts the committee's investigation and efforts to enact possible remedi=
al legislation because the confidential information cannot be shared with o=
thers in the Legislature or the public.  Dunn said Duke cited a rule of the=
 Federal Energy Regulatory Commission that gives the company the authority =
to decide which records it makes public and which stay secret.  "The only o=
ne who can release the data is Duke. We agreed to be bound by what is provi=
ded in the FERC tariff, nothing more or less," he said.  Former Employees T=
ell of Maneuvers  Dunn noted that the committee is considering trying to ob=
tain the information elsewhere and "release it over Duke's objections."  Th=
ree former workers at the Duke plant near Chula Vista testified last month =
under oath that the plant, among other things, was ramped up and down in wh=
at seemed to be an effort to maximize revenue during the Jan. 16-18 emergen=
cy.  But Duke countered immediately that it had merely obeyed orders of the=
 California Independent System Operator, which keeps the state's electricit=
y grid in balance. Duke later provided Cal-ISO documents backing up its exp=
lanation.  Duke executives insisted that the former employees failed to pro=
vide a full picture of the plant's operation during the three days.  But Du=
nn, chairman of the select Senate committee on alleged price gouging, said =
Monday that by refusing to authorize release of all the subpoenaed data, Du=
ke was guilty of the same tactics.  "Duke is trying to draw the impression =
that it has [provided] the full picture. But they are fully aware that we c=
annot draw any final conclusions until all that data has been released. Tha=
t hasn't occurred," Dunn said.  To make a determination whether the Chula V=
ista power was withheld to drive up prices, Dunn said, the committee must p=
ublicly examine "the bids Duke submitted from which the ISO issued orders t=
o the plant." They include the expensive hour-ahead and day-ahead markets, =
he said.  Duke, a North Carolina-based wholesaler that operates several pla=
nts in California, noted that it considers the information proprietary and =
off-limits to legislators not on the committee.  Duke spokesman Tom William=
s insisted that the generator is attempting to comply with the committee's =
demands. But he was unable to say whether Duke would agree to make the bidd=
ing documents public along with other records the committee plans to turn o=
ver.  "We are complying now," Williams said. "There is some suggestion that=
 we are leaving stuff out when we have not had a chance to testify. . . . I=
 don't know what we are ultimately going to do."  The committee had threate=
ned to cite eight wholesale generators unless they provide pricing and bidd=
ing documents by Wednesday. Six, including Duke, have said they would compl=
y to avoid a contempt citation. Two, Enron and Mirant, were cited.  Dunn sa=
id the committee on Wednesday likely will give companies that are trying to=
 comply an extra week to do so, but others probably will be formally charge=
d with contempt in a report to the full Senate. The upper house is the fina=
l arbiter of such issues.  Although there is scant precedent for levying pe=
nalties against those cited for contempt, Dunn said he favors imposing seve=
re fines. In 1929, the most recent case, a cement company executive was sen=
t to jail.  Copyright 2001, Los Angeles Times        NEWS ANALYSIS Concern =
Over Price of Long-Term Power Pacts Grows Embedded costs may yield more rat=
e hikes, critics say, and the $43-billion total could complicate plans to r=
escue Edison. DAN MORAIN TIMES STAFF WRITER  July 9 2001  SACRAMENTO -- Eve=
n as the summer progresses without blackouts, and Gov. Gray Davis prepares =
for yet another news conference today to symbolically switch on a new power=
 plant, the work in the Capitol has shifted to the seemingly more daunting =
task of balancing the books.  It's a task with potentially far more long-la=
sting implications for state coffers, for businesses' bottom lines and for =
consumers' wallets.  In particular, long-term power contracts trumpeted by =
the governor's office as helping to bring stability to California's out-of-=
control electricity market are having the opposite effect politically. A gr=
owing concern about the $43-billion price tag of the contracts is complicat=
ing one of Davis' most ambitious energy initiatives: a proposed financial r=
escue of Southern California Edison, which already faces an uncertain fate =
in the Legislature. Questions about the contracts come as California readie=
s a complex $13.4-billion bond sale to reimburse the state's general fund f=
or other power purchases.  Critics worry that costs embedded in the contrac=
ts, on top of the billions needed to pay for the Edison rescue, could lead =
to additional electricity rate hikes for consumers. Key lawmakers, consumer=
 advocates and business lobbyists are urging that at least some of the pact=
s be renegotiated.  Citing a recent plunge in wholesale energy costs, these=
 critics say the state should work to shorten the duration of the contracts=
 and lower some of the prices. They argue that the state entered into the d=
eals under duress after California's utilities neared insolvency and the st=
ate Department of Water Resources took over the purchasing of electricity f=
or more than 25 million residents.  "They are vulnerable," Senate Energy Co=
mmittee Chairwoman Debra Bowen (D-Marina del Rey) said of deals the state s=
truck with independent power companies when prices were at record highs.  B=
owen lauds Davis administration negotiators for signing "the best deals the=
y could." But she said that in the crisis atmosphere in which the negotiati=
ons took place, "the state had two cards and the generators had 50."  Contr=
acts Open to Challenges  The contracts could be challenged in court or, mor=
e immediately, before the Federal Energy Regulatory Commission in Washingto=
n. There, an administrative law judge could direct that the pacts be rework=
ed as part of a settlement of allegations by Davis that generators overchar=
ged the state for electricity by $8.9 billion.  "We ought not to say, 'Fine=
, the contracts were the best we could do,' " Bowen said.  For his part, Da=
vis says he is willing to accept partial payment of the $8.9 billion in the=
 form of contracts with terms more favorable to the state. He attributes th=
e recent sharp drop in wholesale electricity prices to conservation, the ad=
ministration's effort to increase power supply and--a major factor--the lon=
g-term contracts, which slashed the state's reliance on the volatile daily,=
 or spot, market.  "You can see the value of these long-term contracts . . =
. dramatically shrinking our overall price, which is what matters to Califo=
rnians," Davis said, pointing out that the average cost of power plunged 30=
% from May to June.  Davis energy advisor S. David Freeman, who helped nego=
tiate the contracts, said they may end up costing less than $43 billion, gi=
ven the recent decline in prices for natural gas, the main fuel for Califor=
nia's electricity-generating plants.  Freeman also compared critics to some=
one who calls the fire department to douse a blaze. "After the fire is out,=
" he said, "you complain about the water damage."  The contracts have other=
 defenders, among them UC Berkeley economics professor Severin Borenstein, =
who says the deals helped to tame the volatile spot market by reducing gene=
rators' incentive to drive up prices, while reducing the state's exposure t=
o wild swings in price.  "The point of signing long-term contracts is not t=
o get a great price; it's to reduce risk," Borenstein said.  Still, experts=
 have been picking through the pacts ever since a Superior Court judge in S=
an Diego, ruling in a California Public Records Act lawsuit by news organiz=
ations and Republican lawmakers, ordered last month that Davis unseal the c=
ontracts.  An analysis done for the Assembly by three experts--one each rep=
resenting Southern California Edison; the Utility Reform Network, a consume=
r group; and large electricity consumers--concluded that the about $43-bill=
ion price tag announced by the administration may not account for all the c=
osts. When other expenses are factored in--ranging from environmental equip=
ment upgrades to any new energy-related taxes--the contracts could cost an =
additional 10% to 20%.  "Once the contracts were made public," Senate Repub=
lican leader Jim Brulte of Rancho Cucamonga said, "just about anyone who ca=
n read began calling for those contracts to be renegotiated."  As buyers' r=
emorse spreads through the Capitol, the contracts increasingly are seen as =
a hurdle--or a bargaining chip--as Davis and lawmakers confront fast-approa=
ching deadlines in their effort to prevent the energy crisis from morphing =
into a broader financial crisis.  A bill pushed by Davis to avert bankruptc=
y for the financially hobbled Southern California Edison must be approved b=
y Aug. 15. The deadline could be tighter, because the Legislature is schedu=
led to adjourn for a monthlong break July 20.  Davis' rescue plan, along wi=
th legislative alternatives, languishes in the Legislature. The plan, which=
 has little apparent support, would require the state to buy Edison's syste=
m of transmission lines for $2.76 billion and permit the utility to charge =
ratepayers for the rest of its back debt of $3.5 billion.  Some lobbyists a=
nd lawmakers believe that the electricity rate hike approved in March by th=
e California Public Utilities Commission--at 3 cents a kilowatt-hour the la=
rgest in state history--may not be enough. The revenue generated under the =
new rate structure must cover the costs of the long-term power contracts an=
d repay the planned $13.4 billion in bonds, which would be the largest muni=
cipal deal ever.  Whether there would be sufficient money left to pay for t=
he Edison rescue remains to be seen. But some experts say the utility may n=
eed to seek a separate rate hike to cover its costs.  As written, the contr=
acts have few escape clauses; Davis cannot simply walk away from them if he=
 concludes that prices are too high. Still, criticism persists and crosses =
political lines.  Harry Snyder, longtime Sacramento lobbyist for Consumers =
Union, and Jack Stewart, president of the California Manufacturers and Tech=
nology Assn., rarely find themselves on the same side of a debate. But in s=
eparate interviews, they sounded similar themes.  "If there is a way to buy=
 our way out of these contracts, even if we have to pay damages, we'd be be=
tter off in the long run," Snyder said.  Stewart, like other business leade=
rs, does not advocate abrogating the contracts. But like many familiar with=
 the terms, he hopes that some deals can be renegotiated.  "They are proble=
matic," he said.  In a move that critics fear could lock in high electricit=
y prices for the next decade, the Davis administration is pushing the PUC t=
o agree within a month to limit its authority to question costs incurred by=
 the Department of Water Resources as it goes about procuring power.  State=
 Treasurer Phil Angelides said the PUC must act so he can complete the $13.=
4-billion bond sale. A binding agreement is necessary so that Wall Street i=
nvestors can be assured that they will be repaid.  "The state will be out o=
f cash by the end of the year without the bond sale," he said. "We will mov=
e toward fiscal insolvency."  The so-called rate agreement, a draft of whic=
h was obtained by The Times, would bind customers of the three big regulate=
d utilities to pay more than just the principal and interest on the $13.4 b=
illion in bonds. Consumers would have to pay for consultants, lawyers, to p=
ay taxes, fees and other as-yet-undefined charges that may be incurred by t=
he Department of Water Resources.  Additionally, the PUC would be obligated=
 to approve payments for programs by which the state would pay large and sm=
all customers to cut electricity use, although the Legislature has not appr=
oved the programs and their details remain to be worked out. The Department=
 of Water Resources estimates the cost to be $800 million, spread over this=
 year and next.  "It is loaded up," Senate President Pro Tem John Burton (D=
-San Francisco) said of the proposed rate deal, adding that it would requir=
e the commission to "raise rates to cover whatever the Department of Water =
Resources decides to do."  "That is giving a blank check to some bureaucrat=
ic office," he said.  'Dictatorial Power' Warning  Stewart of the manufactu=
rers group also is alarmed by the plan, saying it would provide the water a=
gency with "dictatorial power."  "As skeptical as we are of the PUC process=
, at least there is a process," Stewart said, referring to the commission's=
 procedures to set electricity rates. "There is no process for DWR. DWR jus=
t tells the PUC, 'This is what we need,' and the PUC must approve it."  Oth=
ers say the rate agreement is a standard piece of work, given the extraordi=
nary step the Legislature took in January when it authorized the Department=
 of Water Resources to buy power for utilities that had fallen so deeply in=
to debt that they could no longer carry out their obligation to consumers. =
 In essence, Davis energy advisor Freeman said, lawmakers in January create=
d "the equivalent of a public power purchasing agency" beyond the jurisdict=
ion of the PUC.  "There is no public power agency in California that is rev=
iewed by the PUC," said Freeman, former head of the Los Angeles Department =
of Water and Power.  *  Times staff writer Nancy Rivera Brooks in Los Angel=
es contributed to this story.  Copyright 2001, Los Angeles Times        Sta=
te's refund demand rejected  Judge ends rebate talks, rebukes $9 billion cl=
aim  Zachary Coile, Christian Berthelsen, Chronicle Staff Writers  Tuesday,=
 July 10, 2001  ?2001 San Francisco Chronicle   URL: http://www.sfgate.com/=
cgi-bin/article.cgi?f=3D/c/a/2001/07/10/MN117914.DTL   Washington -- An adm=
inistrative law judge, delivering a powerful message to Gov. Gray Davis and=
 California energy officials, cast aside the state's claim that it is owed =
$8.9 billion in electricity overcharges by generators and called for furthe=
r hearings to determine "hard numbers."  The judge, ending talks designed t=
o settle the dispute between California and power sellers, said the state a=
nd its cash-strapped utilities may owe more in unpaid electricity bills tha=
n they are owed for overcharges by the generators.  The comments by Federal=
 Energy Regulatory Commission chief administrative law Judge Curtis L. Wagn=
er, although a strong endorsement of the generators' position, seemed to in=
dicate that neither side wanted to settle the issue before it reached the f=
ive-member regulatory commission.  "There are refunds due (to California) t=
hat total hundreds of millions of dollars and maybe a billion dollars," Wag=
ner said yesterday.  "At the same time, there are sums due to sellers from =
the California Independent System Operator and the investor-owned utilities=
 in the state of California that probably are higher than any overcharges t=
hat (the state) may come up with."  Now, it will be up to the federal regul=
ators to settle the case. But the recommendations by Wagner, who mediated t=
he talks, carry significant weight with the commission and cast doubt on th=
e state's chances of collecting the full $8.9 billion it claims to be owed.=
  The judge said he will recommend that the commission order new hearings t=
o calculate what the state and the power sellers are each owed. The hearing=
s would be overseen by an administrative law judge and would last 45 to 60 =
days, Wagner said.  CLOSING SESSION Wagner made his comments in the closing=
 session of the 15-day talks, which were ordered last month by the regulato=
ry commission to try to defuse the dispute between power wholesalers and Ca=
lifornia officials before it reached the courts.  The judge's message was a=
 sharp rebuke to the unyielding stand by California leaders -- especially D=
avis, who last week said he wouldn't take a dime less than $8.9 billion for=
 California's consumers.  The governor issued a statement shortly after the=
 close of talks insisting that California had won its basic case that the s=
tate is owed refunds.  "I am pleased that Judge Wagner accepted our methodo=
logy for calculating refunds and rejected the generators' position that no =
refunds are due," Davis said.  The governor's chief representative at the t=
alks, Michael Kahn, called the judge's statement a "ringing endorsement" of=
 the state's call for refunds. Kahn said the judge's order would improve th=
e state's legal position if it files suit against power sellers.  GENERATOR=
S FAVORED But much of the judge's order seemed to favor the generators.  Fo=
r example, state officials have made the case they should be refunded $8. 9=
 billion for alleged overcharges from May 2000 to May 2001 -- even though t=
he regulatory commission has said only that the period starting Oct. 2, 200=
0 could be considered.  The judge said yesterday that he would stick with t=
he October date, meaning that more than a third of the state's claim -- at =
least $3 billion -- would not be refunded by the commission.  Brent Bailey,=
 vice president and general counsel of Duke Energy North America, said that=
 under Wagner's guidelines, the state may be eligible for $1 billion to $1.=
5 billion.  "Certainly to the extent that it helped refute what California =
has been saying, it's a victory," Bailey said of the judge's statement.  Bu=
t Davis said the nation's big power sellers never came to the table with a =
serious offer.  "Not surprisingly, the energy pirates that bilked ratepayer=
s out of billions of dollars stonewalled and refused to negotiate in good f=
aith," Davis said.  $716 MILLION OFFER  Wagner disclosed yesterday that the=
 generators had made an offer to California: $716 million in refunds.  The =
judge said the figure included about $510 million from the so-called Big Fi=
ve generators, as well as $125 million from BC Hydro's Powerex, $49.6 milli=
on by a group of 15 electricity marketers, $16.5 million by six California =
municipal utilities and $25 million offered by other out-of-state power sel=
lers.  California officials say it was not a legitimate offer because it in=
cluded no cash. It was simply an agreement by the companies to wipe some of=
 the state's debt off the books.  Throughout the talks, generators complain=
ed that the California team was trying to shield some California companies =
and government power providers from having to pay any refunds, and trying t=
o disproportionately extract sums from out-of-state power companies.  FAVOR=
ITISM CHARGED According to documents and interviews, the state attempted to=
 remove Pacific Gas and Electric Co., Southern California Edison, San Diego=
 Gas & Electric., the Los Angeles Department of Water and Power and other g=
overnment power suppliers from the group from which it was asking for refun=
ds, even though they were paid the same high rates for power as everyone el=
se.  Representatives for the power sellers said they believe that Davis mad=
e a political decision to demagogue the companies while refusing to comprom=
ise on the state's claims. They say the governor calculated that his reputa=
tion would be enhanced by continuing to attack the generators.  "The Califo=
rnia delegation did not come into these talks with any willingness to compr=
omise," said Mark Stultz, vice president of the Electric Power Supply Assoc=
iation, a Washington, D.C., trade group. "They went in with a dollar figure=
 and never budged on that figure. If you're looking for a settlement, you h=
ave to be willing to compromise."  Up next 1. The Federal Energy Regulatory=
 Commission will consider, probably on July 25,  new hearings on how much, =
if anything, California was overcharged. 2. If ordered by the commission, a=
n administrative law judge will take testimony on how much the state says i=
t was overcharged and how much generators say they are owed. 3. Regulators =
will rule based on the judge's recommendation. If the parties disagree, the=
y can go to court.  E-mail the writers at zcoile@sfchronicle.com . and cber=
thelsen@sfchronicle.com ., Zachary Coile reported from Washington, D.C., an=
d Christian Berthelsen in San Francisco.  ?2001 San Francisco Chronicle    =
Page A - 1      Davis opens another new power plant  Pittsburg facility wil=
l generate 555 megawatts  Bernadette Tansey, Chronicle Staff Writer  Tuesda=
y, July 10, 2001  ?2001 San Francisco Chronicle   URL: http://www.sfgate.co=
m/cgi-bin/article.cgi?f=3D/c/a/2001/07/10/MN175828.DTL      Pittsburg -- Wo=
rkers were still scraping wet concrete on support columns as Gov. Gray Davi=
s celebrated the startup of a new power plant in Pittsburg yesterday -- the=
 latest in a string of openings Davis hopes will help California "build its=
 way" out of the energy crisis. The state rushed to throw as many megawatts=
 on line as it could when it looked like the summer would feature regular b=
lackouts, and yesterday the governor said it was paying off.  "This is the =
third plant I've helped open in the last 13 days," Davis said, pumping his =
fist as the Calpine Corp. plant belched an impressive burst of steam. "In t=
he past 13 days, we've put more power on the grid than California did throu=
ghout the 1990s."  The 555-megawatt Los Medanos Energy Center and the Sutte=
r Energy Center that Calpine opened in Yuba City last week bring a total of=
 1,115 megawatts online. Last month, Davis threw the switch on a Bakersfiel=
d plant that opened more than a month ahead of schedule.  Davis used yester=
day's event to blast out-of-state generators that he maintains have gouged =
the state for electricity. Yet he lauded San Jose-based Calpine as a sort o=
f energy favorite son.  "They were the first to enter long-term contracts w=
ith us," the governor said. Calpine is among the big energy firms being pre=
ssed by the state to issue refunds for what the governor insists were overc=
harges, but unlike the others, Davis said, Calpine is giving ground in nego=
tiations.  "They likely will be the first to enter into settlements with us=
," he said.  Although the Los Medanos plant is one of a generation of effic=
ient new gas- fired plants that will be as much as 40 percent cheaper to ru=
n than their forebears, the state will be paying well above current market =
rates for the first three months of its contract with Calpine.  Calpine Pre=
sident Peter Cartwright insisted, however, that the company is not making e=
xcess profits off the deal. To ensure that Calpine could provide the electr=
icity even if plant construction wasn't finished by its mid-July target dat=
e, the company bought the needed power from other energy traders at $232 a =
megawatt hour when market rates were higher, he said.  In addition to the 3=
00 megawatts it has pledged to the state, Calpine will supply electricity t=
o the Sacramento Municipal Utility District and other power agencies.  In t=
he long term, Calpine will be selling power to California at $59 a megawatt=
 hour, Cartwright said.  A spokesman for the state Department of Water Reso=
urces, which started buying power in January after state utilities buckled =
under high prices, said Calpine's rate is well below the $70 a megawatt hou=
r the state is aiming for as an average price for the long-term contracts. =
 Cartwright said that with its recently opened plants, along with an 875- m=
egawatt facility it plans to open in Pittsburg next May, the company is doi=
ng its share to ease the state's supply crunch.  "Ours are the lowest contr=
acts in the state," he said. "If these plants weren't online, we'd be havin=
g blackouts."  A spokeswoman from the state agency that manages the power g=
rid said California is skating so close to blackouts that "every megawatt c=
ounts."  "It's definitely making a difference and it will continue to do so=
 over the summer," said Lorie O'Donley, a spokeswoman for the Independent S=
ystem Operator.  E-mail Bernadette Tansey at btansey@sfchronicle.com .  ?20=
01 San Francisco Chronicle    Page A - 11       California rejects B.C. Hyd=
ro $125 million settlement   Tuesday, July 10, 2001  ?2001 Associated Press=
  URL: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/=
07/10/state0321EDT0105.DTL   (07-10) 00:21 PDT VANCOUVER, British Columbia =
(AP) --  California has rejected an offer by B.C. Hydro's power trading sub=
sidiary to refund $125 million to settle the state's allegations that it wa=
s overcharged by the Canadian power company.  The dispute will now be resol=
ved by U.S. judicial and regulatory authorities.  The offer from Hydro's Po=
werex subsidiary came during 15 days of settlement talks between power gene=
rators and distributors, California and other western states.  The talks, i=
nitiated by the Federal Energy Regulatory Commission, which regulates cross=
-border power sales in the United States, concluded Monday evening without =
resolution.  Hydro spokeswoman Elisha Odowichuk said that under the offer, =
the Crown corporation would have been subtracted $125 million from the $290=
 million California still owes British Columbia for power sales.  The $125 =
million was Powerex's first offer and it did not change through the negotia=
tions, she said. The company put conditions on that refund figure, but Odow=
ichuk would not say what those conditions were.  California has charged tha=
t Powerex gouged it by more than $430 million. Odowichuk said Hydro had to =
join the settlement talks to preserve its otherwise lucrative power trading=
 relationship with California.  Electricity imports and exports statistics =
compiled by Canada's National Energy Board show Powerex exported more than =
$900 million worth of energy from January to April.  The average cost of th=
at power was $661.56 a megawatt hour.  Prices have dropped to around $140 a=
 megawatt hour since the regulatory commission instituted price caps on Jun=
e 19.  ?2001 Associated Press         Davis' criticism of Texas misdirected=
, report finds  Lynda Gledhill, Mark Martin, Chronicle Staff Writers  Tuesd=
ay, July 10, 2001  ?2001 San Francisco Chronicle   URL: http://www.sfgate.c=
om/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/07/10/MN48875.DTL   S=
acramento -- Texas-based electricity generators have received the brunt of =
criticism from Gov. Gray Davis for gouging California during the power cris=
is, but financial information released yesterday shows the lion's share of =
the money went elsewhere.  Companies with headquarters in Texas garnered le=
ss than 10 percent of California's multibillion-dollar energy purchases, wh=
ile public and private energy companies from Canada to Georgia to Californi=
a got the rest.  The $424 million that went to Texas companies may still be=
 more than the state should have been charged, and administration officials=
 are attempting to get refunds from a host of companies, both in and out of=
 Texas.  Earlier this year, Davis lambasted the Bush administration for not=
 acting against power firms in his home state. "What's going on here, pure =
and simple, is unconscionable price-gouging by the big energy producers -- =
most of them, incidentally, located in Texas," he said in May.  Yesterday, =
a spokesman for the governor broadened the verbal assault, saying the Texas=
 firms are representative of the many other out-of-state generators who hav=
e also gouged California.  "Anywhere they wear cowboy hats, they probably h=
ave handkerchiefs across their face because they are robbing us blind," sai=
d Steve Maviglio, Davis' spokesman.  The latest financial information is co=
ntained in a report by the state Department of Water Resources detailing $7=
.2 billion in power purchases from Jan. 17 through the end of May.  About $=
5.2 billion of that was spent on the spot market where power buys are made =
a day, hour or even a few minutes before the electricity is actually used. =
 Because the spot purchases are made with little notice, they are the most =
expensive kind of power on the market. The state was forced to step in and =
buy the power when the credit ratings of California's major utilities dropp=
ed as the energy crisis worsened. The crisis was caused by a series of even=
ts that forced the utilities to pay more for electricity than they could re=
cover from customers.  The numbers released yesterday show that Texas compa=
nies weren't alone in receiving a share of the energy crisis pie. Some $1.2=
 billion went to Mirant, an Atlanta-based company. Mirant has refused to tu=
rn over documents subpoenaed by the state Legislature as part of its invest=
igation into alleged market manipulation. Mirant could face contempt procee=
dings.  Municipal generators have also fared well during the energy crisis.=
 Powerex,  a wholly owned power marketing subsidiary of Vancouver-based BC =
Hydro, received $1 billion from the state for spot market electricity.  The=
 Los Angeles Department of Water and Power, which Davis said charged higher=
 average spot market prices than some generators, received $331 million.  E=
-mail Lynda Gledhill at lgledhill@sfchronicle.com .  ?2001 San Francisco Ch=
ronicle    Page A - 9       Developments in California's energy crisis  The=
 Associated Press Tuesday, July 10, 2001  ?2001 Associated Press  URL: http=
://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/07/10/state=
1041EDT0134.DTL   (07-10) 07:41 PDT (AP) --  Developments in California's e=
nergy crisis:  TUESDAY=3D * No power alerts Tuesday as electricity reserves=
 stay above 7 percent.  MONDAY=3D * A Federal Energy Regulatory Commission =
administrative law judge says that California is entitled to no more than $=
1 billion in refunds for excessive energy costs. Gov. Gray Davis had been s=
eeking $8.9 billion for overcharges.  * The Department of Water and Power r=
eleases 1,770 pages of documents detailing the state's spot market power pu=
rchases in the first quarter of the year. DWR also releases a report showin=
g that the state's daily power buys topped $100 million on three days in Ma=
y.  The DWR report says the energy companies that were paid the most by the=
 state for last-minute power were: Mirant Corp., which was paid $1.24 billi=
on as of the end of May; Canada-based Powerex, $1.05 billion; and Sempra Co=
mpanies, $429 million.  * Davis ceremonially switches on the largest licens=
ed power plant to come online this year, Calpine's 559-megawatt Los Medanos=
 Energy Center in Pittsburg.  * No power alerts as electricity reserves sta=
y above 7 percent.  * Shares of Edison International closed at $14, up 69 c=
ents. PG&E Corp. rose 65 cents to close at $14.10. Sempra Energy, the paren=
t company of San Diego Gas & Electric Co., closed at $27.52, down 21 cents.=
  WHAT'S NEXT=3D * U.S. Bankruptcy Judge Dennis Montali decides Tuesday whe=
ther millions of Pacific Gas and Electric Co. ratepayers can form their own=
 creditors' committee to represent them in the utility's bankruptcy proceed=
ing.  * The Senate committee investigating possible price manipulation in C=
alifornia's energy market meets Wednesday. The committee will vote on conte=
mpt citations against generators Mirant and Enron, which failed to comply w=
ith subpoenas for documents. The committee will meet again July 18 to consi=
der compliance by six other suppliers that have until Tuesday to turn over =
documents.  THE PROBLEM: High demand, high wholesale energy costs, transmis=
sion glitches and a tight supply worsened by scarce hydroelectric power in =
the Northwest and maintenance at aging California power plants are all fact=
ors in California's electricity crisis.  Southern California Edison and Pac=
ific Gas and Electric say they've lost nearly $14 billion since June 2000 t=
o high wholesale prices the state's electricity deregulation law bars them =
from passing on to consumers. PG&E, saying it hasn't received the help it n=
eeds from regulators or state lawmakers, filed for federal bankruptcy prote=
ction April 6. Electricity and natural gas suppliers, scared off by the com=
panies' poor credit ratings, are refusing to sell to them, leading the stat=
e in January to start buying power for the utilities' nearly 9 million resi=
dential and business customers. The state is also buying power for a third =
investor-owned utility, San Diego Gas & Electric, which is in better financ=
ial shape than much larger Edison and PG&E but is also struggling with high=
 wholesale power costs.  The Public Utilities Commission has approved avera=
ge rate increases of 37 percent for the heaviest residential customers and =
38 percent for commercial customers, and hikes of up to 49 percent for indu=
strial customers and 15 percent or 20 percent for agricultural customers to=
 help finance the state's multibillion-dollar power buys.  Track the state'=
s blackout warnings on the Web at www.caiso.com/SystemStatus.html .  ?2001 =
Associated Press        Energy talks reach no settlement; state threatens s=
uit  MARK SHERMAN, Associated Press Writer Tuesday, July 10, 2001  ?2001 As=
sociated Press  URL: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news=
/archive/2001/07/10/state0400EDT7473.DTL   (07-10) 01:00 PDT WASHINGTON (AP=
) --  With talks between the state and power generators stalled, California=
 may go to court to help win the $8.9 billion state officials believe it wa=
s overcharged for electricity.  "I think we have demonstrated very clearly =
both to the FERC and to the judge that the state is owed $8.9 billion and w=
ill settle for nothing less," said Roger Salazar, a spokesman for Gov. Gray=
 Davis.  With negotiations at an impasse, the administrative law judge for =
the Federal Energy Regulatory Commission said California is probably owed n=
o more than $1 billion in refunds.  "The numbers were too far apart," said =
Curtis Wagner, the FERC chief administrative law judge.  California, Wagner=
 said, may receive nothing at all, because generators may be owed more than=
 they have to return for any overcharges.  He placed the refunds owed the s=
tate at between $716 million and $1 billion. Power providers had offered $7=
16 million as part of an overall settlement, while California state officia=
ls sought $8.9 billion, Wagner said.  He said California officials had not =
made the case for $8.9 billion in refunds.  Salazar, however, said the stat=
e would go to court and may ask for $20 billion.  Separately, Wagner split =
off claims of overcharges from the Pacific Northwest, saying he has not had=
 time to consider those allegations under the short timetable ordered by FE=
RC last month.  Wagner served as a mediator during the 15 days of negotiati=
ons and will recommend a settlement to FERC by next Monday. The commission =
ordered the talks last month in an effort to resolve differences between pr=
oducers and the state over the breakdown of California's deregulated electr=
icity market.  Consumer advocates assailed the judge's recommendation and u=
rged the state to continue its attempt to get refunds from what they say ar=
e profiteering power companies.  "It's like catching a bank robber, but ins=
tead of making him give back all of it, you only make him give back 5 perce=
nt of what he stole," said Douglas Heller, spokesman for the Santa Monica-b=
ased Foundation for Taxpayer and Consumer Rights.  Power generators, howeve=
r, were generally pleased with Wagner's comments.  Brent Bailey, general co=
unsel for Duke Energy, said even if the formula Wagner recommends produces =
$1.5 billion in refunds, "that's a reasonable amount in the context of thes=
e settlement talks."  California officials, negotiating on behalf of utilit=
ies, the Public Utilities Commission and state power buyers, accused the pr=
oducers of manipulating supply to unfairly drive up prices.  The producers =
have acknowledged prices are high, but blame jumps in the price of natural =
gas, which fuels many power plants, and the workings of the free market.  T=
he bill for wholesale power in California soared to $27 billion last year f=
rom $7 billion the year before. Davis has estimated the state could spend a=
s much as $50 billion this year.  The producers reiterated Monday that Cali=
fornia's numbers are grossly inflated. Attorneys for the five major generat=
ors -- Duke Energy, Dynegy, Mirant, Reliant Energy and the Williams Cos. --=
 said in a statement that they have made a "very substantial global settlem=
ent offer."  Reliant would agree to no more than $50 million in refunds as =
part of an overall settlement that also would have to include protection fr=
om additional legal claims, said John H. Stout, a company senior vice presi=
dent.  But Stout also said, "Reliant's fundamental position has been and re=
mains that no refunds are justified."       Toxic fumes not linked to black=
outs  Backup power OK in facilities, report says  Jason B. Johnson, Chronic=
le Staff Writer  Tuesday, July 10, 2001  ?2001 San Francisco Chronicle   UR=
L: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001=
/07/10/MNC115768.DTL   Despite a power-related mishap that released toxic f=
umes from an industrial plant in May, rolling blackouts are not expected to=
 cause dangerous releases in Contra Costa, a county study concludes.  The c=
ounty Health Department report found that 52 industrial facilities have ade=
quate backup power plans.  The report to be presented to the Board of Super=
visors today was prompted by a freak traffic accident that knocked out powe=
r at Richmond's General Chemical Corp. plant. When the plant powered back u=
p, a cloud of sulfur trioxide and sulfur dioxide was released.  Contra Cost=
a hazardous materials director Lew Pascalli said that there is always a pos=
sibility that a plant's hydraulic or mechanical systems could fail but that=
 those chances are slight given the growing number of power plants coming o=
nline and the state's successful conservation effort.  He also said industr=
y has done a good job preparing for outages.  "The industry is doing a good=
-faith effort in this particular instance to make sure that nothing happens=
," Pascalli said.  County officials relied on industry records in determini=
ng the adequacy of the different plans, such as having multiple electrical =
leads feeding a source regulating hazardous materials.  Denny Larson, spoke=
sman for the group Communities for a Better Environment, said the report re=
lied too heavily on industry self-reporting.  "Unfortunately, the conclusio=
ns of the report can't be backed up by the facts," Larson said. "Oil and ch=
emical plants in Contra Costa have repeatedly had toxic releases due to pow=
er failures over the years."  The 52 facilities include chemical plants, oi=
l refineries and small shops that produce limited amounts of hazardous mate=
rials.  For many of these businesses, the loss of power would shut down the=
ir operations and make it impossible for substances to be released.  Larger=
 facilities, like oil refineries, have either their own backup generators o=
r contracts with cogeneration plants that could supply all or most of their=
 power independent of the electricity power grid, according to the report. =
 Plans are also in place to conduct partial shutdowns at plants running on =
reserve power during a blackout.  General Chemical said all electrical feed=
s to the chamber processing chemicals are automatically pulled in the event=
 of loss of power. A backup generator will automatically come online to kee=
p operations stable.  Dow Chemical has a contract with a Calpine power plan=
t to supply it with electricity. Battery backup and diesel emergency engine=
s are also at the site to ensure enough power to run lights, alarms, contro=
ls and emergency shutdown equipment.  e-mail Jason B. Johnson at jbjohnson@=
sfchronicle.com .  ?2001 San Francisco Chronicle    Page A - 11         Pow=
er suppliers, state fail to agree on refund total  Posted at 10:41 p.m. PDT=
 Monday, July 9, 2001  BY JIM PUZZANGHERA   Mercury News Washington Bureau =
   WASHINGTON -- California officials and power suppliers failed to agree o=
n refunds for electricity overcharges as 15 days of contentious negotiation=
s ended Monday, leaving the matter in the hands of a federal judge who said=
 the state is owed much less than the $8.9 billion it demands.  The judge o=
verseeing the talks for the Federal Energy Regulatory Commission put the re=
funds at between several hundred million dollars and a billion dollars. His=
 estimate is closer to the $716.1 million offer made by power suppliers dur=
ing negotiations. The offer was rejected by California officials.  But it w=
as unclear Monday which side in the bitter refund battle would prevail, and=
 California officials indicated the dispute is probably headed to court. At=
 stake is how much the state's electricity consumers will ultimately have t=
o pay for costs that skyrocketed as California's deregulation system collap=
sed.  Curtis Wagner, the commission's chief administrative law judge, will =
recommend a formula for the commission to use to calculate a refund dating =
back to October. That formula -- a complex methodology that involves factor=
s such as daily natural gas prices -- includes many of the provisions the e=
nergy suppliers had advocated during the talks.  Michael Kahn, who headed t=
he California negotiating team, said the state would contest some aspects o=
f the formula. But even without changes, Kahn said he was confident the for=
mula will result in more refunds than Wagner estimated.  ``We think the num=
bers even using the judge's formula are going to be in the multiple billion=
s,'' said Kahn, chairman of the state Independent System Operator, which ru=
ns the electricity grid. ``California will get its $8.9 billion dollars. If=
 we don't get all of it from the commission . . . we'll still get the remai=
nder of the money'' through the courts.  Amount in dispute  Power industry =
representatives appeared pleased with the judge's plan.  ``We haven't gone =
and run the full numbers but it's going to be nowhere near the $8.9 billion=
,''' said Brent Bailey, vice president and general counsel for Duke Energy =
North America. ``But let's face it, that's a pie-in-the-sky number that nob=
ody in there believed in their right mind was a legitimate number.''  Wagne=
r acknowledged he had not calculated any figures using his formula, saying =
he arrived at his dollar estimate based on the offers made by the suppliers=
.  The energy commission ordered the private settlement conference last mon=
th when it enacted new price controls to try to rein in soaring electricity=
 prices in California and throughout the West. Commissioners hoped that und=
er pressure of a deadline and their looming intervention the state and the =
power suppliers could resolve the refund issue and stave off future litigat=
ion.  But the suppliers and state officials never came close to a deal, par=
ticipants said.  ``The numbers were too far apart. You saw $8.9 billion on =
one end and you saw $716 million on the other end, and that's a long way to=
 splitting the difference,'' Wagner said. ``I think a lot of the parties ge=
nuinely wanted to settle. Others didn't.''  Wagner now has until Monday to =
make his recommendation to the five-member commission, which will make the =
final ruling on refunds. To date, the commission has ordered $125 million i=
n refunds for periods since last Oct. 2.  Wagner said Monday that he will a=
sk that a special hearing be set up in the next 60 days to get the detailed=
 information from the state and power suppliers needed to determine a refun=
d total using his formula.  The state may not end up with any cash, as any =
refund total could be applied to the several billion dollars California and=
 its utilities still owe many of the power suppliers.  Reflecting the tone =
of the negotiations, California Gov. Gray Davis on Monday blamed power supp=
liers for the failure of the talks and challenged the commission to resolve=
 the situation.  ``Not surprisingly, the energy pirates that bilked ratepay=
ers out of billions of dollars stonewalled and refused to negotiate in good=
 faith with our team in Washington, D.C.,'' Davis said. ``While in the past=
 the FERC has shown little, if any, interest in consumers, they now have th=
e opportunity to redeem themselves by returning the $8.9 billion California=
 has demonstrated it is owed.''  Davis may go to court  At the opening of a=
 new power plant in Contra Costa County on Monday, Davis told reporters tha=
t he's prepared to take the power generators to court if FERC doesn't order=
 the full refund. Davis also said the ISO's estimate of $8.9 billion doesn'=
t represent all the overcharges. He said other estimates put the figure as =
high as $20 billion, although he did not elaborate about how those figures =
were calculated.  John H. Stout, senior vice president for Reliant Energy W=
holesale Group, said the state used faulty methodology to arrive at the $8.=
9 billion figure.  California officials and several suppliers said they wou=
ld continue to negotiate separately, and an official with San Jose-based Ca=
lpine said his company is close to a settlement with the state.  Power supp=
liers urged Wagner not to calculate refunds by applying the energy commissi=
ons' June price-limits plan retroactively. But that's what Wagner said he w=
ill do. It was a victory for California officials, who had pushed for it. W=
agner, however, also made some changes to the price-limit plan that power s=
uppliers had wanted. He applied it only back to Oct. 2, 2000. State officia=
ls wanted it to cover up to May 2000.  $3 billion difference  The state's $=
8.9 billion figure comes from May 2000 through May 2001. Factoring refunds =
beginning with Oct. 2, 2000, eliminates about $3 billion in overcharges the=
 state says occurred in the earlier period.  Among the changes to the commi=
ssion's formula that Wagner made was to revise the way the prevailing elect=
ricity price limit is calculated. Wagner wants the price limit determined f=
or each hour of each day. The commission's formula sets a price limit durin=
g Stage One power emergencies that remains in effect until the next emergen=
cy.  But in a sign of just how complex the issue is, Stanford University ec=
onomist Frank Wolak said he believes the standards described by the judge w=
ill produce a much higher figure than $1 billion.  ``That's the methodology=
 the state used,'' said Wolak, who advises the California ISO on market iss=
ues. ``By using the marginal unit for each hour, you'll get refund numbers =
on the order of what the state estimated.''    Mercury News Staff Writers B=
randon Bailey and Dana Hull contributed to this report.     Contact Jim Puz=
zanghera at jpuzzanghera@krwashington.com  or (202) 383-6043.              =
Power purchase bills exceed $7.5 billion  Published Tuesday, July 10, 2001,=
 in the San Jose Mercury News  BY MARK GLADSTONE, NOAM LEVEY AND DION NISSE=
NBAUM   Mercury News Sacramento Bureau    SACRAMENTO -- Six months after ju=
mping into the electricity business, the Davis administration on Monday pro=
vided the first detailed glimpse of California's daily power purchases, sho=
wing more than $5 billion in payments, much of it to government-owned utili=
ties and private companies that state officials have branded as price gouge=
rs.  The state spent an additional $2.5 billion on a variety of contracts a=
nd other electricity services designed to stabilize the volatile energy mar=
kets, according to documents that the state agreed to release last week ami=
d a legal dispute over public access to the data.  In roughly the first fiv=
e months of the year, the state shelled out $1.2 billion to Atlanta-based M=
irant, the most any company was paid for electricity, followed by $1 billio=
n to Powerex, the marketing arm of BC Hydro in British Columbia. It also pa=
id $331 million to the Los Angeles Department of Water and Power.  The docu=
ments raise questions about some of the common assumptions that have arisen=
 around the electricity crisis. For instance, almost 40 percent of the stat=
e's purchases have come from government-run power generators in California =
and elsewhere, but not Texas; some of the biggest suppliers are from the No=
rthwest.  Gov. Gray Davis, who has ambitions to run for the White House, ha=
s put much of the blame for the soaring costs of power on energy companies =
based in President Bush's home state.  The figures are tucked inside 1,770 =
of pages of invoices that Davis has resisted divulging, saying disclosure w=
ould encourage suppliers to charge more. The state, which last month releas=
ed information on its long-term electricity contracts worth $43 billion, ag=
reed Thursday to release the first quarter details.  Short on explanation  =
The figures were disclosed late Monday by the California Department of Wate=
r Resources, which buys power for the state's financially strapped major ut=
ilities, and seem to buttress the administration's contention that the pric=
e of power is gradually dropping but offer little or no explanation for wha=
t prompted the decrease.  In January, for instance, the average price for p=
ower on the spot market was $321 a megawatt hour. It peaked in April at $33=
2 and dropped to $271 in May.  One megawatt powers about 750 homes.  Davis =
spokesman Steve Maviglio said the price data supports the governor's assert=
ions that California has been gouged. ``The bad guys are clearly the out-of=
-state generators,'' Maviglio said. ``There has been a significant shift of=
 money out of California.''  But the documents fail to shed much light on w=
hether, as the administration contends, the price drop was due to long-term=
 power contracts negotiated by the state earlier this year. Critics contend=
 that the Davis administration panicked and rushed into deals that commit t=
he state to pay high prices for many years.  Used for support  Republican o=
fficials used the price information to bolster their attacks against Davis,=
 a Democrat, for signing long-term contracts with power generators even as =
the price of power on the spot market was coming down, partly because of th=
e declining price of natural gas used to fuel many plants.  ``It's more cle=
ar than ever that the long-term contracts are a bad deal,'' said Assemblyma=
n Tony Strickland, R-Camarillo. ``The governor's really hurt the ratepayers=
 for the next five or 10 years.''  The newly released bills highlight the v=
olatility of California's energy market, where the price per megawatt hour =
ranged from $70 to $1,000. On any given day, the records show, the prices f=
rom seller to seller varied widely, with some of the highest prices being c=
harged by public utilities and companies outside Texas.  On one day in Febr=
uary, for example, San Diego-based Sempra Energy was charging $165 per mega=
watt hour, the Eugene Water and Electric Board was charging nearly $500 and=
 Duke Energy, a North Carolina company, was charging up to $575.  The state=
's daily spending peaked May 10 at $102.4 million for all power, including =
the spot market and contracted power.  The state began buying power in mid-=
January on behalf of the state's major utilities, which were unable to borr=
ow money to buy power after amassing enormous debts for electricity.  San J=
ose-based Calpine Corp., which is building several new power plants around =
California including one in South San Jose, did only $29 million worth of b=
usiness with the state in the first five months of the year, according to t=
he figures.  The state began buying power in mid-January when Pacific Gas &=
 Electric Co. and Southern California Edison Co. were on the ropes financia=
lly. PG&E later went into bankruptcy.  On Monday, state lawmakers took anot=
her shot at trying to cobble together a plan to rescue financially ailing E=
dison.  While most concede that a rescue plan Davis worked out with Edison =
will not win the necessary support in the Legislature, lawmakers have creat=
ed several working groups to come up with alternatives.  Compromise plan  O=
n Monday, state Sen. Byron Sher, D-Redwood City, unveiled the latest compro=
mise proposal that seeks to protect average ratepayers and small businesses=
 from further rate increases and forces everyone else to help finance the E=
dison bailout.  The ``shared pain'' proposal would force power producers, o=
wed about $1 billion, to take a 30 percent ``haircut'' and agree to forgive=
 about $300 million in Edison debts. Edison would be asked to swallow $1.2 =
billion -- about a third of its debt. And big users would be asked to pay o=
ff the remaining $2 billion in debts, possibly by paying higher prices for =
power.  In exchange, large companies would be given the opportunity to buy =
power on the open market, a system that would allow many of them to sign ch=
eap energy deals.  Sher presented the proposal to Senate Democrats Monday a=
fternoon, but it remains unclear how much support the framework will receiv=
e in the Legislature.    Contact Mark Gladstone at mgladstone@sjmercury.com=
  or (916) 325-4314.     =09
             Refund outlook dims  Talks break down; judge says state is owe=
d much less than its $8.9 billion demand -- and unpaid bills may offset gai=
ns.  July 10, 2001  By DENA BUNIS and JOHN HOWARD The Orange County Registe=
r  WASHINGTON The nation's chief energy judge said Monday that California i=
s owed maybe $1 billion in refunds from power generators, a fraction of the=
 $8.9 billion demanded by Gov. Gray Davis.  And even at that, said Judge Cu=
rtis Wagner, the electricity sellers are owed so much more in unpaid power =
bills that in the end California might not see one red cent.  Wagner announ=
ced his recommendation to the Federal Energy Regulatory Commission after tw=
o weeks of fruitless negotiations between all the parties to California's e=
lectricity crisis. With no settlement, the matter is now in the commissione=
rs' hands.  Power generators, Wagner said, had offered a combined $716 mill=
ion in refunds, an offer the state rejected. "I don't think it's 8.9 (billi=
on dollars)," he said afterwards, "because I haven't been shown that it was=
."  For California consumers, every dollar the state can extract in refunds=
 is a dollar less that ratepayers have to shell out for state-purchased pow=
er. And the more money the state gets back, the better the chances of wardi=
ng off future rate increases.  "California will get its $8.9 billion," insi=
sted Michael Kahn, head of the state's delegation and the California Indepe=
ndent System Operator. Kahn brushed off Wagner's comments, finding victory =
in the judge's assertion that the state is owed some refunds, a concept the=
 generators have been unwilling to embrace up to now, he said.  Since the t=
alks began, some generators have made refund offers -- last week Duke Energ=
y offered $20 million and on Monday, Reliant officials revealed their refun=
d offer was $50 million, provided all other actions against the company wer=
e dropped.  But the net result of the 15- day closed-door sessions is that =
California is no closer to getting repaid for what it claims was price goug=
ing by power companies going back to May 2000 than it was the day the talks=
 began.  And it means the state is in for possibly more hearings before the=
 FERC. If unsuccessful there, the whole issue could wind up in court for ye=
ars.  "You can take a horse to water but cannot make him drink," Wagner sai=
d during an afternoon public session where he made his preliminary recommen=
dation. He has seven days to put his ideas in writing. At several points du=
ring the often-tense talks, Wagner expressed frustration to the negotiators=
 and tried to get them to agree, even to the point of holding an unpreceden=
ted Sunday session.  "The numbers were too far apart," Wagner said.  While =
Kahn insisted the state had made progress, on hearing of the judge's commen=
ts, state Sen. John Burton, D-Francisco, called them "barely better than a =
jab in the eye with a sharp stick." Burton agreed with Kahn that the state =
has to do all it can to get more than that.  And Davis backed up his team. =
 "Our delegation made a clear and compelling factual argument that there we=
re overcharges made because the market was broken," Davis said. "Remarkably=
, the energy generators and suppliers refused to recognize their responsibi=
lity to the people of California and own up to their profiteering."  Power =
generators seemed satisfied with the judge's views, even though John Stout,=
 vice president of Reliant Energy, said his company's "fundamental position=
 has been and remains that no refunds are justified."  Brent Bailey, genera=
l counsel for Duke Energy, called the judge's recommendation, "a fair one."=
  Republican lawmakers in Sacramento were quick to say it was Davis' failed=
 energy policies that brought California to this point. They also distanced=
 themselves from the state's refund request.  "I don't believe there really=
 exists a true justification for that number," said Assemblyman John Campbe=
ll, R-Irvine. "I've never considered that anything more than a wild number =
to throw out there."  The two sides are so far apart in their estimates of =
overcharges because they are using different assumptions about how to compu=
te the complex pricing structure. And Wagner was more persuaded with the ma=
jority of the generators' methods.  To start with, the state is asking for =
$8.9 billion, but about $3 billion of those alleged overcharges happened be=
tween May and October 2000, a period FERC is not looking at. FERC issued tw=
o refund orders in March, finding that power companies had $124 million in =
overcharges during power alerts. But the state is challenging that finding,=
 saying there were overcharges beyond those limited times. And the state is=
 also asking FERC to reconsider allowing refunds for May to October 2000.  =
How energy panel affects California  Six months ago, few people had heard o=
f FERC. Now the Federal Energy Regulatory Commission, the agency charged wi=
th making sure that the nation's power markets are running smoothly and tha=
t wholesale prices are "just and reasonable," rolls off the tongue.  The fi=
ve commissioners who make up FERC - all of whom were members of their home =
state's Public Utilities Commissions - ordered the settlement talks that co=
ncluded Monday. They had hoped all the parties involved in California's ele=
ctricity crisis could reach an agreement on proposed refunds, long-term pow=
er contracts and other issues that have divided the parties for months. FER=
C's chief judge, Curtis Wagner, was asked to mediate the talks.  WHAT WAS A=
T STAKE?  For the state: $8.9 billion that Gov. Gray Davis said was the amo=
unt power companies overcharged California in the past year. Wagner's findi=
ng? There should be refunds. But more like $1 billion.  For the generators:=
 More than $5 billion that they say they are owed for unpaid power bills. W=
agner's finding? Generators are owed more money than the refunds they owe C=
alifornia. He did not specify by how much.  For California consumers: A sta=
ble electricity market. Until the refund issue is settled and power prices =
are stabilized long term, what the future holds for rate increase remains u=
ncertain. Wagner's finding? No settlement. Consumers still in limbo.  HOW D=
ID WE GET HERE?  In spring 2000, wholesale power prices began to soar. The =
state began appealing to FERC to cap wholesale prices. In the meantime the =
utilities were running out of money. Generators weren't paid for all the el=
ectricity they sold. Rolling blackouts began.  Starting in January, the sta=
te began buying the power, replacing the near-bankrupt utilities. Politicia=
ns from Sacramento to Washington increased the pressure on FERC to cap rate=
s. More than $27 billion was spent to buy power for California last year, c=
ompared with $7 billion the year before. The price tag could reach $50 bill=
ion this year.  On June 19, FERC imposed the kind of soft price caps expert=
s say could moderate wholesale rates. Wholesale prices have come down, but =
the caps have caused confusion among generators, leading some to hold some =
power off the market.  WHAT'S NEXT?  The FERC commissioners will receive Wa=
gner's report within a week. In it, he will suggest they hold a fast-track =
formal hearing that would last no more than 60 days.  If they agree, after =
that hearing the commission would rule on refunds and other California mark=
et issues.  If either the state or the other parties to this dispute disagr=
ee, they can contest FERC's decision in court. Such legal proceedings could=
 last many years.                State reveals details of power purchases  =
Report shows last-minute energy buys in first three months of 2001.  July 1=
0, 2001  By JENNIFER COLEMAN The Associated Press  SACRAMENTO On three days=
 in May, California's daily power allowance topped $100 million, according =
to a report released by state power traders.  The California Department of =
Water Resources released the report Monday, along with 1,770 pages of docum=
ents that also detailed the last- minute power purchases the state made on =
the spot market in the first three months of the year.  The report details =
the department's electricity spending since Jan. 17, when the state took ov=
er electricity purchases for Pacific Gas & Electric Co., San Diego Gas & El=
ectric Co., and Southern California Edison.  The utilities had amassed bill=
ions in debts and were no longer creditworthy enough to purchase power. Sin=
ce then, the state has spent nearly $8 billion to keep the lights on.  The =
state's daily spending peaked May 10 at $102.4 million. The second-highest =
daily total was May 23, when the state spent $101.8 million.  But since May=
, spot-market prices have dropped, due in part to moderate weather, lower n=
atural gas prices, increased conservation that lowered demand and because o=
f increased scrutiny by lawmakers and investigators into possible price man=
ipulation. Gov. Gray Davis has said long-term contracts also drove the pric=
e down.  "It does look like some of the spot-market prices have gone down, =
but it looks like it's primarily due to natural gas prices," said Jamie Fis=
fis, spokesman for Assembly Republicans.  The slight reduction in spot-mark=
et prices "underscores questions about the strategy of locking us into long=
-term contracts, if natural gas prices continue to drop," Fisfis said.  Mos=
t of the long-term contracts run for 10 years, with one lasting for 20 year=
s.  Davis already has released details of the state's long-term power contr=
acts after losing a court battle with Republican legislators and several ne=
ws organizations.  But Davis wanted to delay the release of the spot-market=
 buys and short-term contracts until now to keep the state's buying strateg=
y secret.According to the state, Atlanta-based Mirant Corp. got $1.24 billi=
on as of May 31 for spot-market purchases.  Canadian Powerex, the marketing=
 arm of BC Hydro, has been paid $1.05 billion.  The newly released short-te=
rm contracts also show that on March 19-20, when the state had rolling blac=
kouts, the state paid above-average prices in its largest short-term contra=
cts.  For example, Mirant sold the state 650 megawatt-hours at off-peak usa=
ge times on March 20 for $345 a megawatt-hour, more than $70 above the aver=
age price of $272.96.                 Tuesday, July 10, 2001        Ghost o=
f Bob Citron roaming halls of capitol  Gray Davis is following footsteps of=
 former O.C. treasurer into fiscal chaos     JOHN M.W. MOORLACH  Mr. Moorla=
ch is the Orange County treasurer-tax collector.   A recent L.A. Times poll=
 found that Californians still remain unconvinced that our state suffers fr=
om a shortage of energy. Perhaps the state's subsidizing of the actual cost=
s for electricity these past five months has caused us to believe that ever=
ything is fine. It is not.  The state has been spending an average of $57 m=
illion, a medium-sized city's annual budget, per day for electricity. Now C=
alifornia is headed toward the same financial catastrophe that was imposed =
on its shareholder-owned utilities, finding one of them in Chapter 11 bankr=
uptcy and another on the precipice. At this pace, it will not be long befor=
e the state will be staring a Chapter 9 bankruptcy filing in the face.  Tha=
t's why I'm gnawed by this "d?j? vu" sensation. The similarities and parall=
els between California of 2001 and Orange County of 1994 are frightening. H=
ere's a refresher. In 1994 the county, through former Treasurer Robert Citr=
on, was borrowing at variable rates and investing at fixed rates. The "expe=
rts" and the "politicos" were comfortable with the investment scheme.  No w=
onder the electorate was convinced that there were no investing improprieti=
es. Even while their former treasurer was very secretive about how he was i=
nvesting and what his "exit strategy" would be. Guess what? The unexpected =
happened. Short-term borrowing rates doubled. The cost of borrowing suddenl=
y exceeded the revenues being generated.  It caused the investment pool to =
implode and Orange County taxpayers realized a $1.64 billion loss. In spite=
 of pleas to avoid or minimize this train wreck the county's leadership, he=
 ignored it. The rest is history. In a half-pregnant deregulation scheme, t=
he state capped the retail price that the utilities can charge. It also eli=
minated the availability to acquire electricity through the use of long-ter=
m contracts.  Guess what? The unexpected happened. The wholesale price for =
electricity spiked dramatically above the inflexible retail price cap. It d=
epleted the available funds for the utilities, and then some, and they are =
imploding. In spite of pleas from the utilities imploring Gov. Gray Davis t=
o avoid or minimize this train wreck, he ignored them. The rest is also his=
tory.  It gets worse. Davis doesn't allow for the immediate raising of reta=
il rates and decides to have the state secretly purchase electricity. Guess=
 what? The expected happened. He depleted our budget surplus! Our reserves!=
 Nearly $9 billion - and counting! He's a Citron, only quintupled!  And in =
the light of day, the secret purchases were not attractively priced and onl=
y compound this financial nightmare. Gov. Davis has done what no Libertaria=
n or Republican could ever dream of doing in such a short time. He has retu=
rned the budget surplus created by taxpayers to the residents of California=
 by subsidizing their electricity bills.  Bravo! It may not be the most equ=
itable way of refunding taxes, but has anyone ever thought up a more effici=
ent method? But, that's not all. He wants it back! Davis now wants to borro=
w some $13 billion to replace the spent reserves and purchase even more ele=
ctricity at rates in excess of the retail prices! When does this train wrec=
k in slow motion stop?  And how do we pay off these bonds? Davis did not wa=
nt to raise rates last summer or this past winter. But now he will to pay o=
ff this historically largest municipal bond offering with a significant uti=
lity rate increase. The ratepayers will be reminded for 10 years after Davi=
s is gone about his expensive brilliance. And this elected official wants t=
o purchase the power grids and bureaucratically manage the utilities? I say=
 "no."  If we don't show some leadership in Sacramento soon, potential bond=
 buyers will also say "no," unless they receive an attractive interest rate=
. Just ask Edison International about attractive interest rates. It just su=
bscribed $800 million in bonds paying 14 percent. Tragically, Gov. Davis wa=
lked into his position with an existing budget surplus and now has no tangi=
ble legacy to show for it. No reserves. No improved highways. No new school=
s. No infrastructure improvements. Only interest payments.  Wasn't that Cit=
ron's legacy? If amortized over 10 years at 6 percent, the citizens of Cali=
fornia will pay an additional $4.4 billion in interest costs. Over 15 years=
 it's $6.7 billion. And therein lies the true legacy of Davis, squandering =
the entire budget surplus that he inherited on interest resulting from his =
indecisiveness and lack of leadership!  It is so tragic that the perpetrato=
r of this colossal mess is still in denial and continues to play the "blame=
 game." Orange County played the "blame game," too. But it had obvious perp=
etrators and succeeded in a court of law in securing a significant amount i=
n retribution payments. I'm not so sure California will have a similar resu=
lt.            Calpine's Los Medanos Energy Center Adds Needed Generation t=
o California Second New Major Base Load Generator for California        Jul=
y 10, 2001      Second New Major Base Load Generator for California  SAN JO=
SE, Calif., July 9 /PRNewswire/ -- San Jose, Calif.-based Calpine Corporati=
on (NYSE: CPN) announced today that its 555-megawatt Los Medanos Energy Cen=
ter in Pittsburg, Calif. is providing needed electricity to California's st=
rained power grid. Los Medanos is the second major combined-cycle facility =
to be licensed and built in California in over a decade. Fueled by natural =
gas, the facility is designed to add up to 555-megawatts of clean, reliable=
 electricity to California on a 24 hours a day, seven days a week availabil=
ity. As a cogeneration facility, the project also delivers electricity and =
steam to USS POSCO for use in industrial processing.  Governor Gray Davis a=
nd Calpine CEO Peter Cartwright will hold a press conference Monday afterno=
on to commission the Los Medanos Energy Center and to recognize the support=
 of the local community, the construction and trades people, and numerous o=
rganizations that helped develop the facility.  Cartwright said, "We are co=
mmitted to creating innovative energy solutions for California's growing po=
wer market. Los Medanos exemplifies excellence in power generation-ratepaye=
rs and the environment benefit as Calpine brings to California new energy r=
esources like Los Medanos."  Los Medanos is the second of eleven announced =
modern, fuel-efficient energy centers Calpine is building in the State as p=
art of a $6 billion energy initiative. Three additional facilities are unde=
r construction, including an 880-megawatt facility in Pittsburg at Dow Chem=
ical's facility. By year-end 2005, Calpine expects to be generating 12,000 =
megawatts of clean, affordable electricity to help repower California.  Cal=
pine broke ground on the Los Medanos Energy Center in September 1999. More =
than 600 construction and trade personnel worked on the project over a 20-m=
onth period. During the past several months, the project scheduled two ten-=
hour shifts, seven days a week to get the plant operating as soon as possib=
le in light of the energy crisis. And over the past several weeks, technica=
l teams worked round the clock to complete the facility. The total cost of =
construction is estimated to be approximately $350 million.  The Los Medano=
s Energy Center is located in Pittsburg, Calif., in Contra Costa County adj=
acent to the USS POSCO plant and is operated by a 22-member staff of highly=
 trained personnel.  As with all of Calpine's modern base load facilities, =
Los Medanos uses combined-cycle design with natural gas-fired turbines in c=
ombination with a steam turbine to achieve maximum fuel efficiency. Advance=
d emissions control technology enables Calpine to reduce certain emissions =
by more than 90 percent.  Based in San Jose, Calif., Calpine Corporation is=
 dedicated to providing customers with reliable and competitively priced el=
ectricity. Calpine is focused on clean, efficient, natural gas-fired genera=
tion and is the world's largest producer of renewable geothermal energy. Ca=
lpine has launched the largest power development program in North America. =
To date, the company has approximately 34,000 megawatts of base load capaci=
ty and 7,200 megawatts of peaking capacity in operation, under construction=
, pending acquisitions and in announced development in 29 states, the Unite=
d Kingdom and Canada. The company was founded in 1984 and is publicly trade=
d on the New York Stock Exchange under the symbol CPN. For more information=
 about Calpine, visit its Website at www.calpine.com.  This news release di=
scusses certain matters that may be considered "forward-looking" statements=
 within the meaning of Section 27A of the Securities Act of 1933, as amende=
d, and Section 21E of the Securities Exchange Act of 1934, as amended, incl=
uding statements regarding the intent, belief or current expectations of Ca=
lpine Corporation ("the Company") and its management. Prospective investors=
 are cautioned that any such forward-looking statements are not guarantees =
of future performance and involve a number of risks and uncertainties that =
could materially affect actual results such as, but not limited to, (i) cha=
nges in government regulations, including pending changes in California, an=
d anticipated deregulation of the electric energy industry, (ii) commercial=
 operations of new plants that may be delayed or prevented because of vario=
us development and construction risks, such as a failure to obtain financin=
g and the necessary permits to operate or the failure of third-party contra=
ctors to perform their contractual obligations, (iii) cost estimates are pr=
eliminary and actual cost may be higher than estimated, (iv) the assurance =
that the Company will develop additional plants, (v) a competitor's develop=
ment of a lower-cost generating gas-fired power plant, and (vi) the risks a=
ssociated with marketing and selling power from power plants in the newly c=
ompetitive energy market. Prospective investors are also cautioned that the=
 California energy environment remains uncertain. The Company's management =
is working closely with a number of parties to resolve the current uncertai=
nty, while protecting the Company's interests. Management believes that a f=
inal resolution will not have a material adverse impact on the Company. Pro=
spective investors are also referred to the other risks identified from tim=
e to time in the Company's reports and registration statements filed with t=
he Securities and Exchange Commission.  MAKE YOUR OPINION COUNT - Click Her=
e  http://tbutton.prnewswire.com/prn/11690X52413521  SOURCE Calpine Corpora=
tion  CONTACT: media, Katherine Potter, 408-995-5115, ext. 1168, or investo=
rs, Rick Barraza, 408-995-5115, ext. 1125, both of Calpine Corporation  Web=
 site: http://www.calpine.com (CPN)             National Desk; Section A  C=
alifornia and Generators Still Split After 2-Week Talks By JOSEPH KAHN    0=
7/10/2001  The New York Times  Page 14, Column 1  c. 2001 New York Times Co=
mpany  WASHINGTON, July 9 -- A federal mediator ended two weeks of negotiat=
ions about California 's demands for electricity refunds today, with the st=
ate and power suppliers seemingly no closer to a settlement than when the t=
alks began.  The failure of the negotiations shifts the burden of resolving=
 the yearlong dispute to the Federal Energy Regulatory Commission, to which=
 the mediator may recommend a pricing formula that would mean refunds of ab=
out $1 billion. California , which wants $8.9 billion, vowed today that it =
would seek that much and more, through the courts if necessary.  Although e=
lectricity prices in the West have eased in recent weeks, the power crisis =
that has afflicted California and other Western states seems unlikely to be=
 resolved unless rival parties can agree on how much electricity should hav=
e cost during the last 13 months.  The power market has been mired in an ac=
counting gridlock. The state claims that generating companies began grossly=
 overcharging for electricity -- with prices soaring by a factor of 10 or 2=
0 over year-before levels -- beginning in late spring last year. Generators=
 say they are prepared to pay some refunds, but argue that California 's es=
timates of overcharges are radically inflated.  The mediator in the settlem=
ent talks was Curtis L. Wagner Jr., an administrative law judge for the fed=
eral agency, who said today that the negotiations had failed to reach the c=
omprehensive voluntary settlement he had sought.  Mr. Wagner said he would =
recommend to the agency's commissioners that they convene a 60-day evidenti=
ary hearing that would impose an administrative solution. He also said he w=
ould suggest a method for determining fair prices for electricity .  Under =
federal law, the energy commission has the obligation to ensure ''just and =
reasonable'' electricity rates. Though the commission declared last year th=
at California 's electricity market had broken down, it only recently began=
 imposing price controls on the market and has yet to address accusations o=
f past overcharges systematically.  While the scope of any refunds remains =
uncertain, Mr. Wagner's remarks appeared more favorable for generators than=
 for Western states, which have collectively pressed for as much as $15 bil=
lion in refunds.  Mr. Wagner said that to determine how much California sho=
uld have paid for power since last September, when the commission began mon=
itoring California energy prices, he would suggest that the agency retroact=
ively apply a price control formula it adopted in June. He also indicated t=
hat he supported a way of calculating the costs of power generation that is=
 closer to the method favored by power companies than to the one put forwar=
d by California officials. The judge suggested that the formula he is recom=
mending could require generators to pay back hundreds of millions or ''mayb=
e a billion'' dollars.  California officials gave a positive cast to the ju=
dge's statements, calling them a step forward because he formally acknowled=
ged that companies would have to pay some refunds. They also noted that wha=
tever the level of federally mandated refunds, they would have the option o=
f seeking more in court.  ''We are still going to get the $8.9 billion,'' s=
aid Michael Kahn, who represented Gov. Gray Davis of California in the talk=
s. ''If we don't get it all from the commission, we will get the remainder =
in the courts.''  Governor Davis himself said today that if the agency did =
not provide refunds in the amount the state claims it is owed, it would sue=
 generators for $18 billion to $20 billion. ''We are in a war with generato=
rs, mostly out of state, that are trying to bleed us dry,'' Mr. Davis said,=
 speaking at the ceremonial opening of a power plant in Northern California=
 .  Representatives of several generating companies said that during the se=
ttlement talks, they collectively offered to refund California about $500 m=
illion. They estimated that the calculation method suggested by the judge w=
ould result in refunds of no more than $1.5 billion -- far closer to their =
offer than to California 's demand.  Still, several executives said they no=
w hoped to reach individual settlements with the state that would end the t=
hreat of prolonged litigation and allow them to collect several billion dol=
lars they say they are owed by the state and its leading, financially press=
ed utilities, which ran up huge debts to suppliers in the last year.  ''We =
remain very interested in reaching a global settlement with the state that =
will put this problem behind us once and for all,'' said Brent Bailey, vice=
 president and general counsel of Duke Energy.       Financial  Energy Refu=
nd Talks Fail In Calif.; Federal Agency's Judge To Propose Settlement Peter=
 Behr    07/10/2001  The Washington Post  FINAL  Page E01  Copyright 2001, =
The Washington Post Co. All Rights Reserved  California consumers were over=
charged by as much as $1 billion by electricity suppliers since October, a =
federal administrative judge said yesterday after state officials and power=
 suppliers failed to reach an agreement on the disputed charges.  Gov. Gray=
 Davis (D) and California power officials wanted $8.9 billion in refunds da=
ting back to May 2000, when the state's energy crisis began.  A group of ge=
nerating companies headed by units of Duke Energy Corp., Reliant Energy Inc=
. and Williams Cos. offered refunds of $716.1 million in the past week, goi=
ng back to October. The companies said refunds should be offset by the larg=
er amounts they are owed for unpaid power deliveries to the state.  "The nu=
mbers were too far apart," Curtis L. Wagner Jr., chief judge of the Federal=
 Energy Regulatory Commission, told reporters after two weeks of closed neg=
otiations ended yesterday. Wagner acknowledged that his refund number was i=
mprecise and said further hearings before FERC are needed to pin down the f=
igure.  Calpine Corp. of San Jose and possibly one other supplier are expec=
ted to reach individual settlements with the state, the judge said.  "A lot=
 of the parties genuinely wanted to settle and others didn't," Wagner told =
reporters. "There's an old southern saying," said the 72-year-old Tennessea=
n. "You can take a horse to water, but you can't make it drink."  He declin=
ed to say which side balked, but previously he had blasted California offic=
ials for not modifying their initial demands.  Wagner said he will send his=
 own refund formula to FERC's five commissioners within a week. His formula=
 essentially will reflect what he thinks reasonable electricity prices woul=
d have been in the state at various times since October, considering fuel c=
osts and other factors. Charges over those levels would be subject to refun=
d, if FERC agrees.  The judge's recommendation is likely to carry considera=
ble weight with FERC's commissioners, according to energy analysts. Earlier=
 this year, FERC tentatively ordered $125 million in refunds for the first =
three months of this year, an amount that Davis called far too low.  Facing=
 increasing political pressure from Congress, FERC -- with two new members =
appointed by President Bush -- has taken a harder line on California 's pow=
er prices. Last month, the commissioners imposed price restraints on wholes=
ale power transactions in California and 10 other western states. Wagner pa=
tterned his formula after FERC's ruling last month.  The nation's wealthies=
t state has been battered by an extraordinary surge in electricity and gas =
prices that have pushed its electricity costs up from $7 billion in 1999 to=
 an estimated $27 billion last year. Power prices did not retreat from reco=
rd levels until last month.  Davis's top aides quickly claimed vindication =
yesterday.  "We think the numbers, even using the judge's formula, are goin=
g to be in the multiple billions," said Michael Kahn, chairman of the Calif=
ornia Independent System Operator, the state's power grid manager.  Kahn no=
ted that the state refused to drop a growing list of legal claims against t=
he principal energy suppliers, most of them headquartered outside the state=
. The companies had insisted on being released from the state's legal claim=
s as part of any settlement, according to sources close to the negotiations=
.  "We will have a viable claim in state court and other jurisdictions for =
the remainder," Kahn said. " California will get its $8.9 billion."  But th=
e state's own expert witness, economist Eric Hildebrandt, chief market moni=
tor for the California grid, testified before Wagner that the out-of-state =
generators and other nonpublic power suppliers would owe about $3.7 billion=
 using FERC's pricing formula of last month -- less than half the $8.9 bill=
ion goal.  Duke Energy is "very pleased'' by Wagner's action, said Brent Ba=
iley, vice president and general counsel of the Charlotte-based company. Th=
e generators, however, repeated their claims that Davis is trying to make t=
hem scapegoats for the state's failed electricity deregulation plan.  The m=
ajor generators, in a statement yesterday, said they had delivered only 20 =
million megawatt hours out of the 145 million the state power grid used fro=
m October 2000 to last May. (A megawatt supplies enough power for about 750=
 homes.)  California utilities and municipal power companies also reaped la=
rge profits, the generators said.  "The refunds sought by California would =
send a profoundly counterproductive message to suppliers: when prices are l=
ow and surpluses exist, you face a steep downside; when scarcity develops a=
nd prices rise we will take away all upside [profit]. No one will invest [i=
n California power facilities] in that climate," the generators' statement =
said. "The power supply shortage thus will continue without relief."   http=
://www.washingtonpost.com  Contact: http://www.washingtonpost.com          =
  Economy   California and Energy Companies Miss Deadline By Richard B. Sch=
mitt    07/10/2001  The Wall Street Journal  Page A2  (Copyright (c) 2001, =
Dow Jones & Company, Inc.)  WASHINGTON -- State officials and power-company=
 executives failed to meet a federal deadline for settling $8.9 billion of =
disputed California electricity charges, as a federal mediator overseeing t=
he talks suggested the state's demand was excessive.  Cautioning that he ha=
dn't done formal calculations, Curtis L. Wagner Jr., the chief administrati=
ve law judge of the Federal Energy Regulatory Commission, put the level of =
potential refunds at "hundreds of millions of dollars, maybe a billion doll=
ars." He also said any sums due the state could well be offset by monies it=
s insolvent utilities owe in unpaid power bills.  Mr. Wagner said he would =
recommend to the commission that any refunds be calculated only from Octobe=
r -- the state had been seeking rebates calculated from May 2000 -- in line=
 with an earlier FERC jurisdictional ruling. That decision alone would shav=
e $3 billion from the $8.9 billion claim.  Mr. Wagner, who is expected to i=
ssue formal findings in the next few days, said he would recommend that the=
 FERC hold an evidentiary hearing to assess the correct method for figuring=
 refunds.  The collapse of the talks doesn't preclude individual deals late=
r between energy companies and the state, which has accused them of overcha=
rging for power during the past two years. Yesterday, some industry lawyers=
 indicated a willingness to keep bargaining, and Mr. Wagner said two "parti=
al" settlements were in the works.  Yet, absent any such solution, the over=
charge issue -- a flash point in the California power crisis -- is apt to b=
e resolved in protracted legal and regulatory proceedings, which could drag=
 on for months or even years.  The negotiations began June 25, with a deadl=
ine set for midnight last night. But late yesterday, participants indicated=
 they were billions of dollars apart, with basic differences over everythin=
g from the disputed charges to doubts about whether the FERC, which ordered=
 the talks, could enforce a deal because of the industry's questions about =
the reach of the agency's authority.  "We haven't reached a settlement. We =
really haven't come close," said John Stout a senior vice president of Reli=
ant Energy Inc.'s wholesale-power group. Reliant had offered to pay Califor=
nia about $50 million to extricate itself from the fight. That is more than=
 a third of the Houston company's operating profit during the relevant peri=
od, he said, although far shy of the more than $375 million California soug=
ht from Reliant.  Mr. Wagner said the industry offered a total of $716 mill=
ion to settle the matter.  The refund issue is fast becoming a test of the =
agency's authority and credibility. The FERC, a onetime regulatory backwate=
r, has come under intense scrutiny of late for its largely hands-off monito=
ring of deregulated California markets. The commission has ordered some com=
panies to pay refunds, but they have been relatively small -- such as a $12=
4 million rebate covering wholesale electricity bills in California in Janu=
ary and February.  California Gov. Gray Davis has said he hopes two new FER=
C members will take a much more aggressive tack. The agency is expected to =
act quickly on the judge's call for a hearing and other findings.  Yesterda=
y, Michael Kahn, a San Francisco lawyer representing Gov. Davis at the sett=
lement, declared he was "gratified" by Mr. Wagner's findings, saying they v=
alidated the state's claims to some refunds, a concept the industry had rej=
ected at the talks' outset. "We've had a ringing endorsement of the idea of=
 refunds and we'll get back lots of money," he said, adding that what the s=
tate doesn't recoup via the FERC it will pursue in court.  But power genera=
tors, who derided the state's request for a huge refund as "ludicrous" and =
"unsound," felt vindicated by yesterday's proceedings. "The state came away=
 with far less than its expectations," said Robert Loeffler, an attorney fo=
r a unit of AES Corp. of Arlington, Va. "The common expectation now is that=
 any refunds will be way below this $9 billion."=09